10 Worst Collection Companies For Illegal Debt Collections

Being in debt is bad enough, but when there are greedy companies out there actively violating U.S. federal law, committing fraud in an attempt to get money out of people who are already struggling, well, that is an OUTRAGE!

I expose the 10 worst companies for illegal debt collection practices below, as per complaints received and recorded by the CFPB (Consumer Finance Protection Bureau), a federal agency set up to protect United States citizens.

But first, let me tell you what’s coming soon! In response to the many questions from new credit repair businesses and people who want to start a business, I have created a brand new, unique package of letters for disputes and challenges. The letters that go with the book are copyright protected and are for personal use only. A business would need something different and more unique. I am putting the finishing touches on these super dynamic letters now, and they will soon be released for purchase.

Back to law violators! Look to see if you recognize any of these companies on the Hall of Shame for Debt Collectors:

  1. Encore Capital Group
    The CFPB ordered Encore to pay $42 million to repay customers, plus a $10 million penalty, and to stop collections on $125 million worth of debt.

2. Enhanced Recovery (ERC)

3. Portfolio Recovery Associates

4. Convergent Resources

5. Transworld Systems

6. Diversified Consultants

7. AFNI /Anderson Financial Network (Specialize in working with cell phone and direct TV providers)

8. Citibank, N.A.

9. Resurgent Capital Services

10. Synchrony Financial

Thank you to RewardExpert for compiling this list. You can read their report here.

If you receive a phone call from one of these companies for a past due debt, immediately ask for their contact information (name and mailing address), then ask them to contact you by mail only. DO NOT DEMAND CEASE AND DESIST ALL CONTACT, because that gives them no recourse except to sue you in a court of law. Do not set yourself up for a lawsuit!

There is a lot of bad “info” on the Internet, such as telling people to send a Cease and Desist Letter. Next thing they know, they have been slapped with a lawsuit. Pick up a copy of Repair Your Credit Like the Pros: How credit attorneys and certified consultants legally delete bad credit and restore your good name here for the proper way to handle debts.

Do You Have to Pay Taxes on Settled Debt?

If you negotiate a settlement agreement on a collection, charge-off, or credit card debt, will you be required to pay the IRS as if it were income? Maybe and maybe not.

The general rule is that if you owed $4,000 and agreed to settle for $1,000, then that $3,000 you were forgiven is considered as “income” and therefore taxable. But wait — there are exceptions to that rule!

Are You Broke or Partially Broke?

If you are considered insolvent, then you do not have to pay income tax on the settlement.

If you are considered partially insolvent, then you do not have to pay income tax on the entire settlement, only on part of it.

Insolvency is when your debt is greater than your assets. This applies to a lot of good people who don’t have much money or equity in real estate, automobiles, etc. If you’ve got $1,000 in assets and were forgiven $3,000 in debt, then you aren’t required to pay tax on it.

If you’ve got $4,000 in assets and were forgiven $3,000 in debt, then you only have to pay tax on $1,000. (4 – 3 = 1)

I am not a CPA, so I’m required to say this is my interpretation of the law, and that you should check with your tax accountant.

Was Your Settlement Less Than $600?

You do not have to claim income if your settlement-benefit was less than $600. Such as if you owed $1,000 and settled for $500, then your settlement benefit is only $500 and you aren’t required to tell the IRS.

Was Your Cancelled Debt a Gift?

If your debt was to a family or a friend, and then that person ended up saying, “You don’t have to pay me back after all,” then the forgiveness is considered to be a gift. In that case, you don’t have to claim it to the IRS. (How would they even know about it anyway, right? Nevertheless, it’s a rule.)

Did You Declare Bankruptcy?

Debt discharged in a BK is not income to be taxed.

Did the Creditor Fill Out Form 1099-C?

If the collector reported Form 1099-C to the IRS, then you can’t ignore it. Ask a tax professional whether or not you are considered “insolvent” or partially so. That way, you might be able to save on taxes.

If You Have to Pay Taxes on the Settlement, Will You Come Out Behind? Or Ahead?

Great question! Just because you are required to pay taxes on the amount forgiven, you could still come out financially ahead. It depends on how much money the settlement saved you and what your personal income and tax situation is. This is very individual, so you will need to speak with a tax professional to determine if it’s a yes or no for you personally.

What If You Overpaid Taxes Because You Didn’t Know About the Insolvency Rule or Made a Mistake?

Don’t despair! You can file an amended tax return and collect any refund that you are legally owed due to over-paying.

Best wishes and God’s blessings on your financial future. There is always hope for better days ahead. ~ Carolyn Warren