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C&D, expired SOL and other ways to be debt free

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Posted by Katherine (205.188.209.12) on October 12, 2002 at 23:12:38:

In debt collection there is a term known as the “least informed consumer” referring to a person that is naive and unaware of their laws/rights. I’ve been reading dozens of posts on this site and found that the “misinformed consumer” can actually put themselves in a worse position. I know the following info is long but it is intended to help. Here are some myths/misconceptions and other things that can hinder more than help you:

-A “cease and desist” (C&D) letter will make the debt go away. FALSE— Many studies will prove that the most effective method of communication is verbal. Once a collection company receives a C&D letter they may only communicate through the mail thus it is less effective. In order to continue collection efforts/avoid operating on a loss the debt is then transferred to another company. Ex: If you were to send a C&D with request for validation to a CA and receive nothing further for some time, the debt is actually being forwarded or sold to another company and you will hear from them later down the road. A C&D does not in any way affect the account, only who it is placed with.

-Statute of Limitations (SOL) Once the SOL is up the debt is “uncollectable”- FALSE—SOL is exactly what it states: further limitations—SOL provides a cap on the # of years in which legal recourse can take place. That does not mean the debt is no longer valid. It is still collectable. There are tighter restrictions on collection methods (i.e. repossession no longer may take place etc.) once the SOL is up, however, collection efforts do still continue. For instance- a mark on your credit will stay on there for 7 years and the SOL in California is 4 yrs. Even if an account has surpassed the 4 yr SOL it would still remain on your credit. Hence old debt, though it may lie dormant for several years, never goes away.

-“I checked my credit and this account isn’t on there, therefore it must not be valid.” FALSE—Reverse example from the SOL—The SOL in Ohio is 15 yrs and the account falls off after 7- that is an additional 8 yrs where the account wouldn’t show on your credit report and you are still at risk of legal pursuit. Also, stricter laws regarding credit reporting are in practice whereas not all collection agencies report the item though they will inquire on your credit. The dormant periods may be to your benefit to allow time to clear up the account before it “pops back up” and your options aren’t as generous.

Divorce Decrees—“My former spouse was supposed to pay that and they didn’t so get the money from them.” --- Unfortunately contractual law supercedes a divorce decree. If the account was in your name and the former was ordered to pay and didn’t, regardless of decree, it is originally in your name (or both and the other filed bankruptcy (joint while married is the exception)) it is your credit that will be affected and you who will be hounded, not the spouse.

“That debt was written off years ago/You bought this debt and made a bad investment.” – The actual term is a charge off. That means the account is placed as an R9 rating (credit goes from R1 to R9—R9 being the worst) and sent to collections. A “write-off” very rarely occurs (usually and only if the original creditor is responsible for payment default). The collection industry may be unpleasant to deal with however it is very necessary. Think about it this way- There are really only about 5 major banks in the world, all of who have many subsidiaries. Say for example you had a credit card issued through ABC Bank, who down the line the line is actually owned by Citibank. You stop paying on your credit card and the balance is 2,000$. Obviously Citibank isn’t going to say “oh well”. They send it to their in-house collections and if they are unsuccessful, the account is then “charged off” meaning sold. Here is where the necessary part comes in. If collection agencies/acquisition firms were abolished nobody would buy our debts – therefore all banks would suffer great losses on a constant basis – therefore banks would stop providing credit because they (being the billion dollar industries they are) wouldn’t even be able to afford to extend of credit. Point being- debt will always be passed on until satisfied to keep credit as it is.

“The mark is already going to be on my credit for 7 yrs, so it wouldn’t even matter if I paid it.” FALSE— Upon clearance of a final payment or settlement, demand a letter of release. Once you have received that it is your duty as the consumer to forward the copy to Transunion, Equifax and Experian. Upon your request and letter of release the item will be expunged from your credit record, regardless if you settled or paid the full amount.

These are just a few of the many misconceptions of the world of collections (and I’ve dealt with more than my share!). It is very important to know your rights but more important, to know their rights. Ignoring the messages, blowing whistles in the phone and having your three year old screen the calls will A- set a bad example for your children B- give the collector/agency more motivation to call you and C- only make things worse in the long run. “Working hard to restore credit” doesn’t entail sitting by while the R9 runs its 7 yr. course and letting the phone ring off the hook. The only way to rid the calls, marks and negative inquiries is to work within your means. Chances are if you have an account in collections and call to make a reasonable settlement offer, they will probably take it (or at least counter offer). The point of all of this is that it doesn’t go away, but you are in control of the situation if you work within your rights and means. That’s how I got out of 30K in debt without bankruptcy or consolidation. Hope this helps!


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