It is upsetting to get a letter from a debt collector indicating an old charge-off debt accumulated four years ago. You could be wondering whether it is advisable to pay it or if you could just ignore it; could you still be owing this amount? Before determining whether it is legal and reasonable to pay for a charge-off beyond the statute of limited time, one must carefully analyze the following elements.
Describes a Charge-Off.
In accounting, charge-off is the process by which a creditor writes off a debt as a loss following which the amount is considered as bad debt. Most typically this happens when the creditor notes the amount off as a loss while the account is past due for 180 days or longer. Although you still owe legally for the amount, the original creditor can remove it from his records and sell it to a debt buyer company at a much-reduced value.
Reported to the credit bureaus, the charge-off shows on the credit report and causes a default that could drag down the credit score for up to seven years from the date of delinquency. Charge-offs cause a very negative effect on credit use and signal failure to satisfy credit commitments.
Debt Statute of Limitations
The statute of limitations is the time debt collectors or creditors have under which they may suit you in court action with an eye toward recoupment of your money. Depending on credit reporting agency regulations, it counts from the date of the last payment or from when the account is charged off. The state and nature of debt determine the varying time duration of the statute of limitations:
Three to six years of credit card debt
Auto loans range in length based on the state from three to ten years.
Medical expenses: Depending on state regulations, these run for about 36 months to 120 months.
Federal student loans: no restriction here.
Should the collector have a charge-off with a certain age meaning that the time of suing falls outside the term defined by the state statute of limitation, the collector cannot effectively sue you. It does not, however, completely rule out the reality that the debt is real or that it may compromise your credit report and score going forward.
When it pays to pay: the case of the old charge-off debt
The reality is, though, that you still have obligations to pay the money back even if a charge-off past the statute of limitations. These important considerations should help one determine if it is wise to pay back an old charge-off:
Would you like to improve your low credit score? Paying off a charge for even less helps to remove it from the credit record, so strengthening the credit history. Payment plans re-age the negative item but show that you are currently choosing debt responsibilities.
Can the collector sue, and will his case be decided in his favor? If the statute of limitations has passed, I would suppose this is not likely. If it is still active, though, the collector should make sure they have sufficient documentation to capture should they be taken to court.
Is debt-related financial pressure growing concerning? It is advisable to free yourself of all the balances you could be possessing to release yourself of the continuous pressure of debt collectors and other outstanding amounts.
Do you have any assets, which could be gathered in a lawsuit? Couples living in one of the community property states should be advised that collectors can pursue married property even if only one of the couple owes a debt. Paying might turn out to be a good decision to protect the interests of the particular shared property.
Is hardship caused by $10.00 monthly payments? Should the collector insist on more than you can afford each month, dispute on other conditions, or even better do not pay. Try not to stretch your finances too far.
Mendoza's choice centers on the very issue of whether one should pay or not.
These are some broad rules on whether it would be advisable to pay back an old charge-off account:
Pay off the charge-off. Should :
You want to raise your credit score; basically, the concept is that the account is still inside the statute of limitations period; you know that you have some assets that would be in danger should you ever be sued.
A fair monthly payment is one you can afford.
Should you not pay the charge-off, avoid:
I surpass the Statute of Limitations.
You cannot afford the payments and are not quite wealthy.
The following: As has been noted, the original creditor cannot show proof or documentation of the debt's specifics.
In particular, The collector rules out fair payment terms
Dory, the author of this work, collects from the Simpsons television series.
Once you have a deal, make sure it is documented since another thing to keep in mind is negotiating about payments and payment systems afterward. Once the repayment schedule is completed, the letter should explicitly state the manner of payment and the circumstances under which the account holders will be noted as paid or deleted from your credit records. Furthermore, avoid sharing credit card or bank account information via the website.
Dealing with debt acquired on past charge-off accounts might present difficulties for the administration. Therefore, knowing when the statute of limitations runs out and the respective expenses and benefits help you to make a logical choice on how to move forward. The best aim is to keep one's mental health without stressing the money too much.
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