“My Debt is a Charge-off. Do I Still Need to Pay It?”
It’s time for me to bust another common debt-related myth that I get asked about frequently. Basically, the myth is that once a creditor records a “charge-off” (where your account is declared as a bad debt and a loss is recorded by the creditor), then the creditor no longer has a right to attempt further collection on that written-off debt.
Here’s a quote from a bogus “debt elimination” website that pretends to be a valid source for consumer education in financial matters: “They cannot collect one penny,” the website says. “If you see charge-off on the account they are trying to collect on your credit report it is illegal for these debt collectors to collect one penny. The original creditor took the bad debt as a loss when they filed their income tax and got a credit benefit from the IRS.”
What a load of horse manure! Folks, this statement is completely 100% FALSE. Aside from the fact that there are millions of debt collection lawsuits/judgments that prove otherwise, this ridiculous pronouncement does not even make sense from an accounting perspective.
When a creditor records a charge-off, they are forced to “write off” the uncollected balance (which usually happens after 180 days of delinquency). Naturally, this translates to less income, which lowers the corporate tax owed for that year. Even on this point, the website gets it wrong, because this is not a “credit benefit from the IRS,” but rather a lower tax bill because the company made less money to be taxed on.
OK, so far so good. But let’s say the creditor is successful through the collection process and recovers 50% of the balance that was written off. What happens next? Simple. The recovered amount is recorded as an ADJUSTMENT on a separate part of their bookkeeping ledger, usually in a section called “Allowance for Loan Losses.”
Here is a direct quote from the official corporate Form 10-K filed with the Securities and Exchange Commission by one of the world’s largest credit card banks:
“Allowance for loan losses represents management’s estimate of probable losses inherent in the portfolio. Attribution of the allowance is made for analytical purposes only, and the entire allowance is available to absorb probable credit losses inherent in the overall portfolio. Additions to the allowance are made through the provision for credit losses. Credit losses are deducted from the allowance, and subsequent recoveries are added.”
There you have it, straight from the horse’s mouth. The allowance account is the amount reserved for estimated losses against loans made. When the company record a charge-off loss, it must be deducted from that allowance account. The important bit is that “subsequent recoveries are added” to the allowance account. In other words, in plain English, “it all comes out in the wash.” The recovered funds are simply accounted for separately. And that *new* income is properly taken into account, offsetting a portion of the loss previously declared.
So what does all this mean to you if you have a charge-off account? It’s very important that you understand that a charge-off does NOT relieve you from your legal obligation to repay the debt. You are still on the hook to pay that debt (or settle it!). This fact is well known to anyone who has spent more than a few days working in the debt/credit industry, on EITHER side of the fence. Only an absolutely CLUELESS amateur (or a deceitful con-artist peddling a bogus “debt elimination” program) would claim otherwise. Yet if you surf to your favorite search engine and type in “debt elimination,” you will quickly find dozens of websites that make this absurd claim.
Don’t buy into this nonsense and ignore charge-off accounts just because you read on some website that you’re no longer responsible. It’s vitally important to (a) understand the status of your debt accounts, and (b) work toward achieving a resolution on those accounts. Otherwise, you might just be facing a lawsuit that turns into a judgment, which could lead to a wage garnishment or a lien on your property.
Okay so my bank has done a charge off on my vehicle they have never reposeed it. Now the vehicle is totaled. Will they release the title of the vehicle since its a charge off?
Comment by Jose — November 27, 2007 @ 11:38 pmIn response to Jose’s question, I first need to point out that the blog
Comment by Charles — November 29, 2007 @ 5:51 pmentry above pertains to unsecured debt. A vehicle is a secured debt, so
there is an extra factor involved in who has title to the property.
Just because the loan was recorded as a chargeoff does not clear the
title. The lender still holds the title. Just because the vehicle was
totalled, that does not relieve the original financial obligation. So,
no, they will not release the title because the loan is listed as a
chargeoff.
So it’s been 7 years now since my account was opened 2/00 and of course it’s showing up as a “charge off” what’s next? How do i get this of my credit report, i hear that after 7 years it no longer shows up. It’s now Dec 07 and i still see it. What can i do?
Comment by Mari — December 4, 2007 @ 8:21 amDerogatory items are supposed to drop off after seven years. However,
Comment by Charles — December 4, 2007 @ 9:49 amthe credit reporting system is very sloppy, and it’s usually necessary
to monitor the report and dispute anything that should not appear. What
Mari needs to do is write to each of the three major bureaus (Experian,
TransUnion, and Equifax) and dispute the old negative item. This will force
the bureaus to investigate and delete the entry if it’s been longer
than seven years. All three bureaus provide online dispute forms, so
the dispute can even be initiated via the Internet.
WANT TO KNOW ABOUT MY TAX RESPONSABILTY IN A 53000.00 CGARGE OFF DUE TO MORTGAGE DEFICIENCY. THE HOUSE IS NOT WORTH THE VALUE OF THE LOAN, WE WERE GROSSLY UPSIDE SOWN.
Comment by PRIYA — January 9, 2008 @ 8:35 pmPriya, tax responsibility depends on (a) whether the creditor issues
Comment by Charles — January 10, 2008 @ 12:45 pma 1099-C to record cancellation of the obligation, and (b) whether or
not you were insolvent at the time the debt was forgiven. If you were
grossly upside down on the house, then you were probably insolvent, meaning
you owed more in debt than you owned in assets. See IRS Pub 908 for more
information. Also, if you don’t get a 1099-C, then that means the creditor
has not formally forgiven or cancelled the balance owed, so open debts
like this (whether or not they try to collect) normally do not trigger
a tax event. See your tax professional or CPA for a more formal opinion.
My situation is a little similar,I have a vehicle which I still have. The maturity date was Nov 5 after March 5th the loan will be either a charge or repo they tell me. I have been talking to them and paying them something each month.The only thing is I can’t pay the full amount by March 5. What usually happens next?
Comment by Marika — February 14, 2008 @ 2:47 pmMarika, you should try to continue negotiating with the lender to
Comment by Charles — February 14, 2008 @ 3:24 pmavoid the chargeoff and/or reposession scenario. They may or may not
be flexible, but often lenders will work with you. They really don’t
want to repo a vehicle if it can be avoided. If you let the March 5th
deadline come and go without an arrangement in place, then most likely
they will repo the vehicle, auction it (for a lot less than it’s probably
worth), and then try to collect the unpaid balance from you. This will
usually be through collection agencies, and it can even result in legal
action against you for the unpaid balance. So in this type of situation,
you should make every effort to work out arrangements with your creditor.
I have a “charge off” and I am paying off the collection agency monthly. thr original amount owed was $7,000.00, I owe $2,000.00 now. Do you think I have a chance of having them agree to a “paid as agreed” note on my credit report?
Comment by loretta — February 20, 2008 @ 7:05 amLoretta, it depends on the situation. If the agency is a debt purchaser,
Comment by Charles — February 20, 2008 @ 9:54 amor is representing a purchaser, then it may be possible to get them to
adjust the entry on your credit report. This assumes that the purchaser
placed an entry on the file. However, this will not affect the chargeoff
record entered by the original creditor. If the original creditor still
owns the debt, then they will normally update accounts as “paid collection
account” once it has been satisfied. A “paid as agreed” will not necessarily
help your score, because it usually will not erase the original late-payment
history that appeared previously. Either way though, getting the debt paid
off will help improve your debt-to-income ratio, so future lenders will no
longer consider it to be an “open” obligation. So even if your score doesn’t
come up significantly, there will be a separate beneficial effect to handling
it.
Once a negative charge off has been removed from your credit report. Can the lender post the information again? If the account has been charged off but never settled and it has been removed from my credit report. Can the lender come and request payment of the original loan?
Comment by Tony — February 25, 2008 @ 12:50 pmTony, these are two totally different questions you’re asking. If the
Comment by Charles — February 25, 2008 @ 3:48 pmderogatory entry is older than 7 years, then it should not reappear on your
credit report again. If it does, then it’s probably not because of anything
done by the original lender. More likely, it’s a debt purchaser placing a
bogus fresh “date opened” on the account, in which case you should be able to
dispute it off the report again by filing a dispute with the three major
credit bureaus. If the derogatory item is less than seven years old, then yes,
it can still come back later. The above pertains to your credit report only,
which has *nothing* to do with whether or not you’re still legally obligated
to pay the debt. Just because a debt disappears from your credit report does
not mean that you are no longer liable for it. That depends on whether or
not the debt is beyond the legal Statute of Limitations for your state. In
some states, the SOL period is as little as 3 years, in others in may be 6,
8, or even 10 years. And yes, the lender can ask you to pay up regardless
of what does (or does not) appear on your credit report.
I have a charge off on my account and I have been making payments for two years to a collection agency, the original amount was over $7,000.00, and now I owe about $2,000.00. it is listed as a charge off on my credit report. If i make a settlement (agree to pay a lesser amount than owed to satisfy the debt) how will that effect my credit report. Am i better of to just keep paying so it is paid in full instead of settled? thanks for your help.
Comment by loretta — February 26, 2008 @ 9:42 amLoretta, it depends on how old the debt is and whether or not it’s a debt
Comment by Charles — February 26, 2008 @ 12:56 pmpurchaser that you’re paying off. Often, there are 2 credit entries, one
by the original creditor showing a chargeoff, and another by the debt
purchasing company. If that’s the case, then whether you pay in full or
settle with the purchaser, it won’t affect the chargeoff listed by the
original creditor. If it’s all a single entry pertaining to the original
creditor, then paying in full will be *slightly* better in terms of how
it’s reported than a settlement would. However, either way, it will still
show as a paid collection account, and the reporting difference on an
old collection account is very minor when you compare a paid collection
account to a settled collection account.
If the debt is beyond the SOL of 4 years in Texas from date of last activity. Can the lender request payment of the original loan?
Comment by Tony — February 26, 2008 @ 1:12 pmTony, I don’t know if TX has any special rules that prevent creditors
Comment by Charles — February 26, 2008 @ 2:53 pmfrom attempting to collect beyond the SOL period. However, in general,
there is nothing that says they cannot request payment. What the SOL
does is prevent them from being able to litigate the claim in court,
provided that you defend it correctly by noting the time-barred status
of the debt. But collection activity well past the SOL is totally normal
in the debt industry. Beyond the SOL, it just means that there are no real
“teeth” to the process, because they can’t win in court against you.
I sold my house in 2007, working with the bank on a short sale. I had a first and second mortgage, leaving just shy of $100,000 short of the negotiated sale price of the house. The mortgage company has “charged off as bad debt” and has done a “profit and loss write-off” for the remaining amounts owed on the first and second mortgage after the short sale.
My question is whether or not they will send me a 1099 for both mortgages, and if they do send me a 1099 do I still owe the $100,000 remaining on the mortgages? I do know that a new bill has been passed granting IRS tax relief for these sale short falls, but it is unclear to me if this process is over after a 1099 or if I will be forced to either pay the amounts (which I cannot do) or file bankruptcy.
Comment by Erik Birkeland — March 5, 2008 @ 1:31 pmErik, you really should consult with a local attorney on this matter. I
Comment by Charles — March 6, 2008 @ 8:22 amdon’t know for sure whether mortgage lenders are required to issue
1099-C forms when they write-off a mortgage loss, the way credit card
banks are required to issue 1099-Cs when they forgive $600 or more of
debt. A couple of additional points though. IF you get a 1099-C for
the written-off amount, that means the debt has been canceled. In effect
it’s the same thing as a 0% settlement, and the 1099-C actually constitutes
a form of proof that you no longer owe the obligation. Further, there is a
provision in the existing code (having nothing to do with recent bills
pertaining to mortgage-relief) that permits taxpayers to exclude 1099-C
income from taxable income to the extent that they were insolvent at the
time the debt was canceled. See IRS Publication 908 for further information
on the insolvency issue.
My husband and I have been together for 12 years. Approximately 3 years before that, I was a typical college student who racked up some debt that eventually was charged off, so we’re talking about almost 15 years ago. NOW, the past 3 months or so, I’ve been getting hassled by a previously charged off debt ($800 to Lerner Co) which was turned over to Asset Acceptance and just last week I received a call from one of the other previously charged off debts. Today in the mail I received a letter from that one ($1400 Spiegel) turned over to Merchant’s Credit Guide. We live in NE where the Statute of Limitations is 6 yrs. What are the options here?
Comment by Tanya — March 24, 2008 @ 11:57 amForgot to add - neither are appearing on my credit reports.
Comment by Tanya — March 24, 2008 @ 11:58 amTanya, this is a classic case of “zombie debt,” where a debt purchaser
Comment by Charles — March 24, 2008 @ 4:28 pmbuys an ancient account and attempts to collect on it. In Nebraska, the
Statute of Limitations is 4 years on credit card debt and 5 years on
written contracts, so you’re miles beyond the SOL period. And since these
items no longer appear on your credit report, the worst thing you could do
here is settle the accounts or make any payments, as this would risk a fresh
negative entry being added to your credit file. To put a stop to the
harassment, send the collection agency a “validation” letter. The language
is very simple: “I hereby dispute this debt. Please provide documentation
in full support of your claim, including a copy of the original agreement.”
Include any account reference numbers they cite in their letter to you.
Be sure to send the validation letter via Certified Mail with Return
Receipt required. They will most likely just stop calling. If another
purchaser pops up later, simply repeat the process. (They often try to
sell junk debts to one another.) And if they continue harassing you without
providing verification of the debt, then file a formal complaint with
your state’s Attorney General, as well as the Federal Trade Commission.
Hello,
I have a mortgage in Wayne County, MI. The property in 2006 was appraised at 80K, but with the recent decline in property value, the most the home can be sold for is 30K. The property was scheduled for forclosure in January, but the Mortgage company pulled out citing that the forclosure proceedings would cost more than what the house is worth. So, my question is, how long will they take to charge-off the debt? How long after the charge-off is completed does it normally take to receive a 1099? Lastly, once a 1099 is received, can it still be transferred to a Collection Agency for further collection activities?
Comment by Nicolle — March 25, 2008 @ 10:12 pmHi Charles,
I have a bad credit card debt 10k with Amex, they charged it off in Dec 2003, The creditors have not collected on it either. (I was away for a while) Would my best interest be, just wait 1 more year and it’ll dissapear from my credit report? Or should I try to pay it?
Thanks
Comment by Eliot — March 26, 2008 @ 9:37 amOh I forgot to mention im in Jersey, and Statue of Limitation is 4 years.
Comment by Eliot — March 26, 2008 @ 9:39 amNicolle, charge-off doesn’t work the same way with mortgages that it
Comment by Charles — March 26, 2008 @ 3:13 pmdoes with credit card debt. If the lender is forgiving the balance
instead of going through foreclosure proceedings, then this is equivalent
to a “short sale” where the lender lets you sell the property for less than
what you owe and writes off the remaining balance. This in turn leads to the
issuance of a 1099-C for the forgiven portion (or it’s supposed to anyway –
lenders are not always consistent about this). You will not receive the
1099-C until next January (2009), but you should not see any
further collection activity after it gets written off. Further, we have a
new law in effect that provides temporary relief on any taxes associated
with balances forgiven on short-sale properties. When you get the 1099-C,
consult a competent tax professional locally to see if you qualify to
offset the 1099-C under the new rules, so you don’t have to pay taxes on it.
In reply to Eliot, the Statute of Limitations (SOL) in New Jersey is 6 years,
Comment by Charles — March 26, 2008 @ 3:20 pmnot 4 years as you indicated. If the debt was charged off in Dec 2003,
that would normally mean you last paid on it around June 2003, so the SOL
will not expire until approximately June 2009 in your state. Prior to that,
you can still be sued on this debt. This has nothing to do with the 7-year
reporting period on your credit report, which is a completely different
discussion. As to what to do, if you have not been sued, and there has
been no recent collection activity, I’d just wait it out until you are past
the SOL period. There is very little benefit to settling (or paying in full)
an account this old, which has probably long since been sold off to a
debt purchaser. If you do, you actually run the risk that it will show
up on your credit report as a fresh entry, in which case it’s like buying
another 7 years of credit damage. Of course, if you get aggressive collection
activity again, direct threat of litigation, etc., then you should negotiate
a settlement and include in the agreement that it will not be reported
at this late date to the bureaus.
My husband have charge off on his credit from alltell, but afni collect this account and we have settle it. On his credit record, it shows AFNI with 0 (zero) balance but Alltell still ‘CO’ (charge off/collection). Is it possible to dispute it since we have paid this account ?
Comment by amalia — April 4, 2008 @ 6:05 amAmalia, you certainly have the right as a consumer to dispute items
Comment by Charles — April 4, 2008 @ 8:01 amappearing on your credit report. You do this directly with the three
major credit reporting bureaus (Experian, TransUnion, and Equifax).
Technically, accurate information will remain on the report, but the
system is pretty loose and often a dispute will get items removed in
general (this is really all that so-called “credit repair clinics” do).
I should point out that even though you paid the account, that does
not mean the original charge-off automatically should disappear on
your credit report. However, if there is anything inaccurate about the
way this has been reported, a dispute to the bureaus should (in theory)
resolve the problem.
I am currently in a financial bind and can’t afford to make my credit card payments. My plan is to wait until I have the money for each account and to request letters of deletion before sending my payment to each of the pending accounts. In your opinion, do you believe that this would be a viable solution to removing the accounts from my credit report once I have the letters of deletion on hand to send to the three credit bureaus?
Comment by Ken — April 10, 2008 @ 8:23 pmKen, this will not work. The banks will not honor requests to delete
Comment by Charles — April 11, 2008 @ 7:39 amderogatory information on your credit file after the fact.
I am in the process of selling an anuity that will cost me $40,000 to pay of debt-most importantly child support and IRS. Now, I do have other credit card debt, car note, and college loans that need to be paid off; however, i don’t have enough money to pay all of this. What do you suggest i do? Is there a better plan?
My goal is to be debt free so that i can then invest in me and my baby.
Regards,
Comment by Larry — April 23, 2008 @ 12:22 pmLarry Resendez
There is a charge off on our credit for $18,000 and then there is a judgement for the same company for $11,000. Can a company get a judgement if they have charged it off? And why is the judgement for a different amount? What is the SOL in Ohio?
Comment by Amy — April 24, 2008 @ 6:06 pmAmy, a charge-off is just an accounting step where the creditor formally
Comment by Charles — April 25, 2008 @ 8:24 amrecords a loss on their books. It doesn’t mean they can’t continue
trying to collect, including the filing of a lawsuit. So, yes, they
can get a judgment even though a charge-off was recorded. The judgment
is for a different amount because they continued to apply interest at the
contractual rate, as well as attorney fees and court costs. Also, it may
be that the original creditor sold the account to a debt purchaser, who
then retained a law firm to go after you. You asked about the SOL in Ohio.
Your state is unusual in that it does not have a stand-alone SOL category
for revolving (credit card) debt the way most states do. This leads to
conflicting interpretations. Some legal experts say it’s only 6 years,
based on the period for oral contracts. Others say it’s 15 years, based
on the period for written contracts. Either way, the SOL period doesn’t
apply anymore once they have a judgment against you. I recommend you seek
professional legal assistance locally before this turns into a wage
garnishment situation on you.
I am in a bit of a pickle. I have had a foreclosure, repo, etc. etc. and was contimplating filing bankruptcy. I just got a new job with an insurance company whom gave me a HARD time for the foreclosure (they pulled my credit) I had to get proof of the 1099 that was filed even to get the job. Anyway question is - I think they will look badly at the bankruptcy and I don’t want to loose the job. I am trying to pay back all the collections and was wondering what the best way would be credit counseling place (they consolidate bills) or try to negotiate the balances myself. I am also trying to avoid judgments and wage garnishements. FYI I live in Fl. if that info is needed. Any thoughts?
Comment by Dawn — April 29, 2008 @ 7:00 amDawn, the only certain way to avoid lawsuits is to file the bankruptcy.
Comment by Charles — April 29, 2008 @ 7:54 amHowever, since you don’t want to go that route because of the job situation,
then negotiating settlements is your best bet. I’m making the
assumption here that the unsecured debt accounts are beyond charge-off
and have been assigned or sold to third-party agencies. If that’s the
case, then credit counseling won’t work, since that program is based on
working with the original creditors prior to charge-off. Most credit
counseling companies will not be able to work with accounts that are in
third-party collections. However, this is where settlements are almost
possible, since the agencies get paid when they collect, and most creditors
are prepared to accept reasonable settlements to recover something against
the loss recorded at time of charge-off.
In reply to the comment by Larry on 4/23 (which escaped my attention until now,
Comment by Charles — May 9, 2008 @ 7:31 amsorry), I agree that your tax and child support obligations should take top
priority. If that leaves you short of funds to pay off the remaining debts,
then you should first look at debt rollup as a possible option. Aim to pay above
the minimum payments by $50 extra per month for every $10,000 of unsecured debt.
If you can achieve this target, then you’ll be able to retire the debt within a
few years and improve your credit standing in the process. If this simply isn’t
possible, then you would need to consider more drastic options like debt settlement.
I have an account that has been charged off. Can I still contact the original company and try to work with them or will I have to go with the collection agency? I was forced into bankruptcy and now they are coming after my soon to be ex. What do I need to do? Thanks.
Comment by Tina — May 12, 2008 @ 8:28 amTina, you can try calling the original creditor, but if they have assigned the account to an agency
Comment by Charles — May 12, 2008 @ 9:10 amthen the creditor won’t speak with you directly. Also, since you did a bankruptcy, it’s very likely
that the debt was sold to a purchaser, in which case the original creditor no longer even owns the
account. Now, since you filed bankruptcy (BK), if the debt was in your name only, then it should have been
discharged in the BK and the collection attempt is bogus. An exception might be if you live in what’s
called a “community property” state where both spouses share equally in the debts regardless of who’s name
is on the account. What I suggest at this stage is that you get in touch with the attorney who handled
the BK for you and see if they can offer advice on whether the debt should have been fully discharged
based on the BK filing, or whether your spouse is still formally liable for the account.
In April 2008 I get a CP2000 from the IRS saying
Comment by Mika — May 12, 2008 @ 10:41 pm2 collection agencies charged off debt in 2006
that I must now pay income tax on. These were
unsecured debt and the SOL in my state is 7 yrs.
One of the debts I settled in court on; the other
is one I don’t recognize. In short, both are so
old they are in my maiden name and I’ve been
married for 10 yrs. I can neither afford to pay
the taxes or the debt, and the insolvency form
doesn’t seem to pertain to my situation since
both are unsecured debts. What should I do?
P.S. Thanks for being here. You make good sense.
My husband has a charge off as bad debt-profit and loss writeoff on his credit report from 9/1999 we started getting calls from collection agency wwrecoveries and associates that they need to collect or send in the information they collected and take us to court. We are in the state of california and the sol is 4 years…So what does it mean can they still force us to pay 10 times more then what was owed….we have no way to prove that he did pay he was overseas in the marine corp. Also should it still appear on his credit report and onces its gone do we still have to pay
Comment by Aida — May 12, 2008 @ 11:00 pmthere are a few more things…This debt collector also stated they couldnt send us nothing via usps only by email because they had 72hrs to turn in there finds can they state that? and are they able to put a lien on anything?
Comment by Aida — May 12, 2008 @ 11:12 pmMika, whether or not you qualify for the insolvency exemption has nothing to do with
Comment by Charles — May 13, 2008 @ 9:39 amthe debts being secured or unsecured. If the creditors canceled a portion of the debt and
issued you a 1099-C, then the only issue is whether you were insolvent at the time the debts
were cancelled. There is a line on Form 982 Part I where you check the box to claim insolvency. Before
you do this though, you need to determine whether or not you actually were insolvent. This is a
straightforward net-worth calculation. Take the fair market value of your assets and subtract the
total value of your liabilities (debts). If you are “upside down” then you are insolvent and can
claim an exemption up to the amount by which you’re insolvent. Get help from a professional
CPA or tax preparer if you are unclear on the above terms/explanation.
Aida, this sounds like a classic debt purchasing situation. If you live in CA where the SOL is
Comment by Charles — May 13, 2008 @ 9:51 am4 years, and this debt was last paid in 1999 then they cannot win a lawsuit against you as long
as you defend it correctly on the basis that the debt is now “time-barred” under the SOL. However,
they probably have no intention of litigating and are instead simply trying to trick you into making
a payment or series of payments are re-starting the clock on the SOL. Don’t fall for this. Nor should
it be appearing on your husband’s credit report since 7 years have elapsed. If the purchaser has placed
a fresh entry on his report, you can dispute this directly with the three major bureaus. Meanwhile, if
this agency is claiming that they cannot mail you a collection notice, this is a direct violation of
the FDCPA. File a complaint online with the CA Attorney General and provide as much detail about the
agency as you have (name, address, phone #, etc.).
I live in CA and I have been informed that my 2nd mortgage is being charged off and assigned to a 3rd party collection agency instead of them foreclosing. Will this show as a charge off on my credit and could this be included in a BK? If so, what happens to the 2nd lien on the house?
Comment by Felicia — May 13, 2008 @ 10:33 pmFelicia, I would definitely expect the charge-off of the 2nd mortgage to show on your credit report.
Comment by Charles — May 14, 2008 @ 7:10 amWhether or not you could include it in a bankruptcy depends on the type of bankruptcy filed and other
factors pertaining to the property. Ditto for the effect on the second lien. You should seek assistance
from an attorney qualified to handle real estate matters and/or bankruptcy.
I co-signed for my brother and he got the car repo’d. I’ve been through this before when another collection agency tried to collect on the car. I did not even know it had been repo’d until 2 months after the fact because the original company never once contacted me for payment or I would have caught the payments up. Needless to say. The original creditor just re-reported to my credit and so did a collection agency. I wrote to this collection agency and asked them to validate the debt but they didn’t. I need this removed from my credit so we can refi our house and get a new car. Any suggestions on how to speed up this process? P.S. What’s so frustrating is that NO ONE has ever reported to my brothers credit for any of this.
Comment by Christina — May 19, 2008 @ 2:31 pmChristina, the only way to speed up this process is to dispute
Comment by Charles — May 19, 2008 @ 4:39 pmthe negative items directly with the three major bureaus. They are
required to investigate the items and delete them if they can’t be
verified. Since the collection agencies have not responded to your
validation requests, they may not respond to the bureau inquiries
either. This dispute process is really all that credit repair
companies do. If this doesn’t work though, then obtain a
notarized letter from your brother indicating that this debt is
his responsibility, not yours, and use that letter proactively
with lenders or loan officers when you seek financing.
I have a reposession on a vehicle in 2002. I just found out a collection agency purchased the debt, and sued me in 2004 and won there case. Which is obvious since they never properly served me, infact I never even knew about this until last week. The way I found out about all this is they are now going to be garnishing my wages. I recieved a letter yesterday from the I.R.S. that I now owe back taxes from 2006. The original lender filled a 1099 debt cancellation and forgivness for the 2006 tax year. I now have back penalties and intrest with the I.R.S. on the amount of the loan because it is considered income for me. But now I still have to pay off this debt? To the collection agency for double the amount I originally defaulted on? Plus pay the I.R.S. for back taxes on the same loan?
Comment by Eric — May 26, 2008 @ 4:17 pmEric, if the 1099-C was issued for the full amount of the repo deficiency,
Comment by Charles — May 27, 2008 @ 8:22 amthen there was technically no debt for the purchaser to collect. Further,
if you were “insolvent” at the time of the settlement, you can file Form 982
and claim an exemption on the taxes. (See IRS Pub. 908 for details.) Regarding
the lawsuit, get some legal help. Look for a NACA attorney in your area, via
their website, http://www.naca.net. They may be able to get the judgment overturned
due to procedural violations, etc.
Question….I have a charged-off
Comment by Camille — June 3, 2008 @ 9:18 amdebt bought by CACH,LLC with
lawyer Scott Lowery as their
front man. First the debt shows
up on the credit report as a
charge-off from the original
creditor and also shows up as a
debt in collections as of this year
with Scott Lowery. Is this legal?
The SOL is 4 years - which will be
Sept. ‘09. It went to the Nat’l
Arbitration Forum under CACH. It
shows that CACH was the party at
interest and that they had the
right under arbitration contract
(of which I never signed - in
fact - I have never signed any-
thing with the original creditor
it was applied for over the
phone)with
the original creditor to pursue
arbitration. I requested the debt
to be validated by CACH…they in
turn submitted a “motion to stay”
shortly after I requested the
DVL and gave them 30 days to do
so - the “motion to stay” was
filed with the NAF-
what would be the next course of
action for me? I did submit a
cease and desist letter with
the DVL….
Camille, your next course of action is to wait for a response to your validation letter.
Comment by Charles — June 3, 2008 @ 10:04 amIf there are no original account documents included in the reply (such as a copy of the
original signed credit application or agreement, etc.), then dispute the response again
with the NAF. Since the whole arbitration process is rigged from start to finish, the outcome
99% of the time is an award for the creditor. However, they still need to forward to a local
attorney to get it converted into a legal judgment that can be enforced. If things get that
far, I suggest you get help from a NACA attorney (www.naca.net).
I received a call from a firm named National Service Of Process in attempts to collect on a Discover card debt of 8,000 (6K of which was accumulated interest throughout the years). Due to personal reasons I stopped making payments on the Discover card in 1992. I have been unemployed since. An NSP rep told me that if I do not pay back the amount owed then this will escalate to me being sued with a formal hearing in court. Is he correct?
Comment by Dolph — June 4, 2008 @ 10:09 amFurther my inquiry. I also requested from the agent a written documentation of NSP’s intent to collect on this debt. I was told that the only form of communication is by phone. Is this legal?
Comment by Dolph — June 4, 2008 @ 10:22 amDolph, this is just a junk-debt buyer trying to trick you into making a payment. Don’t fall
Comment by Charles — June 4, 2008 @ 11:32 amfor it. In most states, the legal Statute of Limitations on credit card debt is 4-6 years, and no
state has a SOL period longer than 15 years. So it’s all bogus nonsense. They can’t win a lawsuit
against you since the debt is time-barred based on the Statute of Limitations. Technically, they
can file a lawsuit, but all you would have to do is defend it by asserting that the debt is
time-barred under the SOL. Further, there will be no way for them to produce original documents
proving you owe this debt anyway. To your follow-up question, no, it’s not legal to refuse written
notification of the claim. A written collection notice is required under the FDCPA. If you have
contact information for this outfit, file a complaint online with the Attorney General for your
state and the state where company is located. I suspect, however, that they gave you a bogus name.
If you can’t pin down their location, just hang up if they continue to call. Eventually, they’ll
leave you alone when they realize you’re not going to fall for their tricks.
I was also called by the national service of process for a discover card debt. He said the debt is from 1996 and that 1999 was the last time i paid on it. I am in texas. He says I can settle $3269 for 1500 but must do so in the next 72 hours or I will be served. Is this true? Is there an sol? He said he has documentation but wouldn’t send it because he said it must be done in 72 hours
Comment by wondering — June 12, 2008 @ 5:27 amIn reply to “Wondering,” what you were told is 100% not true. This outfit is apparently
Comment by Charles — June 12, 2008 @ 10:25 amviolating the FDCPA law with every phone call. There is a 4-year SOL in Texas, so you’re miles
beyond that. Here’s what I suggest. Get their contact information (don’t assume it’s the same
that you might hunt up on various Internet websites that monitor collection companies — these
outfits move around a lot, etc.). Then go to the website for your Attorney General and file
a complaint about this company. The more complaints that consumers file about illegal collection
tactics, the faster the AG or the FTC will go after these con artists.
I am being sued by Citibank for a business charge card balance of around $5000
Comment by Helen — June 19, 2008 @ 8:36 pmthat they wrote off in 2005. I have a 1099-C cancellation of debt form, but no
settlement letter. This debt originated in IL, but I moved to TX in the fall of
2005. According to the terms of the charge card, I am personally liable.
I think I made my last payment in January 2005.
Based on prior posts, it sounds like I legally do not owe this debt anymore.
Is it that simple and I can represent myself - or do I need to hire a lawyer
to ensure I properly answer the discover questions?
I already filed the Original Answer due 20 days after being served. It states
I can be granted my costs. Is this just typical jargon, or is it worth my effort
to hire an atty to counter-sue for frivolity and costs?
Helen, I’m not an attorney so I can’t advise you on whether your case has
Comment by Charles — June 20, 2008 @ 7:59 ammerits and would be worth pursuing. But I recommend against representing
yourself in court in this situation. Following your answer to the lawsuit,
there will probably be any number of motions by the other side, demand
for interogatories, etc., and it would make sense to ensure that these are all
properly handled. I recommend you get in touch with a NACA attorney in your neck of
the woods. The website is http://www.naca.net.
Ok, I have debt that originated in ohio, I used to reside there, but have since moved to TX. Which stated will I fall under ofr Statue of Limitations? Can anyone help or guide me in the right direction?
Comment by Jeff — June 26, 2008 @ 1:23 pmJeff, my understanding is that it’s based on whatever state you get sued in.
Comment by Charles — June 27, 2008 @ 7:47 amIf they sue you in Ohio, it won’t do them much good, since a judgment from
one state doesn’t necessarily give them a way to collect against you in a different
state. So for practical purposes, they would need to base collection activity
on the SOL period for TX (4 years).
I have 50,000 in cc debt i have a company telling me i can stop paying now if i join there club and there atterny will take care of it and in 1 year 700 credit score
Comment by ricky — June 27, 2008 @ 6:00 pmRicky, if you believe that sales pitch, then I have a nice bridge for sale you
Comment by Charles — June 28, 2008 @ 5:53 ammay also be interested in! Scroll through the archived posts on this blog, and
read all the articles pertaining to (a) the debt elimination scam, and
b) false claims made by some shady settlement companies. You’ve obviously
been talking to one or the other. Remember the old saying, “If it sounds too
good to be true…”
I have a large amount of CC debt for a business that I have closed. I have 7 cards in total, one card (Citi) has called with an offer to settle at 55%. I am in a position to settle all of these debts at avbout 62%, I don’t have the funds to do 55%. My question is should I allow it to go into a charge off and risk being sued in the state of Arizona and settle for lower then, or do you have a negotiating tip I can offer them before it goes into Charge Off, and one that I can use with others.
Comment by Kay — July 9, 2008 @ 9:45 amThanks for your time
Kay, there appears to be a typo in your comment post. You say you *can* do
Comment by Charles — July 9, 2008 @ 9:59 am62% settlements, yet *cannot* afford a 55% settlement? Anyway, I recommend
that you do settle it before charge-off, and NOT let it go to escalated status
after charge-off. If it goes to a collection attorney in your state, you’re looking
at a much higher percentage than what you already have on the table. As far as
tips are concerned, sorry, but I don’t know enough about your situation to comment
further on tactics. I recommend you consider purchasing one of my program packages
to get the training and coaching needed to take the guesswork out of what you’re
trying to accomplish.
Is an old charged off auto loan considered written contracts and receivables?
Comment by Mary — July 11, 2008 @ 8:55 amMary, an auto loan is indeed a written contract, so the Statute of Limitations
Comment by Charles — July 11, 2008 @ 12:06 pmperiod for written contracts would usually apply to an auto loan. I’m not sure
what you mean by “receivables.”
I have credit card debt that is in judgement and charge off, I don’t have the
Comment by Dawn — July 11, 2008 @ 5:11 pmmoney to pay off these debts but I want to clear up my credit. The collectors
have not attempted to contact me in a while, my debt is about 2-3 years old.
Any suggestions on how to handle my situation.
I received a form 1099-C from the IRS for this tax year (2007) for a debt that it says was canceled on 7-22-2004. I have already paid the appropriate taxes for the amount canceled. Four days ago, I received a letter from an attorney’s office stating that the original creditor for the debt is going to sue me in court for the full amount of the debt. Is this legal? What should I do?
Comment by Jessica C — July 13, 2008 @ 4:40 pmIn reply to Jessica, what you should do is request verification of the debt
Comment by Charles — July 14, 2008 @ 7:08 amfrom the law firm that is threatening you. Also, you state that the IRS issued
you a 1099-C for the canceled debt. However, it’s usually the creditor that issues
the 1099-C, not the IRS. The 1099-C is a form that is sent by the creditor to the
IRS to notify them of the cancellation. Generally, once the debt is forgiven,
that usually stops further collection effort. So you might also consider getting
in touch with the original creditor to correct the mistake.
Wow, I was glad to see that you’re still answering comments here. I’ve been searching but couldn’t find the answers I needed, except for here.
We went through a bad patch and have some old debt and I’m wondering the best way to deal with it. I have three accounts on my credit report listed in collections, but not listed in negative accounts. Two are from SC and the delinquency date is 2005, am I right that the SOL runs out this year? The other is a medical debt from GA from 2004 but I couldn’t understand the GA laws. Since they are in the collections section, does that mean if I pay them, they’ll leave my credit report?
Also, in negative accounts (I know, we’ve gotten back on track but my credit is just awful), there are two collection agencies listed. I read that each debt should only appear once, so can I have those removed, leaving just the original debt holder? And if the SOL has run out, is there any point to paying the new debt holder (other than moral obligation)? It doesn’t seem like it’ll help my credit now.
Comment by Charlotte — July 15, 2008 @ 10:20 amCharlotte, the first point you should understand is that the SOL has nothing to do with the 7-year reporting period for negative items on your credit report. These are two different things entirely. Yes, the SOL is 3 years for SC, and the SOL in GA for medical debt (based on it being a written contract for services) would be 6 years. The SOL is the period in which the creditor can win a lawsuit against you. Expiration of the SOL does not relieve you of the obligation itself, or remove it from your credit file. However, for all practical purposes, there is no point at all in paying or settling an account beyond the SOL period, *unless* you get a credit deletion as part of the deal. Otherwise, you’re just buying another 7 year negative item on your credit report.
So to your question, no, if you pay these debts, it will not remove them from your credit report. It will show as a “paid collection account” or words to that effect, unless you get the creditor/collector to agree to a deletion. And that is usually only possible on debts beyond the SOL period. Also, it’s not necessarily true that a debt will appear only once. If the original creditor placed a charge-off on your file, and then sold the debt to a purchaser, the purchaser may also place their own entry on the file, provided it does not show as a brand-new account with a recent “date opened.”
The bottom line is that settlements or full payoffs will really not do much to improve your credit score at this stage. However, these unresolved obligations are also negatively affecting your debt-to-income ratio, so if you plan a home purchase within the next 1-2 years, it may be wise to go ahead and settle these accounts now so they don’t become a roadblock later. If you don’t plan any major purchases in the next few years, and if no one is attacking you on these accounts through the legal process, then it probably makes more sense to let things stand as they are for the time being.
Comment by Charles — July 15, 2008 @ 11:49 amResponding to Dawn from a question/comment on 7/11: I suggest you focus first
Comment by Charles — July 15, 2008 @ 11:54 amon resolving any judgment debts, simply because you risk follow-up collection
activity of a much more serious nature on an account that’s gone to judgment, versus
one that has not. There is an entire sub-industry of judgment recovery that specializes
in aggressive collection on this type of debt. What you should do is determine
which accounts are in judgment status, then build up your resources until you have
funds to negotiate with. When you have approximately 50% for an account, then get
in touch with the attorney firm that filed suit and see if they will do a settlement
with you. Usually, on really fresh judgments, it’s not possible to get a good deal,
but when a judgment is 2-3 years old, you can often get 50%.
How can Junk Debt Buying companies file any claim on old Credit Card debts when the SOL has ran out? I mean just because they buy the old debt, how do they have any rights to collect on it when the SOL has ran out? What are our rights on this issue? I see this happening alot more lately with more people being harrassed by these types of companies. How are they able to do this?
Comment by Denise — July 17, 2008 @ 7:51 amDenise, in most states it is not illegal for a creditor to file a lawsuit after the
Comment by Charles — July 17, 2008 @ 8:32 amSOL period has expired. Most consumers on the receiving end of such a lawsuit promptly
stick their head in the sand and ignore the problem hoping it will go away. But the
creditor will then get a default judgment, at which point the SOL goes out the window
and the judgment takes precedence. Judgments can be vacated, but it’s much easier to
prevent the judgment in the first place. If a person gets sued on an expired debt,
they still need to defend themselves and formally respond by asserting that the debt
is time-barred under the SOL for their state. The bottom line is that the consumer
has rights in this situation, but it’s still necessary for the consumer to learn
about those rights and to exercise them. The most effective method of preventing such
a lawsuit in the first place is for the debtor to send a validation letter to the
debt purchaser. It’s very unlikely that a purchaser will be able to properly document
their claim on an old expired account. And this will greatly decrease the odds that
the purchaser will pursue legal action, once they realize the debtor knows their
right to demand proof.
I have a charge off on a vehicle that is back from 2003, It was
Comment by Sharon — July 22, 2008 @ 5:23 ampurchased brand new(with no gap insurance) Had I known there was such a insurance I would have took it. I made payments on time for two and half years @716.00 monthly, the vehicle was totaled and my insurance paid market value, what they show is all interest.
At this point should I settle this or just let it run its coarse?
Thanks for your time.
Sharon, we’re talking about a 5-year old account that should drop off your
Comment by Charles — July 22, 2008 @ 8:39 amcredit report in 2 more years. Settling it at this late date will only buy you
another 7 years of negative credit. However, if you are getting fresh collection
activity on the account, that’s a different story, and then the answer would
depend on the Statute of Limitations period for written contracts in your state.
In other words, if you are being threatened by collectors, and are still within
the SOL period, then there is risk of litigation by a debt purchaser. If all is
quiet, then I would simply wait out the SOL period and let it drop off your report.