How can I know if a debt collector is holding onto a debt?

How to know if a debt collector is holding onto a debt?

You need to pull and analyze your credit reports yearly. They should contain 7 years of historical data so you can see if there were ever any discrepancies in your finances.

"How do I pull my credit reports?" you ask?

https://www.annualcreditreport.com/

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Finding out if there is a debt in your name is just one of the many reasons you should be pulling your full credit report every year. It can reveal mistakes and even identity theft attempts.

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If the debt was valid and the collector waited years to try and collect it would probably be trivial to get them to drop the accrued interest; get it in writing of course. I am not a lawyer but if the interest is not a trivial amount then I would seek to retain one.

It strikes me as unlikely that the debt collector did this intentionally. The debt collection business is overwhelmingly comprised of companies that buy up debt, collect what they can collect quickly, and sell the rest off to some other debt collector. Letting the debt sit on their books for years would be costly in terms of tying up their capital. It would also make it riskier that they wouldn't be able to find you before the statute of limitations expired and the value of the asset would decline on their books over time (even with interest accruing, the probability of collecting the debt declines with age faster than interest accrues).

Of course, it is possible that there is some outlier company out there that is holding on to debt for years when they know they can contact the debtor. Assuming that we don't have a landlord that is inventing debts out of whole cloth and a very unusual debt collector, I'd wager that what happened is that the landlord had a legitimate debt but for a different tenant. When the landlord couldn't collect, the debt was sold off with incorrect contact information (i.e. the tenant in 4G owed 6 months rent, you were in 4H, and the landlord reported the debt with your name and 4G's last known contact information). The first debt collector tried to collect on it, failed, sold it off to someone else at a discount after a few months, they tried to collect, failed, sold it off at another discount, etc. until some number of years down the line the last company bought it for pennies on the dollar, figured out how to contact you, and tried to collect.

Theoretically, it could be that a legitimate landlord (or someone working for a legitimate landlord) partnered up with a scammer that was trying to impersonate a debt collector to scam you out of money. That seems really unlikely in this case. Very few people would think it was possible that they missed 6 months of rent and very few people would be able to come up with that kind of cash easily. A scammer would be much more likely to use a business and amount that someone might reasonably believe they overlooked. If someone called saying that I owed Acme Medical Labs for a $75 bill from back in 2018, it would be plausible that I overlooked a bill when some doctor ordered some test 3 years ago that I don't remember now. And it might be worth it to pay the bill to avoid a credit report ding rather than trying to figure out whether it was legitimate or not. Partnering with a legitimate business to get personal information in order to call people up about a debt they would clearly know they paid would be a very low probability con.

@MonkeyZeus's answer of getting your annual free credit report from each bureau on a rotation is a good one assuming the owner of the debt reported your debt to the credit bureaus. Of course, not every debt gets reported to the credit bureaus. And if this debt was reported to the credit bureaus, it might not have shown up on your report depending on what information they had on the debt (i.e. if it was reported, it could have been under 4G's social security number).

To add to Justin's excellent answer, debts that are purchased by debt collectors or worked on behalf of the first party are prioritized in different ways in order to tightly control resources used in pursuing them. There are some jurisdictional differences, but generally the factors are (and typically in this order):

1. Time until the statue of limitations expires (especially if the debt collector is or is partnered with a law firm).
2. Client demands, if working for the original or current debt holder.
3. Credit score (or other financial rating) of the debtor.
4. Contact information quality of the debtor.
5. Quality of the supporting evidence for the debt.

Notice that the amount of interest is not a factor, and interest is often waived partially or in full during the negotiation process of the debt settlement to avoid suit.

It is more likely that the debt collector evaluated the five factors above and simply did not prioritize the debt for collection due to resource constraints and a perceived low ROI.

Source: I designed various forms of process automation in collections' law firms for about 10 years.

Edit: We never reported to the credit agencies at all. Once suit was filed and the debt reduced to a civil judgment, the judgment itself would appear in the credit report. I believe the agencies themselves look for this information, but I'm not sure.

Edit x2: I am not an attorney; nothing I write here or in any other answer or comment should be construed as legal advice.

Depending on your jurisdiction, a debt collector not trying to collect the debt might have missed their window of opportunity.

There's a statute of limitations that may be involved. Even if the debt was real and they waited too long to collect, they might no longer have the right to collect.

Debt doesn’t usually go away, but debt collectors do have a limited amount of time to sue you to collect on a debt. This time period is called the “statute of limitations,” and it usually starts when you miss a payment on a debt. After the statute of limitations runs out, your unpaid debt is considered to be “time-barred.”
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How long the statute of limitations lasts depends on what kind of debt it is and the law in your state — or the state specified in your credit contract or agreement creating the debt.

https://www.consumer.ftc.gov/articles/debt-collection-faqs#debts

It's good that you got them to back off, but if you hadn't, you might have needed to contact a lawyer dedicated to this. They know how to talk to debt collectors, find out if the debt is real, if the debt is covered by a statute of limitations and if it's run out, and even can get the debt collector to stop harassing you.

This is basically the "nuclear option", as it can cost significant money if it drags out a while. But depending on how much is owed and how insistent the debt collector is, it might be worth it and should definitely be considered on a case-by-case basis.

As MonkeyZeus stated, checking your credit report is a good start. Other options include Free Credit Report and Credit Karma. There are a lot of other options and these services often try to sell you products, show ads, sell you affiliated services, or get you to join credit cards so they get some sort of kick-back. Most of the time you can avoid spending money on these sites and just use their free services.

I haven't used Free Credit Report, but I've used Credit Karma for years. They seem to have a decent system, but they only approximate your credit score. When I was trying to get a house some years back, their score was about 60 points below my actual score told me by the mortgage broker. The broker said that Credit Karma was usually more accurate than that. I know they've since changed their system to be more accurate, though. Also note, they get the credit report and make a calculation of the score from the report, so while the score may not always be accurate, the report itself is accurate.

Getting back to the real topic, these free services tend to only get the result from 1-2 credit reporting services, not all 3. Experian, TransUnion, and Equifax are all different reporting services and not all debts are reported to all three. The best bet is to find a service that checks all of them. Credit Karma only get 2 reports, so using the Annual Credit Report (as suggested by MonkeyZeus) might be your best bet, since it seems to get all three.

When you default on debt, first, the original lender makes collection efforts. Then, they often transfer your debt into an internal collection agency, so they act like a bill collector but the original creditor still holds the debt.

Every debt is somebody else's asset. Forever.

Debts can change hands. If the company goes bankrupt, they become property of the bankruptcy trustee, who will sell it. If the lender dies, the debt becomes property of the estate, who will sell it because the heirs want cash, not uncollectable notes.

More commonly, the primary creditor (the one who lent you the money) gives up on you, and takes your debt and a bunch of other uncollectible debts, and sells the bundle to collection agencies who specialize in buying bad debt. They pay a fraction of the original value for the debt. Now, the collector owns your debt, and you owe them the whole shebang, unless the Statute of Limitations runs out.

The value of a debt is the average amount they are statistically likely to collect from people in your demographic. Loosely, debt amount x probability of collecting.

The fact that they paid a fraction of the original value does not affect what you owe.

Debts can go to sleep for years

First and foremost, if you don't tell your creditors every time you move, then they may actually be sending you mail, and you are missing it. This will also happen if you select paperless billing and then change email addresses.

And in your case, it's hard to remember telling creditors you moved, when you do not realize they think they are creditors.

Billing mail is sent First Class, and it will "return to sender" if it is not deliverable. Companies keep track, and will flag your mailing address as no good anymore, so they stop wasting stamps. That has no effect on the debt.

Or, the creditor may decide that the probability of successfully collecting from you isn't worth the costs of trying to collect, at least for right now. So they will suspend collection efforts for a time, including possibly several years.

And then something changes.

• due to their soft queries on your credit report, they discover you now have a good job, or an heir died and perhaps left you money.
• the creditor hired someone who is trying to "work on collecting" some of their old debt.
• the creditor sold your debt to a totally new collections company.

Now, new effort is being deployed. They may be actively researching your new mailing address using public data or soft credit report queries. The result is that you are seeing new collection notices after a time of quiet.

No interest, though

In order to charge interest, the debt needs to be still active. They need to be sending you regular mail on it notifying you of every posting of interest and fees. Of course, if you didn't give them your postal address, that's your fault.

They can only do this for a few months before the debt reaches a "charged off" state. Then, the debt becomes frozen. If a collector is contriving new interest payments, that's fake... that won't hold up in a court of law.

The Statute of Limitations destroys collectibility.

The Statute of Limitations varies by state from 2-6 years. After the statute has run, you have an airtight defense if they try to sue you.

The clock on the Statute is reset to zero anytime you do an affirmative action to acknowledge the debt as legitimate, such as make a payment on it, or state in writing that the debt is valid. You should always be wary of collection agents on the phone trying to entrap you, but if they attempt to reset the clock on the Statute merely by twisting your words, you can tear that apart in court, and probably even get sanctions.

The debt, however, exists forever, though it is toothless once the statute expires. You may see sporadic collection efforts for as long as 20 years after. Debts older than the Statute can be collected on if the debtor does not know or care about the Statute. Some collectors are good at getting blood from that stone.

Haggle relentlessly.

Some of the things you can negotiate for is the notion that the debt was never a legitimate debt in the first place, and that neither party will make any adverse statments about the other, under penalty of $$$ liquidated damages. (So they agree there was never anything to report to a credit reporting agency).

They also agree the payment is a legal expediency "to make the matter go away", and does not acknowledge the existence of any debt, and is NOT forgiveness of a debt. That means they won't send a 1099 to the IRS for the forgiven amount. (Of course you'll be in trouble with the IRS if that isn't true).

Note that such an agreement with Collector Z does not have any effect on collectors X or Y who held the debt before, nor the original creditor. This is why it's best to negotiate with the original creditor.

This is a scam

I know this because I get similar calls about warrants and unpaid rent from 5 years ago, even though I've owned my home for longer (i.e. I wasn't paying rent). If you believe you've been called from a legitimate debt collector, they are legally required to give you the company name, phone number, and mailing address.

How can I check if a debt collector is unexpectedly holding onto such a claim that I owe money, and is running up interest on it?

Hang up and cross reference the information via Google. Don't trust the number given by the collector. Look up the company directly. Pull your credit report (you're entitled to a free one each year), and make sure the company specified is listed.

Also be weary of someone waiting to collect. They cannot after 7 years

then silently held onto the debt for several years, building up interest, before contacting me to let me know.

If the original lease agreement didn't specify they could charge interest then they cannot. It's illegal to change the contract after the fact. If the debt is more than 7 years old it can't be collected anyway. They may be "scavenger" debt collectors, which buy expired debt for next-to-nothing and threaten people, or they may do public records searches, and target people who have been evicted.