Wednesday, April 24, 2013

Settling Collections Before the Statute of Limitations Expires

Hi Lee,

I currently have an account with citi and another with usaa at $4000 each which were just charged off. I would like to get a paid for delete for both at most 50%. I plan on buying a house in a year. A CA is managing the Citi account but Citi still owns it. What do you suggest is the best way of handling both of these debts. I live in Florida SOL is 4 years and I am no where near that. I realize that settling without a PFD would not help my credit score.. Help!! Thanks..

- SA


I appreciate your enthusiasm. Unfortunately, your odds of getting a pay for delete from either of these creditors is slim to none. Let me explain:

The credit card companies want the full amount. The collection agencies also want the full amount because they collect a percentage of whatever they can convince you to pay. Even if the collection agency were to agree to a pay-for-delete for a debt this young, they only have control over their own trade line. The original creditors' trade lines that illustrated the charge offs are still going to be there unless that pay-for-delete comes from the credit card companies themselves.

I see what you're trying to do. You want to negotiate a pay-for-delete with the original creditors. Doing so would require them to pull the debts out of collections – effectively eliminating the collection agencies' trade lines – and delete their own charge offs as part of the arrangement. You then get a clean credit report and the ability to qualify for a mortgage while only paying half of the debt. 

These days, however, pay-for-delete's are a rare beast and you'll almost never be able to negotiate one with an original creditor. You may be successful in getting the debt settlement you want, and you may be successful in getting it from the original creditors instead of the collection agencies, just don't expect a pay-for-delete to be a part of that agreement. Most of the time, there's really no point to paying anything on a debt if the creditor in question won't delete it from your credit report. 

Buying a house in the future isn't an immediate concern. The potential for a lawsuit is. Although a lawsuit is more likely when you owe more than $1000, collectors in this tough economy are often suing for much less – and you're sporting two debts with a $4000 price tag each. 

Whatever you do, tread carefully. If you start making calls and asking for a settlement, that's going to show your creditors that you have some extra cash on hand that you could be using to pay the debt. Why should they agree to settle the debt with you for half of what you owe when its much cheaper for the credit card company or collection agency to simply sue you and force you to pay the whole thing? Collection agencies often don't have a leg to stand on when it comes to lawsuits, but your debt is relatively recent and there's a fair chance that the paperwork to back up your debt in court is still easily attainable – especially if its the original creditor who opts to sue. 

Don't get me wrong, I'm not saying its not a good idea. I'm just saying its not a good idea right now. If you wait until the SOL has expired on both debts before starting negotiations, the collection agencies have no choice but to work with you if they want to get paid (and if you're offering 50% of a $4000 debt, they'll want to get paid). Do it now however, and its akin to waving a red flag in front of a bull. If you think collections will hurt your chances of qualifying for a mortgage, wait till you see what a civil judgment and garnishment will do. You can certainly try, but in my opinion it simply isn't worth the risk. 


  1. I am going through something right now regarding collections on a medical debt. I switched insurance companies and the provider continued to bill the old insurance company. Two and a half years later, they sent me to collections. This is the first I have heard of the debt although they claim they sent letters. I disputed the debt and haven't received verification yet; although, the collection agency called to find out why I haven't paid the debt since they sent the verification. I informed them I haven't received it and they said I needed to move quickly on this because they would put it on my credit report in the next day or so. I updated my insurance information, but the provider failed to bill the correct insurance provider. I know they had the information because my co-pays changed from $20 to $10. On the disputed dates of service, I paid the new co-pay. The collection agency says I have two options: 1) let it go on my credit as a disputed debt; 2) pay it in full. What recourse do I have?

    1. It's time to contact the creditor of this debt and fight the good fight. Get on the phone with customer service, ask for a supervisor. Explain the situation. Tell them the new insurer would be more than happy to pay and request that they call off the dogs until this gets resolved. Make it very clear that you are a reasonable person and definitely would have contacted them earlier had you been aware of the debt's existence. They deal with this sort of thing regularly and should work with you. Don't play ball with the collection agency at all. They don't care about the mix-up. Go directly to the creditor.

      If the CA reports a trade line to your credit report, you need to take that up with the creditor as well. If the account never should have been sent to collections, then any repercussions should be immediately corrected.

      Worst case scenario, you can pay the debt in full and then negotiate with the insurance company, but only do so if you get a notice in writing from the CA that it will NOT report the debt. Otherwise, mark my words, you will pay it and they will report it afterward and refuse to remove it.

  2. Thanks for the reply.. I have spoke to each of them once over the phone and they offered about a 40% reduction in the balance ( a little over $2400 each) but they would not delete the account at all. At the end of the phone call I decided to sit on it and asked them to only contact me by mail. I will take your advice and sit on it and hope they don't sue. I do have the money but I do not want to pay if I can't get it deleted. The collection agencies (United Recovery Systems) said they do not allow pay for delete and they do not own the account. I don't know if this is true. I am going to stop all communication with them and wait it out. If they do decide to sue which you stated is a very likely scenario, how long will it be until then and will there be a "heads up" prior to them initiating the lawsuit. Thanks again..

  3. When a collection agency gets ready to sue, it transfers the account to an attorney. Attorneys vary, but most will send the debtor a formal letter demanding that he make payment arrangements lest the company proceed with a lawsuit. Lawsuits very rarely just pop up out of the blue. Most of the people who end up with a surprise judgment did so because the collection agency did not have the correct contact information. Now, that's not to say that a collection agency HAS to warn you before suing, they don't. Most, however, will. After all, why pay all those court costs if the threat to sue might work just as well for free?