Sunday, January 22, 2012

Collection Agency Re-aged Derogatory Information On Credit Report

If you're one of the many Americans who are lying low and waiting for old collections to fall off your credit report, you may be in for a nasty shock. Some unethical collection agencies tamper with the dates they report to the credit bureaus. By changing the dates associated with the account, the collection agency can ensure that a derogatory entry remains on your credit report for longer than the law allows. This process is known as "re-aging" and it is illegal.

How Debt Collectors Re-age Debts

You may end up waiting longer than 7 years...
Let's say your original debt was a defaulted credit card debt and you stopped making payments in January of 2005. In June of 2005 – 180 days later – the credit card company assigns your defaulted account to a collection agency and updates your credit report to reflect that the debt you owe was charged off. When the collection agency gets the debt, it adds a new derogatory trade line to your credit report. Now you have both the original creditor's derogatory entry and one from a collection agency.

The Fair Credit Reporting Act dictates that most debts can only remain on your credit report for 7 years and 180 days from the date of first delinquency. The date of first delinquency is the date that your payments to the original creditor were first classified as late.

What many debtors don't realize is that the DOFD applies to all entries for a given debt. Because few creditors send accounts to collection agencies until they are 180 days' delinquent, collection agency entries rarely remain on debtors' credit records for the full 7.5-year period. The absolute latest a collection account should disappear is at the same time as the original creditor's charge-off. In other words, it simply isn't legal for a collection agency to leave derogatory information on your credit report for longer than the original creditor.



SOL and the Credit Reporting Period

Don't confuse the statute of limitations for lawsuits with the credit reporting period's statute of limitations. These are two totally different time frames. The statute of limitations for lawsuits refers to the amount of time a debt collector can legally sue you in your state. Each state has different statutes of limitations. The credit reporting period – 7.5 years – is federally mandated and the same in every state. Generally the statute of limitations for lawsuits expires long before the credit reporting period.

This is covered in more detail here: The Credit Reporting Period vs. the Statute of Limitations

Re-aged Collection Accounts

If you pull your credit report and the original creditor's derogatory information is gone but a collection agency's negative trade line lingers on your report, there's a good change the collector re-aged your debt.

Re-aging sets back the clock on your debt.


When a debt collector re-ages accounts, it reports a date of first delinquency that is much later than the actual DOFD. In the above example, our DOFD was January of 2005. The collection agency gets the account in June of 2005. If the collection agency reports the date of first delinquency as the date it received the account – in June – the derogatory information will remain on your credit report until June of 2012, rather than being removed in January of 2012, as federal law dictates it should be.

Although clearly illegal, this nasty little trick is incredibly common. I see it literally All. The. Time. A collection agency that regularly alters the dates on its accounts could theoretically ensure that a collection account remains on your credit report indefinitely.

What To Do About Re-aged Collection Debts

Removing a re-aged collection account from your credit report is much easier if you have proof to back up your claim of re-aging. This is one reason I recommend that all individuals print out their credit reports from each credit bureau once each year. The dates reflected in the original creditor's trade line prove your claim of re-aging – but that's much harder to do once the original creditor's trade line ages off your account. Most credit card companies don't keep charge-off records longer than 18 months, so getting proof from the original creditor after the fact is difficult, if not impossible.

If you have proof, send it to the credit bureau along with a letter explaining that the collection account is obsolete and should have been deleted, as the 7.5 year period for that particular debt has already passed. Make sure to use the word "obsolete" in your dispute. Disputes are coded and while I won't get into that right now, I will say that you want your dispute to have the "Obsolete" code.

You can also take your re-aging issue up with the collection agency itself. A well-written "I have every right to sue you" letter along with proof of the re-aging is often enough to coerce debt collectors to remove derogatory information from your credit report. Make sure you point out that you want the trade line deleted. Anything less is against federal law.

Thursday, January 12, 2012

Do My Fiance's Bad Debts Become My Responsibility After Marriage?

Reader Question: 

Lee,


I am planning to marry my girlfriend of 3 years this summer. I pay my bills on time, carry low balances on my credit cards and have a decent credit score, but my fiance's credit is a real mess. We pulled her free credit report to see what was on there and discovered two defaulted credit cards that have gone to collections and a car repossession from 2007. 


This scares me. I love her and want to get married no matter what, but I don't want to marry into her debt. Am I legally responsible for these accounts after we get married? Will they then show up on my credit report and trash my good credit score, or am I safe?


Darien

Answer:

Darien,

Marrying your girlfriend doesn't automatically make you responsible for her debts. You don't mention where you live, but even couples living in community property states (states that consider assets and debts the responsibility of both spouses, no matter which spouse's name is attached to the item or liability) protect you from "marrying into debt" so to speak.

Marry her, not her debts.
Any property you and your fiance own individually of one another before you get married, remains yours alone. The same is true for debts. Because you aren't legally responsible for a significant other's debts, they will not appear on your credit report. Contrary to popular belief, the credit bureaus do not merge the credit reports of married couples. Everyone has his or her own credit report. Provided you continue paying off your debts responsibly, you will keep your good credit score.

But don't breathe a sigh of relief just yet. You aren't quite in the clear. If your girlfriend's creditors sue her after you get married, they can do things like garnish her pay or garnish your joint checking account. The financial pitfalls of a debt collection lawsuit affect both spouses, not just the one who legally owes the debt.

The car repossession on your girlfriend's credit report should fall off sometime this year. You don't mention how old the collection accounts are, but the Fair Credit Reporting Act limits those to a reporting period of 7.5 years from the date your girlfriend stopped making payments on the cards. Eventually, they'll fall off her report and her score will probably improve. She'll need a decent credit score if the two of you want to make big purchases together after marriage, such as a home or new car. But don't worry about creditors being able to legally come after you for your fiance's debts. You simply aren't liable.

Best of luck,
Lee

Tuesday, January 3, 2012

What Are Your Odds of Being Sued By a Collection Agency?

Most consumers that pay off debts in collections don't do so out of moral obligation. One of two things drives debtors to pay off collections:

1. The misguided belief that doing so will improve their credit scores (it doesn't).


2. Fear of a lawsuit. 

Paying collection agencies is always, always a gamble. Most people don't have the lump sum the company demands just lying around and must pay off the debt bit by bit. The problem here is that when you submit a payment, you restart the statute of limitations for lawsuits

 You'll need a stack of cash for lump sum payments
I've discussed the statute of limitations in depth in other posts, so I'm not going to rehash it now. The short version is that the statute of limitations in your state dictates how much time bill collectors have to sue you before your debt is "obsolete." It's different in every state.

Note: Don't get the statute of limitations mixed up with the reporting period of a collection agency's tradeline on your credit report. They are two entirely different things.

The Ideal Scenario: When the Collection Agency Doesn't Sue

The ideal situation is for the collection agency to seemingly forget about you and for the statute of limitations to pass. Granted, some particularly shady companies will file lawsuits beyond the statute of limitations. Should that occur, its up to you to notify the court that the lawsuit is out-of-statute. In general, however, once the statute of limitations passes, you're pretty much home free.

But if you make any payments on the debt, you extend the statute of limitations. That means that, should you fall into financial trouble and be unable to make your payment one month, you're even more likely to get slapped with a court summons – because the collection agency knows you have the money and they want it.

It's up to you whether you want to keep your fingers crossed and try to wait out the statute of limitations or pay off the debt bit by bit and hope you don't fall on hard times.

Factors That Increase Your Odds of Being Sued By a Collection Agency

Not all collection agencies sue debtors. Some do, some don't. Of those that do, there is often little rational sense behind these lawsuits. For example, I've seen one particular collection agency (Not naming any names here, but its initials are MCM) sue a debtor over a few hundred dollars while completely ignoring a second debtor who owed thousands. As a rule, however, the following factors increase your odds of being sued by collectors.


1. High Debt

The higher the debt, the more danger you're in. It doesn't matter if your original debt was a measly $50. Interest and fees can cause a debt to balloon exponentially. While this is the very thing that makes it impossible to pay, the fact that you didn't owe very much to start with doesn't help you in the lawsuit department. There is no "line in the sand" that defines safe and not safe amounts of debt but, in general, if you owe more than $1000, you've entered the red zone.

2. The Statute of Limitations is About to Expire

You've waited patiently for years, watching the statute of limitations tick away only to get a court summons a couple of months before you're home free. Cruel? Yes. Common? You bet. Suing you isn't free. Many collection agencies wait until the last minute for you to start making payments voluntarily. When you don't, they'll slap you with a lawsuit right before the statute of limitations expires.

3. The Collection Agency Discovers New Assets

Apply for a mortgage recently? Make the mistake of mentioning to a debt collector that you  had a new job and would pay soon, just to get him off the phone? Did your employer recently update your credit report to reflect your new job? New assets means you're able to pay your debt, and collectors smell money like sharks smell blood. Any information you volunteer or that the collection agency can glean from your credit report could come back to haunt you in the form of a lawsuit.

4. You Sent a Cease and Desist Letter

Everywhere I look online I see Average Joe's telling debtors to send Cease and Desist letters to collection agencies. After all, federal law states that once the collection agency receives a written request to stop contacting you, it must oblige. The downside to this is that if your debt is still within the statute of limitations in your state, sending a cease and desist letter is akin to painting a target on your forehead. Because debt collectors can no longer call you or send you letters, the only option they have left is to sue you – and they will.

Monday, January 2, 2012

Reader Question: Citibank Charge-Off in Collections. Can I Settle?

Lee,


I have a $7,500 credit card bill with Citi.  They just charged it off.  They asked for $2,500 to settle but I didn't have the money.  The date of charge-off was XX/XX/XXXX, but I didn't receive the letter until it was too late.  I want to deal directly with Citi but they told me the account was sold to a collection agency.  What can I do?  I want to deal directly with Citi.  Can they pull the account back from the collection agency?  Should I pay?  Who Should I pay?  Will I be sued?  Should I wait seven years?  How do I get the best entries on my credit report?  I don't know what to do.  Please help ASAP.  I want to call them immediately.


Thanks,
Bobby

Bobby,

For future reference, when a credit card company offers a settlement you can always ask for a payment plan. I don't know a single person with outstanding credit card debt who just happens to have $2500 laying around that they can negotiate a settlement with.

The charge off date was fairly recent. At this point you should be able to work out a deal with the collection agency in which you pay off the debt in installments and they agree not to report the debt to the credit bureaus. If the company agrees, get everything in writing before you pay them a dime. Collection agencies aren't known for their honesty. It won't negate the charge-off on your credit report, but it will prevent you from being sued or facing additional credit damage when the collection agency adds its negative tradeline to your credit report.

I know that you don't want to deal with a collection agency, but you no longer have that choice. You can always call Citibank and explain that you want to pay the debt, but – and I'm being brutally honest here – the odds of Citibank agreeing to recall your account from the collection agency aren't good. Unless you walk in swinging the full $7500, you'll probably get transferred from rude representative to rude representative until you get frustrated and hang up. If Citibank will take the payment, however, go for it, but keep in mind that a payment plan is unlikely to be a possibility at this point.

As far as a lawsuit goes, the higher the debt, the more likely the lawsuit. In this case, the collection agency will pull your credit report, examine your employment history and decide whether or not to sue you based on that information. For example, if you have a full time job, own your own home and are not subject to any wage garnishments, you'll probably get sued over a debt as high as $7500 – and they'll sue for the full amount, not the settlement amount. If you're over 65, a renter and living on Social Security, however, suing you is pretty pointless since they can't garnish Social Security or place a lien on a rental home. Whether or not they sue just depends on your specific financial situation.

Waiting seven years has nothing to do with getting sued. The statute of limitations for debt collection lawsuits in your state determines how much time a collector has to sue you. The seven years just refers to the amount of time the entry remains on your credit report. Whether you pay it or not you still have to wait out the seven years for the charge-off to come off your credit report. If you can work out a payment arrangement with the collection agency before they report the debt to the credit bureaus, you may not have to contend with an additional negative entry.

Here's the rub: The longer you go without paying, the more likely the collection agency is to offer you a lower settlement, but trying to wait out the collection agency is a gamble if the debt is still within the statute of limitations because the company could sue you at any time. In my opinion, your best bet right now is to try and negotiate a settlement with the collection agency in exchange for the company not reporting the debt to the credit bureaus.

As far as your credit goes, just keep paying your bills on time. I could sit here and give you a breakdown of millions of little tips and tricks, but you can find that information anywhere. Your best bet is just to continue paying your current creditors and always pay on time. The more time that passes, the less the charge-off on your credit report will hurt you. Entries lose importance as they age.

Lee


Do you have a collection question you can't seem to find the answer to? Send your questions to LeeEdwards@mail.com and they may become the topic of a future post.    

Can Collectors Garnish a Prepaid Visa Debit Card?

If you have bad credit and cannot qualify for a regular credit card, prepaid visa debit cards are a good alternative. Consumers hiding from debt collectors are sometimes hesitant to load money onto a prepaid debit card for fear that it will be garnished. Fortunately, this fear is almost always unfounded.

How Prepaid Cards Work

I know, I know, you probably already know exactly how your prepaid Visa card works but, just for kicks, lets inform those who may not.

Your prepaid Visa card looks like a credit card, but its an entirely different beast. Rather than borrowing money from a creditor and paying hefty interest charges and fees for the privilege, the prepaid card allows you to make purchases using your own money. It's just like paying with cash.

Although sometimes referred to as a debit card (I'm guilty of doing that myself), a prepaid card is as different from a debit card as it is from a credit card. When you make a purchase with a debit card, your bank immediately deducts the cost of the purchase from the bank account the debit card is connected to. A prepaid card doesn't have the same "pay as you go" freedom. You load money onto the prepaid card, use it until its empty, rinse, repeat.

To make a long story short, a Visa prepaid card is a renewable gift card to just about everywhere.

Garnishing a Prepaid Card

Collectors everywhere would love to be able to garnish your Visa prepaid card – but they can't. Their first obstacle in garnishing the card would be finding out about its existence. Unlike a credit card, your prepaid debit card does not show up on your credit report. Collection agencies can pull your credit report, but because the card does not show up on your credit record, pulling your credit report won't help them determine whether or not you have a prepaid Visa card. The only way they're going to find out about your account is if you tell them yourself, and you're not dumb enough to do that, are you? No? Good. Moving on.

Judgments and Garnishment

A collection agency can't garnish anything without a court judgment. Collectors obtain a court judgment by suing you and winning the lawsuit. Your state laws determine what and how much the collection agency can take, but collectors can generally garnish both your wages and your bank account – but they can't garnish a prepaid card.

Why Can't Debt Collectors Garnish Prepaid Debit Cards?

The very thing that makes prepaid cards so popular is what protects consumers from their seizure: the cards' novelty. Prepaid debit cards are a relatively new concept. As of right now, there simply aren't procedures in place for judgment creditors to garnish those types of accounts. In addition to instituting garnishment procedures, state laws would need to be modified before judgment creditors would have even the smallest sliver of hope of getting their hands on those funds.

Keep your money safe with a prepaid card.
What it comes down to is this: You may not be protected forever, but you're safe right now. I fully expect the collection industry to lobby hard for a way to track and garnish prepaid cards. Debtors across the country are slowly realizing that they can prevent bank account garnishment by using prepaid cards in lieu of a bank account. Creditors hate this.

If you're facing a lawsuit or already have a collection judgment against you, you probably have a laundry list of things to worry about. Fortunately, losing your prepaid Visa debit card to garnishment doesn't have to be on that list.