Debt Collection in the USA – FDCPA Rights, Validation Letter, Statute of Limitations

Who is a debt collector

A debt collector is a company (or individual) collecting debts from someone else. It can be:

• Original creditor's collection department – the credit card company collecting itself
• Third-party collection agency – an agency hired by the creditor
• Debt buyer – purchased your debt from the creditor for pennies on the dollar (typically 5-15% of face value)
• Collection attorney – a lawyer specializing in suing debtors

FDCPA (Fair Debt Collection Practices Act) of 1977 primarily regulates third-party collectors and debt buyers. Original creditors are less regulated (state laws often apply).

Your rights under FDCPA

1. Validation notice – within 5 days

After the first contact, the collector MUST send a written "validation notice" within 5 days containing:

• The amount of the debt
• The name of the original creditor
• A statement that you have 30 days to dispute
• A statement that if you dispute, the collector will suspend collection until verification

2. Right to validate debt

Within 30 days of receiving the notice, you can send a debt validation letter – a request to prove that the debt belongs to you.

• The collector MUST suspend collection until verification
• MUST provide evidence (original signed contract, account statements)
• If they cannot prove it – they MUST cease collection

3. Hours and methods

• CANNOT call before 8:00 AM or after 9:00 PM (your time zone)
• CANNOT contact at work if you have said not to
• CANNOT contact at all if you have sent a written "cease and desist"

4. Prohibited practices

• Threaten jail time (most consumer debt is not jailable)
• Threaten ICE deportation
• Threaten to garnish wages without a court judgment
• Use profanity or abusive language
• Publish your debt publicly
• Imitate law enforcement, lawyers (if they are not)
• Demand more than the debt owed
• Add fees not allowed by law/contract
• Contact family or friends about the debt (can only ask for your contact info, once)

5. Right to cease contact

You can send a cease and desist letter requesting all communication to stop. The collector MUST stop contact (except for a one-time notice that they will stop) – BUT they can still sue you.

6. Statutory damages for FDCPA violations

If a collector violates the FDCPA, you can sue for:

• Up to $1,000 in statutory damages
• Actual damages (lost income, emotional distress)
• Attorney fees
• Often on a contingency basis – no cost to you

What to do when first contacted

DO NOT do this

• DO NOT confirm that the debt is yours
• DO NOT pay immediately
• DO NOT provide bank info
• DO NOT agree to a payment plan immediately
• DO NOT comment on your ability to pay

What to do

1. Listen, take notes (date, who, amount, original creditor)
2. Request all info in writing
3. Say "I do not acknowledge this debt. Send a validation letter."
4. Receive the validation letter within 5 days
5. Check if the debt is really yours
6. Check the SOL (statute of limitations) – whether the collector can legally sue you

Debt validation letter – template

Send via certified mail (paper trail). Template:

[Your name + address]
[Date]

[Collection agency name + address]

RE: Account # [account number if you know it]

Dear Sir or Madam:

This letter is in response to your communication regarding the above-referenced account. I am exercising my right under the Fair Debt Collection Practices Act, 15 USC 1692g, Section 809(b), to dispute this debt in its entirety and request validation.

Please provide me with the following:
1. The amount of the debt
2. The name of the original creditor
3. Documentation showing that you have the right to collect this debt
4. The original signed contract or agreement
5. Account statements showing how the balance was calculated
6. Verification of the dates of the original delinquency

Until you have provided this validation, please cease all collection activity.

This letter is sent without prejudice to any rights I may have. I do not acknowledge that this debt is mine, that I am personally responsible for it, or that the amount is correct.

Sincerely,
[Name]

Send via USPS certified mail with return receipt requested. Save a copy.

Statute of limitations (SOL)

SOL = the time after which a creditor CANNOT sue you for the debt. This does NOT mean the debt disappears – but the court will not enforce payment.

State	Credit card SOL	Written contract SOL
NY	6 years (3 years from 2021 for credit card)	6 years
NJ	6 years	6 years
CA	4 years	4 years
FL	4-5 years	5 years
IL	5 years	10 years
TX	4 years	4 years
MA	6 years	6 years
PA	4 years	4 years

Typically, the SOL is counted from the last payment or last activity (depends on the state).

Zombie debt – the most dangerous moment

"Zombie debt" is old debt past the SOL. Collectors actively reach out – they know they cannot sue you, but they hope that:

• You do not know about the SOL
• Making a small payment = RESETTING THE SOL (re-aging)
• Acknowledging the debt in writing = RESETTING THE SOL

NEVER pay even $1 of old debt without consulting an attorney. You reset the SOL and the collector can sue you for the full amount + interest.

Negotiation – settling debt

Settlement basics

Debt buyers purchased your debt for 5-15% of face value. They have a huge margin. Often settle for 30-50% of the original balance.

Lump sum vs payment plan

• Lump sum settlement (best): one-time payment for a reduced amount. Often 30-50% of the original.
• Structured settlement: pay over months. Often 60-70% of the original.
• The more cash on hand, the better the deal

Negotiation tactics

• Start low: offer 20-25% of the original balance. Negotiate up if needed.
• Wait: collectors at the end of the quarter, end of the year are often desperate for closure
• Verify SOL – if past SOL, you can settle even lower (or refuse entirely)
• Pay-for-delete: ask the collector to remove the item from your credit report after payment. Some agree, some do not.
• Get IT IN WRITING before payment

Settlement letter template

[Date]
[Collection agency]

RE: Account # [number]

I am offering to settle this account in full for [amount] by [date]. This payment shall constitute full satisfaction of the debt, and your company agrees to:
1. Report the account as "Paid in Full" or "Settled in Full" to all credit bureaus
2. [Optional: Delete the account from my credit report]
3. Cease all collection activity
4. Not sell, assign, or transfer this debt to any third party

This offer is good until [date]. Please confirm acceptance in writing.

Sincerely,
[Name]

Tax implications

Settled debt over $600 forgiven often triggers 1099-C – the IRS treats the forgiven amount as taxable income.

• $5,000 debt, settled for $2,000, $3,000 forgiven = $3,000 taxable income
• Can avoid if insolvent (debts > assets) – Form 982

What if they sue you

Some collectors sue. If you receive a court summons:

DO NOT ignore

A default judgment against you = wage garnishment, bank account levy, lien on property. Ignoring = losing.

Respond in time

• Typically 20-30 days
• File an Answer with the court
• Appear on the court date

Defenses

• SOL expired
• Wrong person (identity theft, mistaken identity)
• Lack of documentation (collector does not have the original contract)
• Wrong amount
• FDCPA violations in the collection process
• Improper service

Consult an attorney

Consumer protection attorneys often work pro bono or on contingency. NACA (National Association of Consumer Advocates) has a directory.

Wage garnishment

After a judgment against you, the collector can apply for wage garnishment:

• Federal limit: 25% of disposable income or the amount over 30x federal minimum wage
• Some states (TX, FL, PA, SC) DON'T ALLOW wage garnishment for consumer debt (great protection)
• Exempt income: Social Security, SSI, VA benefits, federal pensions, unemployment

Bank account levy

Collectors can freeze your bank account after a judgment. Funds in the account can be seized.

• Exempt funds (Social Security, VA) can be claimed back via exemption form
• Move exempt funds to a separate account for easier identification

Property liens

After a judgment, collectors can put a lien on real estate. The property cannot be sold/refinanced without paying the lien.

Bankruptcy as a last resort

If debts are overwhelming, Chapter 7 bankruptcy can discharge most unsecured debts. See: Bankruptcy Chapter 7 vs 13

Special situations

Medical debt

As of 2022:

• Medical debt below $500 does NOT appear on credit reports
• Paid medical debt is removed from credit reports
• Medical debt waits 1 year before reporting

Negotiate medical bills directly with the hospital before collections – often a 50-90% reduction.

Student loans

Federal student loans are NOT dischargeable in bankruptcy (with rare exceptions). Long-term solutions include:

• Income-Driven Repayment (PAYE, REPAYE, SAVE)
• Public Service Loan Forgiveness (PSLF)
• Deferment / forbearance during hardship

Tax debt (IRS, state)

Tax debt is NOT dischargeable except in rare cases. Use IRS payment plans. See: IRS Payment Plan

Child support, alimony

NEVER dischargeable in bankruptcy. Wage garnishment up to 65%. Treat as the highest priority.

Polish specific scenarios

Old medical bill collection (ER without insurance)

Many Polish emigrants had ER visits without insurance. Years later, a collector calls:

1. Check the SOL – typically 4-6 years. It may be past SOL.
2. Validation letter – the collector often cannot prove it
3. If legitimate, negotiate 30-50% of the original
4. Hospital financial assistance retroactively – many hospitals still accept applications

Credit card debt from Poland

Polish banks RARELY pursue in the USA. The Polish BIK does NOT report to US bureaus. Only if a Polish bank hired a US collector could there be a problem – very rare.

Rental debt

Eviction or unpaid rent can lead to collection. Check state SOL (varies for housing).

Subprime lenders targeting immigrants

Some lenders target newer immigrants with high-interest loans (300-1000% APR predatory). Federal/state protections vary.

Practical tips

• Always request a validation letter – collectors often lack documentation
• Check the SOL – zombie debt past SOL is not worth paying or communicating
• NEVER reaffirm old debt – you reset the SOL
• Written communication – phone calls are informal, leave a paper trail
• Settle for 30-50% with debt buyers – they often accept
• Get everything in writing before payment
• 1099-C tax if settled for > $600
• Cease and desist letter if harassment occurs
• FDCPA violations = $1k+ in statutory damages – track all illegal actions
• Consumer protection attorney often works on contingency (no upfront cost)
• Medical debt under $500 – not on credit report since 2022
• Polish banks rarely pursue in the USA – likely safe to ignore old Polish debts