See Table of Contencts of Book at : From:

2. Purging Unsecured Debts

This article discusses how we have effectively used the Fair Debt Collection Practices Act to purge unsecured debts and stop non-governmental collection actions.

Debt Collectors do not have the legal standing to collect from "debtors without their implied or express consent. The collectors are successful most of the time merely because most debtors believe they at least owe someone, and will pay whoever asks for payment on a debt, regardless of the collector’s standing.

Collection agencies can be authorized to collect on behalf of principals where there is a subrogation, assignment or other type of transfer agreement, but the consent of all parties must be obtained, tacit or otherwise.

To enforce the Fair Debt Collection Practices Act, the "debtor" merely needs to request validation of the alleged debt within thirty days of notice. The request should state that it is not a refusal to pay and that the claim is being disputed. The collector has thirty days in which to validate its claim. If no validation is provided, a notice to cease further collection activity should be made as provided by the Act itself.

The collector will occasionally provide records from the principal showing that the "debtor" owes the principal, but there will never be any records establishing any subsequent obligation to the collector. This is why it’s so important not to pay the collector until its claim is validated. Payment is one way to create a new obligation and this is known as a "novation" of the original agreement, your consent to the assignment and new obligation.

Due Process has purged over $500,000 in unsecured debts using this method.


1. Evil Debt Collectors

One important aspect of the credit system is the lender's ability to lead a prospective customer into a situation of debt from which he cannot easily recover, then selling the note as an asset and damaging credit history in the process. This article does not condone irresponsible uses of credit but explains how to purge, or stop paying, a debt once it has been assigned, sold or transferred to a third party collector. Purging a debt is more specific to forcing the collector to agree to stop collecting and suffer the loss.

The underlying principle is that one cannot put himself in harm's way and then have standing to recover his losses resulting therefrom. Collectors usually pay a fee or agree to accept a liability for the possibility of collecting a debt owed to a principle. This is not illegal in itself but these debt collectors rely upon the ignorance people have of contract law for the purpose of either coercing or deceiving them into making payments to the collector in satisfaction of the claim of debt.

Most debtors are unaware that they have no obligation to a third party collector when nothing of value has been exchanged between the collector and the debtor. This is true even with an assignment clause in the contract with the original lender. When a debtor makes a payment to the collector, a new obligation is then created. This is known as a "novation."

Novation is a type of substituted contract that has the effect of adding a party, either as obligor or obligee, who was not a party to the original duty. It is the substitution of a new contract, debt, or obligation for an existing one, between the same or different parties. It is the substitution by mutual agreement of one debtor for another or of one creditor for another, whereby the old debt is extinguished. A novation substitutes a new party and discharges one of the original parties to a contract by agreement of all the parties.

There are certain basic elements for a novation: 1. That there be a previous valid obligation, 2. An agreement of all the parties to a new contract, 3. The extinguishment of the old obligation, and 4. The validity of the new one.

The process of novation occurs quite commonly, the term is just not used in normal conversation. You may recognize it if you understand what happens in the mediation of a lawsuit, the reorganization of a business, a bankruptcy or in the re-negotiation of a contract. A novation occurs when the parties to one agreement or set of obligations change the terms of the agreement to maintain an equitable situation and maintain or alter the mutual benefits to each of them.

You can even reach a novation with the Internal Revenue Service when you submit an Offer in Compromise in good faith. If the requisite conditions are met, you can effectively reduce your tax liability. The same is true in a small claims lawsuit. The judge usually defers the controversy to a mediator so that the parties can reach an equitable agreement without the court's intervention.

Civil law recognizes these three types of novation: 1. Where the debtor and creditor remain the same, but a new debt takes the place of the old one, 2. Where the debt remains the same, but a new debtor is substituted and 3. Where the debt and debtor remain the same, but a new creditor is substituted.

Collection agencies usually try to obtain the third situation and this is where a debtor can effectively use the Fair Debt Collection Practices Act to easily purge an unsecured debt and possibly purge a secured debt with the right amount of tenacity. The defense would be under failure of consideration, release, or statute of frauds.

To purge this type of claim, don't pay it at the request of the new collector. You must first make a written request for validation of the alleged debt. Explain in your request that you are not refusing to pay, but that the claim is in dispute. Ninety percent of the time, this request will be enough to cause the collector to leave you alone. They will sometimes maintain a claim against your credit history, but a complaint to the Federal Trade Commission explaining that the collector refused or failed to comply with the Fair Debt Collection Practices Act by validating its claim within thirty days will be enough to cause the collector to remove the claim against your credit history.

This article will be continued in our next issue, Volume 1, Issue 7.


1. Evil Debt Collectors (continued from Vol. 1 Issue 6)

Creditors and debt collectors lose very little if they are unable to collect because they usually claim it as a loss on their tax return, sell it to a third party, or fourth party debt collector, and sometimes make an insurance claim against the supposed loss. Some collectors have even been known to double the bill and then assign it so as to fully recover from the non-payment through an insurance claim or the assignment itself.

Most of the collectors from whom we are able to purge debts just discontinue collection efforts when we request a validation. In some cases, the collector’s attorney will reply explaining that they have decided to discontinue collection efforts. In other cases, while the collector may discontinue collection efforts, the alleged debt is returned to the original creditor and then reassigned to yet another collector. This has happened as much as three times for single accounts, but they always end the same, the debt is purged. That however, is only half of the problem.

Many of these collectors maintain a false claim against the credit history of those from whom they were unable to collect. The process for restoring this type of credit history is often tedious, but can be resolved with a little persistence. A complaint to the Federal Trade Commission explaining that the collector refused or failed to validate the alleged debt is usually enough to correct the problem.

The FTC does not represent individuals, but makes inquiries where there has been a pattern of abuse by a debt collector. You may receive a form letter response from the FTC but sometimes it is enough for the collector to know that you have filed the complaint with the FTC and sent a copy to the collector. Debt collectors understand that if several complaints are made within a certain amount of time, they will have problems with the Federal Trade Commission.