Make a deal with debt collectors
Sometimes you can settle for less than you owe. Other times you can tidy up your credit report by paying your entire debt. And occasionally, time just runs out on collection agencies.
That bill has been sitting at the bottom of your paperwork pile for a while, and despite your best effort, ignoring it hasn't made it go away.
Now you've acquired somebody who wants to be your new best friend: a debt collector.
You can't wait any longer to face it. In fact, many credit experts say that consumers too often dodge opportunities to resolve their money issues with debt collectors when they should work them out.
"If you know you lost your job and you don't have the money to pay your creditors, don't be reactive, be proactive," says Robin Holland, a spokeswoman for Equifax, a credit reporting agency. But many people don't know what to do when it comes to working out a deal with a debt collector. The following answers could help.
True or false: An account sent to collection still can be deleted from your credit report.
True. A deletion is possible, but that doesn't mean all creditors will agree to it, cautions Los Angeles consumer-credit attorney Edward Jamison of the Jamison Law Group, which specializes in helping consumers get their credit ratings restored. Even if a collection agency agrees to a deletion, it's only of limited value.
Maxine Sweet, a spokeswoman for credit reporting agency Experian, explains that if the deletion letter came from the collection agency, only the collection account would be removed. The original credit or account from the creditor would remain on the report. "The original creditor can verify to us that the original debt was an error and should not have gone to collection and instruct us to remove both the original account and the collection account," Sweet says. Jamison explains that the creditor deletion gets rid of the account completely. This, in turn, "helps the credit score because it is like it never happened, where a paid collection means you were not creditworthy in the past."
He advises that if the consumer is able to get a deletion, have the letter faxed stating the terms. For instance, it could say: "I, ABC Collection, agree to delete John Doe's collection account with the account number 1854642 in return for John Doe paying X dollars." Make sure it's signed by someone at the company. But, the consumer can't demand a deletion without reason, warns Pamela Baird, a collection attorney for Lacy Katzen, a law firm in Rochester, N.Y.
"If it's disputed, and they investigate it, and they find the debt has been reported in error or inaccurately, they delete it," Baird says. "They are telling the credit reporting agency they want that trade line taken off the consumer's credit report."
Craig Watts, the public-affairs manager at consulting firm and credit scorer Fair Isaac, believes some creditors seldom provide deletions because it can be deceptive. "One of the main reasons lenders do business with credit bureaus is because lenders want a better view of the risk involved in extending credit to any individual," he says. "Deleting a collection account from a person's history is not in the best interest of the lender because such information is important to a fair assessment of the person's credit risk."
True or false: Paid-in-full collections are better than settled.
It depends on whom you ask. If it's not possible to get an account removed from your report, Jamison suggests settling. He believes this move can prevent the resale of your debt, prevent a lawsuit and alleviate damage to your credit report and credit score.
It's not your imagination, there is a squeeze on the middle class. MSN Money's Liz Pulliam Weston explains how it's possible for anyone to get in the middle class -- and stay there.
Collection agencies will act as the middlemen during the deal, says Jill Jensen, the director of Omnium Worldwide, a collection agency. She says Omnium's clients, which include banks, credit card companies and phone companies, will define the parameters for settling.
"The client will have payment criteria, for instance, on when the account can be paid, what kind of terms can be offered and in what situations the agency can offer the settlement," she says. For example, Jensen says, a client may tell the debt collector, "The options we have are payment in full or no more than three payments spread over 90 days."
Jensen says the client will expect Omnium to gather enough information about the consumer to decide how much to deviate from the preferred payment in full.
"If the customers' financial situation is such that other terms might be appropriate, we would act as the conduit to the client and seek permission to set payment terms or settlement outside of that area," she says.
If you choose to settle, do so for as little as possible, Jamison cautions.
"It's better to save 50 cents on the dollar and lose a couple points off your credit score by having a settlement as opposed to 'paid in full' because the collection and the charge-off notation is what's hurting the account," he says.
Fair Isaac's Watts explains, "As far as the FICO credit risk score goes, the paid-in-full status is going to have little, if any, effect on the person's score."
True or false: You can be sued after the statute of limitations period ends.
True, technically, says Baird, but only if you reaffirm the debt.
Generally, the statute of limitations is the amount of time the debt collector can take legal action. This action can include a lawsuit or having your wages garnisheed. The time period is set by individual states.
ACA International, a trade association of third-party debt-collection businesses, says the statute of limitations is longest for documents that have been notarized and shortest for actions on open or revolving accounts such as credit card debts.
The countdown begins on an account's last activity, according to ACA. It can restart with a partial payment or a written promise to repay, which reaffirms the debt, depending on the state law.
It's suspended if a consumer leaves the state or is sent to prison. However, the statute doesn't prohibit the collector from going after the debt -- it just prevents the collector from taking any legal action, such as filing a lawsuit or garnisheeing wages.
Jamison, of the Jamison Law Group, says that anytime the statute of limitation is passed, you probably don't want to settle.
If you choose to settle beyond the statute of limitations, Jamison believes the company is more likely to agree to delete the account with payment because the company knows it can't use the threat of a lawsuit.
Omnium's Jensen says her company doesn't sue most of the debtors it deals with.
"The legal process takes time. Most of the accounts we get, we don't have the period of time to sue," she says. "We do occasionally file suit when somebody has the ability to pay but refuses to pay."
Jensen says the agency can determine a person's ability to pay by checking whether he or she is employed. The agency may also review finances by looking at the person's credit report.
Jamison offers this reminder: Don't orally agree with the collector on the phone or send in a payment, even for a dollar, because the statute of limitations will start all over again.
True or false: Credit card charge-offs can't be deleted from your credit report.
False. It's possible. But that doesn't necessarily mean it will happen.
Jamison says it's unlikely to be deleted if you are dealing with a big bank, which probably won't give you a deletion letter. "Reason being, the companies are too big, and they have too much red tape that you have to circumvent to be able to get somebody that can make a judgment call to give you a deletion with payment."
Baird, of law firm Lacy Katzen, disagrees. "If the creditor has a reason to delete a reported debt, then they are going to delete," she says. "Saying that creditors are not deleting because it is not efficient is not accurate."
It's not your imagination, there is a squeeze on the middle class. MSN Money's Liz Pulliam Weston explains how it's possible for anyone to get in the middle class -- and stay there.
True or false: If you have a debt in collections over $2,000, you won't be sued.
False. Jamison warns that when collections get over $2,000, the collection agency is more likely to sue before the statute of limitation ends because there's a lot of money at stake.
Baird agrees.
"Most creditors look at the dollar amount to determine whether they will sue," she says. "They look at whether the person is working or not, whether they own a home or not, the cost of commencing a lawsuit and state-specific avenues for collection related lawsuits and collection."
Jamison hypothetically uses the $2,000 amount because the extra money needed to pay the debt in full may not benefit the consumer as much in return.
"If the person can afford to, I suggest paying in full in return for a deletion for accounts that are $5,000," he says.
If the account is for a credit card, Jamison says, the settlement will depend on how much the person intends on using the card in the future. If the consumer uses it a lot, he advises the consumer to be willing to pay a higher amount to delete. That's if the deletion can be negotiated.
When it comes to collections of less than $2,000, Jamison suggests that getting a deletion is better than getting a deal. Calling the collection agency to settle for 50 cents on the dollar won't work because he believes the agency won't agree to a deletion with payment. Instead, he advises paying the full balance in return for a deletion letter, especially if the consumer is concerned about his or her credit report and credit score.
Baird warns if you do pay in full for an account that may have been charged off, the creditor is under no obligation to delete the account. However, the creditor must report that it is "paid in full."
This article was reported and written by Brigitte Yuille for Bankrate.com.
Published Feb. 9, 2007
