Ask an Expert: What’s The Best Way To Deal With Bad Debt?

May 1, 2021CreditBy toptierfinancial

The NFCC often receives readers questions asking us what they should do in their money situation. We pick some to share that others could be asking themselves and hope to help many in sharing these answers. If you have a question, please submit it on our Ask an Expert page here.

This week’s question: What’s the best way to deal with bad debt (written off) that is 3 years old? Do you settle? Pay in full? Or wait out the remaining 3-4 years? No company has attempted to sue to my knowledge.

Usually, the best way to deal with bad debt is to pay it off the entire balance if possible. In comparison, most experts agree that settling your debt will not have the same positive influence on your credit. If collection accounts are likely to remain on your credit report for a long time, settlement may be worth another look. Therefore you should consider settling if you cannot afford to pay in full or your credit is already severely damaged.

While it’s unclear that the lack of notification from debt collectors is a sign that steps haven’t been taken to recover the balance through the legal system, there’s no guarantee that those steps might not be taken if they haven’t already begun. Waiting out the remaining three to four years can probably get you to a point where those accounts won’t have the same adverse impact on your credit as they have at the moment, but there’s the risk that they may pursue legal action before the statute of limitations prevents them from doing so, even after the accounts are no longer reported in some cases.

What is the statute of limitations of debts?

The statute of limitations of debts is the timeframe a creditor or collector can legally sue you to collect payment. They have to follow due process and notify you about their intentions to take you to court. If they succeed and a court enters a judgment against you, the debt collector can levy your bank accounts or garnish your wages to repay what you owe.

The statute of limitations varies in each state, and it depends on the type of debt and contract you have. In some states, it can be only four years, while in others, it exceeds 10. So, it’s essential to know the statute of limitations in your state. The best way to get this information is to call your state attorney’s office or ask a consumer debt attorney. To determine when the statute of the limitations clock started on your debts, check your credit reports and start counting from the date of last payment or activity in your accounts.

Know everybody’s options

Knowing what your creditors and collectors can legally do to recover these debts can help you plan your strategy. If your account has reached the age and criteria established by the statute of limitations, your creditor cannot take legal actions against you to collect. You are then able to allow your debts to remain on your credit reports until they are beyond the age where they can be listed. But, if your statute of limitations has not expired yet, your collector can still sue and get a judgment against you even if the debt is no longer on your credit reports. Judgments are no longer added to the public record section on credit reports. While that may be helpful for your credit rating it doesn’t diminish the financial impact that may result from wage garnishment or liens.

Even if the statute of limitations expires, you still owe the debt, and it’s up to you to decide how to best address your obligation to repay what you borrowed. So, your best course of action still is to pay in full, move forward, and start rebuilding your credit. Good luck.

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Ask an Expert: Should I Pay Off My Collections to Get Mortgage Ready?

April 27, 2021CreditBy toptierfinancial

The NFCC often receives readers questions asking us what they should do in their money situation. We pick some to share that others could be asking themselves and hope to help many in sharing these answers. If you have a question, please submit it on our Ask an Expert page here.

This week’s question: My husband and I are planning on purchasing a home in the near future. I have an opportunity to pay off all of my bills and rebuild my credit. I have some collections that are not paid. Would it be better to pay them completely off or let them stay there? I am not sure how mortgage lenders react to collections.

Improving your credit to the point where it helps you qualify for the best possible mortgage terms can often seem like a very big task, especially when there are unpaid debt collection accounts involved. Those accounts can have a significant impact on your overall credit health because the record they leave on your credit history indicates that you did not pay your creditor as agreed. Any amount of that balance that remains unpaid only worsens the negative impact on your credit. So, yes, you should pay off those collections and not let them sit on your credit reports, especially if you have the money to do so.

Sitting Collections

You never know what’s going to happen to collection accounts on your report. For one, they can stay there, and nothing would happen if you are lucky. But, that’s a big risk. Most likely, those creditors will take steps to collect from you, and they can even take you to court to demand payment. What if they sue you and win the lawsuit? In that case, a judgment will be entered against you in court, giving collectors the right to collect payment by whatever means are allowed by law. Depending on the debt collection laws in your state, they could garnish your wages, seize your bank accounts, or even have a sheriff come to your house and claim some of your property and valuables.

The Ages of Your Debts

Your debts have two important timelines, the statute of limitations and the time they stay on your credit reports. The statute of limitations of debt is the timeframe in which collectors can legally sue you to collect payment. If the statute of limitations in your state for credit card debt is three years and four have passed, it means the statute of limitation has expired, and the collector cannot sue you. However, the statute of limitations is different from the time that debts remain on your credit report. Debts remain on your credit for seven years from the day of the last missed payment.

If you pay your collections, they will appear as “paid” and remain in your report for whatever time is left of the seven years. Keep in mind that paying your debts in collections won’t necessarily show a drastic improvement on your credit at first. You still have all the negative payment history that led you to this situation bringing your score down. But, on the bright side, as time goes their negative influence lessens. Also, paying off collections reduced the overall debt owed on your credit reports, which reduces your utilization ratio and boosts your score. Your utilization ratio is how much you currently owe divided by your credit limit.

So again, yes, pay your collections. Start showing the lenders that although you made mistakes in the past, you are now repaying your debts and becoming a reliable borrower, ready to take on larger commitments like a mortgage. Generally speaking, paying off debts, making your payments on time, and keeping balances low can help you. The credit building process looks different for everyone because it depends on where you are right now. You can work with an NFCC Certified Financial Counselor to learn how to deal with your creditors and get a personalized strategy to build your credit to get mortgage-ready in the near future. Good luck!

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Ask an Expert: How Do I Pay the Right Debt Collector?

April 17, 2021CreditBy toptierfinancial

The NFCC often receives readers questions asking us what they should do in their money situation. We pick some to share that others could be asking themselves and hope to help many in sharing these answers. If you have a question, please submit it on our Ask an Expert page here.

This week’s question: All my debt has gone to collections. The collections change hands from time to time. How do I make arrangements with the right people to pay my debt and improve my credit score?

It’s very common for debts to be sold multiple times to different debt collectors. It’s a practice highly inconvenient for debtors attempting to pay off what they owe. But, if you are ready to pay off your debts, you could identify your collectors in two ways. One way is to wait for the collector to contact you and ask for a debt validation letter. And the other is to review your credit reports to determine who is the collector reporting your debt.

Request debt verification letters

Federal law gives you the right to request the debt collector to prove that you owe the debt. When you first establish contact, ask the collector to communicate with you in writing and send you a debt validation letter. The collector should send it to you within five days of your conversation. If they don’t, send your request in writing within 30 days of the first contact. The letter sent by the debt collector should include details about how much you owe, the identity of the original creditor, and what to do if you don’t owe the debt.

If the collector cannot provide this letter or refuses to mail you one, most likely, they are not the current owners of the debt. Moreover, they should stop collection immediately.

Review your credit report

Another way to verify who owns your debt is to review your credit reports. Most debt collectors report your debts on your credit reports once they own them. So you can expect to find the original creditor, listing your account as charged-off, and the current debt collector. Once you have the collector’s name, get their address online and request a debt verification letter. If you have multiple collectors for the same debt, initiate a dispute with the credit bureaus to delete duplicate accounts. You can easily dispute incorrect information initiating a dispute with each credit bureau where you found the mistakes.

Paying the right collector

When paying the right collector, never pay with a personal check or any payment method that gives them access to your accounts or personal information. As an alternative, you can send them a money order or cashier’s check. These are relatively affordable options and allow you to communicate via certified mail with a return receipt to keep proof of delivery. Keep detailed documentation of all letters and payments, and ask all creditors to send you proof of payment. Then, review your credit reports to ensure they show your debts as paid.

Paying off your collections is a good start to rebuild your credit and increase your score. However, it is not enough. You need a strategy based on your current situation. In very general terms, a good score comes from paying on time, keeping balances low, and getting new credit sparingly. If you think you need additional help to pay off your debts and rebuild your credit, don’t hesitate to contact and an NFCC Certified Financial Counselor. They can help you understand the collection process and develop a  personalized strategy to boost your score in time. Counselors are available over the phone and online. Good luck!

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Ask an Expert: How to Dispute Inaccurate Debt Collection Information on Your Credit Report

July 30, 2020CreditBy toptierfinancial

Question: I have an original debt dating back 8 years. I refused to pay the debt due to overcharging my account. A few years ago, my debt was sold to a debt collector, and they are now reporting to credit bureaus as deliquent. We have agreed to terms on the settlement under the conditions they remove it from my credit report completely. They said they will update it as settled.

My question is as follows I read that after 7 years (and 180 days) after the last payment was posted, a debt cannot be reported to my credit report, via original creditor, or the collection agency who bought my debt. If this is true, how can i get this removed? It’s only showing up as 4 years on my credit report due to the collection agency reporting the debt.

Dear Reader,

You are correct, charged-off accounts and collections will stay on your credit report for up to seven and a half years after the date of the last reported activity. In this case, it’s the date when your account became delinquent. Debt collectors cannot legally re-age an account just because they bought it from the original creditor or another collection agency. The only circumstance in which this could happen is if the collection became current because you resumed payments and then it became delinquent again. If that’s not your case and your debt is well over eight years old without any activity during that period, it should not be in your credit report.

Creditors or collectors are not allowed to report inaccurate information to your credit reports, and under the Fair Credit Reporting Act, you have a right to have it removed. To do so, you can start a dispute with each one of the credit bureaus, Equifax, Experian, and TransUnion. Your first step is to get copies of your credit reports to submit as part of your dispute process. You can get free copies of your credit reports once every 12 months at Annualcreditreport.com or request them from the credit bureaus for a fee.

Then, get ready to start the dispute process. You can file your dispute through the credit bureaus’ website, over the phone or by mail. The easiest and fastest way is to do it online. Whichever route you go, you will have to provide personal information, a description of the information that needs to be corrected, and documentation to back your claim. In your case, anything that documents the original delinquency date with the original debtor. Credit bureaus have 30 days to investigate your claim and provide you with a written resolution. If your claim is validated, they will also send you a copy of your updated credit report.

If the result is not what you were hoping for, reach out to the collection agency. Ask them to report the accurate delinquency date of your account to the credit bureaus and remove the collection account. You mentioned that they have agreed to report your account as settled, which is different than having it removed from your report. That just means that they are reporting that the account was paid for less than it was owed, which is not great, but it shouldn’t matter since the account should not be included in your report. Like the credit bureaus, the collection agency has 30 days to investigate and respond to your dispute.

Most disputes dealing with removing inaccurate information get resolved smoothly. Make sure you follow the steps and provide all the necessary documentation to back your claim. Having a negative account removed from your credit report can give you score a boost and help you get your credit ready to buy a house in the near future. Good luck!

Sincerely, 

Bruce McClary

 

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Being Bothered by a Debt Collector? Here’s How to Tell if the Debt is Legitimate

July 5, 2020CreditBy toptierfinancial

It is never a pleasant experience to receive phone calls or other communications from a debt collector. What’s worse is that sometimes collectors may contact consumers about debts that are not legitimate. To protect yourself from a creditor collecting something they don’t deserve to receive—something you don’t owe—you will need to take an important, and time-sensitive step: verify the debt’s legitimacy. Here’s how.

Possible Scenarios

In some cases, you may receive a collection call that you were fully expecting to receive. You knew you that your delinquent account was sent to collections, you remembered exactly what you owed, and you knew the collector would be making attempts to collect. However, there are quite a few scenarios that are not so straightforward.

You don’t remember the debt. A collector could contact you about a debt you have never heard of and do not recall ever owing. In this case, you would not want to blindly pay the debt or even promise to pay the debt. The collector may simply have gotten the wrong information or you could be targeted by a fake collection scam. Verifying the debt will ensure that you do not pay money to a scammer and can clarify the origin of the debt. Maybe you are a co-signor and simply forgot about taking responsibility to cover the debt, or maybe there is a genuine error.

The amount looks wrong to you. Let’s say you knew that one of your debts would be sent to collections. It was a credit card bill for $500. A few months later you get a call from a collector demanding $1,000. Something is not adding up. Verifying the debt will help you sort this out.

The debt is very old and may be “zombie debt.” When debt is of a certain age it passes the statute of limitations (which varies by state law). This means that the collector cannot legally sue you. However, if you make a payment, the statute of limitations could reset, which would refresh the collector’s right to sue you. Collectors who go after zombie debt are known for using especially deceitful tactics. Verifying the debt can ensure that you do not fall for one of their tricks and restart the statute of limitations.

How to Validate and Verify the Debt

Your rights to clarify the legitimacy of a collected debt come primarily from the Fair Debt Collection Practices Act (FDCPA). This federal law controls what debt collectors can do in their collection efforts.

Validation

When a debt collector contacts you about a debt, there are several pieces of information that they must provide. As the CFPB explains, these are:

The creditor’s name
The amount you allegedly owe
Your right to dispute the debt within 30 days and their right to assume the debt is valid if you do not
Your right to dispute the debt within 30 days, and that they will provide verification if you do
Your right to request the name and address of the original creditor within 30 days, and that they will provide the information if you do

A collector must provide this information during the first contact with you or via a written notice within five days after initially contacting you. The information provided by the collector is called the “validation notice.” The CFPB gives two important warnings about this. First, if the collector initially calls you by phone, demand that they contact you in writing. Second, do not give any personal or financial information until you confirm that you are dealing with a real debt collector.

Verification

After receiving the validation notice, you can dispute the debt, which means you will submit a letter to the collector, demanding that they verify the debt. This is your right according to bullet #4 above. Important: You technically must submit the dispute/verification request within 30 days of when you received the required information (the validation) from the collector. You should act quickly to ensure your compliance during this timeframe. However, a collector can (and most probably would) provide the information even if you request verification after the 30-day deadline has passed.

Your letter essentially just needs be dated and needs to say “I don’t owe this debt unless you can prove it, so prove it.” To make the letter a bit more formal than that one-liner, consider using the free template from the CFPB. Simply fill in your information into the letter template where indicated and mail it to the collector. Keep a copy for your records. Ideally, you will send it with a return receipt so you have proof of sending the letter and the date it was sent.

Once you submit the letter, the collector cannot contact you to make collection attempts until they provide you with verification of the debt.

Other means of verification

In addition to your rights under the FDCPA, described above, you can try a few other tactics to verify a debt. These steps may simply jog your memory about the debt if you have forgotten, or they could affirm your suspicion that the debt is not legitimate. These are simple and quick, and could be done before or after you formally dispute the debt.

First, check your credit report. Make sure that what the collector told you lines up with what your credit report indicates. If the collector is referencing a debt you have no recollection of and that debt isn’t even on your credit report, that should raise a red flag. Second, you can contact the alleged original creditor to inquire about the debt. This can help ensure that the original creditor did in fact sell the debt to the collector as the collector claimed.

Verification is Worth It

If you are contacted by a collector about a debt that does not sound familiar to you, then you should probably dispute the debt, in accordance with your rights under the FDCPA. You have nothing to lose in taking this protective measure. The process may just reveal that you owe the debt, but at least you will have peace of mind from knowing who to pay and how much to pay. On the other hand, the collection attempt may not be legitimate. You could be the target of a scam or an error. In either case, you will be glad you did not pay something you did not owe.

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