Is it legal for a loan to be sent to collections even if you have made every payment?

UPDATED: Apr 3, 2012

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Is it legal for a loan to be sent to collections even if you have made every payment?

I lost my job and we filed bankruptcy. After dropping the bankruptcy we made arrangements to pay the car loan. I paid for over a year, each month. I just received a letter that the loan was sent to collections and the balance was much more than I owed. It was as if the 14 months of payments were not deducted. The checks were cashed but the balanced didn’t reflect it. Now the collectors want us to pay off the balance. We are not getting any answers of why the payoff was so high. They just want their money.

Asked on April 3, 2012 under Bankruptcy Law, Arizona


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

1) If you were paying as per an agreement, plan, or schedule which the creditor (or its collection agency) accepted, they cannot sue you, since in that case, you are honoring your obligations. The agreement between you and them as to what you would pay is a contact, and hence enforceable. If they never accepted the plan (so there was no agreement or contract), but you were simply voluntarily sending in what you could, then they could sue you for the remaining balance--a creditor is not required to accept what the debtor wants to or can pay.

2)  Whatever you did pay needs to be credited against the balance you owe--they cannot take your money without crediting you.

From what you write, you have a defense to their claim based on the payment plan between you and the creditor and/or based on the application of your payments to the balance; you should speak with an attorney about the situation.

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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