Debt collection letter for debt you don't owe? What to do now

A letter arrives about a debt you don't remember, from a company you've never dealt with, for an account you never opened. For a growing number of people, that notice is how they first learn someone used their identity.

Before you panic or pay, it helps to understand why these letters show up and what rights you have.

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Why debt collectors contact you about a debt you do not owe

When a charged-off account is sold to a collection agency, the agency receives the original creditor's application file, including whatever identifiers were used to open it. That contact information is often 90 to 180 days out of date by the time the account changes hands.

The agency then contacts you directly, by phone or mail, whether or not you have looked at your credit file.

Charged-off debts, including fraudulent ones, are sold in bulk portfolios for pennies on the dollar, often with thin supporting paperwork. One fraudulent balance can be sold and resold across several agencies. A debt you dispute and clear with one collector can be repackaged and reappear with another months later.

With medical debt, a bill can sometimes move toward collections before you see every explanation of benefits, insurance update or corrected statement. That is why you should contact the provider and your insurer before paying a collector.

Federal law gives you a defined response, and the clock starts at first contact. Under the CFPB's Regulation F, a collector must send a validation notice describing the debt and your rights in, or within five days of, its first communication with you.

You have 30 days from receiving that notice to dispute the debt in writing under the Fair Debt Collection Practices Act (FDCPA). Dispute inside that window, and the collector must stop collecting until it verifies the debt.

If the debt came from identity theft, send the collector an FTC Identity Theft Report from IdentityTheft.gov. Also, tell the collector in writing that you dispute the debt, that it resulted from identity theft and that you want it to stop reporting the account to the credit bureaus.

The CFPB has said it may expand the meaning of identity theft under Regulation V to cover "coerced debt," money run up in someone's name without their consent, including in domestic and elder abuse cases.

Do not pay, promise to pay or give out more personal information during the first call. Ask for the validation notice in writing and save every letter, voicemail and call log. Then send a written dispute within 30 days.

With medical debt, contact the provider and your insurer before paying a collector. Ask for an itemized bill and an explanation of benefits. A medical bill can end up in collections while paperwork, insurance reviews or billing disputes are still catching up.

If a collector sues you, do not ignore the papers. Respond by the court deadline or contact a consumer law attorney or legal aid group. Even a debt you do not owe can create bigger problems if you miss a court deadline.

Once a fraudulent account charges off and sells, cleanup gets harder. You may need to dispute the debt with the collector, the original lender and all three credit bureaus. If someone resells the debt, the same problem can come back months later.

No service can prevent every account opened in your name. However, three-bureau credit monitoring can alert you when lenders report new accounts or hard inquiries. That can help you act before a collections notice arrives or a lender denies you credit.

See my tips and best picks on Best Identity Theft Protection at CyberGuy.com.

Have you ever gotten a collection letter or call for a debt you knew you did not owe, and what did you do first? Let us know by writing to us at CyberGuy.com.

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