Fixing Money Troubles: When Good Debts Go Bad
If you fall late on payments to your creditors, you will be notified of penalties on your next billing cycle. You will also be subject to calls from your creditors, from what they call the “in-house collections department.” They will ask you things such as, “why were you late?” or “what was the problem last month?” Keep in mind, that whatever they are asking, in whatever manner they do it, their only concern is “how much can you pay and how soon can you pay it?” You are not obligated to give reasons for your tardiness in payment. You are only obligated to state when you will be able to pay and how much you will be able to pay.
If you cannot resolve the situation with the in-house collectors, over the course of the next few months, you will then be subject to calls from outside collectors, who will be more aggressive (sometimes nasty) in their pursuit of your payment(s). Fortunately, when it comes to third party collectors, you do have rights under the Fair Debt Collection Practices Acts. In general, under this act, collectors cannot threaten you in any way, unless they are informing you of their intention to file a suit against you to collect the debt. They cannot threaten to seize your property. They cannot speak to anyone but you, your spouse or your attorney regarding your debt and they cannot threaten you with jail. (You can find the entire Fair Debt Collection Practices Act text at the Federal Trade Commission website, FTC.gov.)
Keep in mind that collectors generally get paid a commission from what they collect, so they will not be working in your best interests. If you come to a payment agreement, make sure that you get it in writing and DO NOT give out your checking account information, nor should you agree to pay with a credit card. Any payment should be made by a certified check or money order and you must hold to this, as many times a collector will drain your checking account and then say that you agreed to it.
If you are unable to come to an agreement to pay off the debt, the collector then can either sue you or refer your account to a collection attorney. A collection attorney will be even more aggressive and threatening, but is still subject to the provisions of the FDCPA. However, once a suit is filed and you have received the notice, you need to appear at the court on the specified day. Failure to appear will mean a judgment automatically goes against you. If you appear and can appeal to the judge, he may try to have the collector work out an arrangement with you on the spot. If not, he will place the debt in judgment. At this point, the judgment will appear on your credit report and can stay there for up to 7 years (and sometimes longer) this will affect your ability to obtain future credit and if you have property, a lien can be put on the property. (Keep in mind that they can not seize your property, but they can prevent you from selling it without settling the debt)
Charge-offs: If a creditor/collector has determined that you cannot/will not pay the debt, they may consider it a charged-off debt. Once again, this will appear on your credit report as a negative. In addition, some companies will buy this type of debt for cents on the dollar and will then try to collect it from you for as much as they can get.
In most cases, if the debt has already gone to judgment or charge-off, it is unlikely that it be taken off your credit report, so unless you get it in writing that it will be, do not deal with this type of company. (Note: It may sometimes be years later that this situation occurs, so you should try to keep some records of past debt and you should ask the company who the original creditor was)
If you have been in any of these scenarios and now have bad credit, you can obtain a secured credit card and use it regularly for several months. This will not take away negative notations on your credit report, but will reestablish a good payment history and raise your score, as well as show potential lenders that you are a reliable debtor.
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