I'm of the firm belief that if you borrow money, you should pay it back. Sure, life circumstances occur and you may not be able to do so anytime soon... yet fair is fair. If I am given money from you, I should eventually pay it back to you. That is the right thing to do.
Yet, the loopholes are many. If I had to do it all over again... and I just might, I would passionately study law. I haven't been able to verify what I'm about to write (which is why I would make a bad attorney on paper), but have you heard of the following...
If a debt that you owe is too old, you are NOT required to pay it.
Before I delve into that, it's probably best to know how collection agencies work. I issue you a credit card from the International Bank of Jason Sardi which allows you to borrow up to $5,000.00 against it... assuming monthly payments are made on time. You are doing well and everything is wonderful and paying the IBJS just fine, but then you run into a financial funk. You begin to not pay anything to the IBJS and eventually the IBJS writes off the debt as uncollectible. After all, you can't squeeze blood from a turnip... or so they say. So, IBJS sells your debt as part of a bundled package to a collection agency for a very low price to get it off 'their' books and/or portfolio line. That collection agency, who bought your debt pretty darn cheap, hopes to collect high and reap mucho profits along the way.
Each state differs in their laws, yet if you have a debt that was written off (let's say 6 or 7 years ago) and there has been no activty on your credit report for the debt since then, you are probably relieved of that debt forever. Like a gallon of milk that you are buying from the store, it seems debts have an expiration date as well.
In Pennsylvania, it seems that four years is the magic number. I could arm you with some of the knowledge and information to rebuke that debt, but I'd rather suggest to you to negotiate a settlement... what is fair is fair. The International Bank of Jason Sardi issued you a credit line of $5,000.00 and you racked up $3,000 in expenses before you stopped paying. A collection agency paid IBJS $500.00 for the account/debt after IBJS deemed it 'a loss'. Tack onto that $3000.00 accrued interest, late fees, and any sort of greed-driven drivel they want; that account may show up with a $5,000.00 balance after all. The collection agency just shelled out $500.00 in lieu of possibly collecting $5,000.00! No way, Jose!! Negotiate yourself to financial freedom. Or at least freedom to exorcise those financial demons. Offer low, be prepared to raise the stakes a bit to come to an agreement. If you already own a home or plan on purchasing one, think about not wanting some jack-ass having any dibs whatsoever on your property.
There seems to be a Statute of Limitations on Debt, yet if you aren't a Credit Attorney or don't do your homework... loopholes reside on both sides.
The loophole to distinguish this 'consumer protection' measure is that those agencies keep your account active, which gives them a legal right to pursue the collections or render judgment against your current holdings.
Now, that written... homeowners or prospective homeowners should be aware of a few things here:
- any collection account showing on credit or title has to be paid in full (negotiate a settlement) prior to or at closing
- collections showing up on your credit can hurt your credit score and the lower your score, the more expensive your mortgage (interest rate, fees, etc) may be.
- active collection accounts could render a judgment against any property you may own. Now, most of them won't because it is too expensive or they are just looking for a scare tactic to collect money... but it could be done.
Always remember, almost everything involving debt is negotiable. They would rather have something than nothing. Communicate & Negotiate. You'll be one of the few that do it and reap the rewards for acting upon it.
Don't hide from those you owe money too, get in their face. Show them just how ugly ethical you can be.
Lastly, we are much more than all this 'Financial & Political' talk. Take it easy, relax, and have a good weekend. If you are in trouble, shoot me a message. I won't guarantee I will provide the answer or solution, but I will be a shoulder to your situation. Chaos creates character in us all.
Outstanding!! More later...
You are never relieved of the debt.... it doesn't go away.
1. After 7yrs of no activity it will fall off credit report.
2. After statute of limitations, the creditor can no longer use strong arm tactics like judgments.
But the debt is never forgiven.
Many collection agencies will illegally move up the date of last activity, yes. But this is easily fixed if you know what to do.
Tom, what do you mean by "illegally move up that date of last activity"? Are you referring to the date they purchase the debt?
Jennifer - Staying tuned...
Tom - "But the debt is never forgiven." Badda bing. Some will lead you to believe it is, but it isn't. Nor should it be.
I HEART THE BLOG BUTTON Amanda Hall - I believe Tom is referring to how the collection agencies report to the credit bureaus. You'll see an old debt start reporting as 'new' again by the credit agencies and guess what that does to your credit scores?
Ok I'm back, beer in hand and agreeing with you. Just because there is a statute of limitations, doesn't mean we have a 'get out of jail free' card. We all need to find a way to meet our past obligations. Like that cute sweater my friend Jill borrowed in the 80's and never returned - one of these days I'm going to track that thief down and make her give it back! Just when she least expects it too. Because that sweater is now in style again and she's probably landing hot dates wearing it, which means I'm reporting it as recent activity. Statute of limitations my a*s!
Hi Amanda :)
Amanda is my new hero! The button is BACK!!!!!!!
Sorry, I'm gonna have to disagree here, (respectfully of course). The reasons for which would probably take up another blog post.
If you are making a moral argument that you should pay the debt, maybe.. but from a legal standpoint, no way. SOL's exist for a reason an in fact a consumer may actually be doing more harm than good by paying on an expired debt by resetting the clock on the debt. Also from a credit standpoint having a paid collection (especially an old paid collection) is not going to help the score.
I'll refer you to this FTC publication, regarding the legal issues. I'll save the credit issues for when I ever get around to writing my credit posts.
http://www.ftc.gov/bcp/edu/pubs/consumer/alerts/alt144.shtm
Michelle
Jason,
Great post... what is fair is fair. Is your bank open for business ? What is the rate ??? LOL
Bottom line is people should pay off their debt... and listen to Dave Ramsey and Suzy Ormon often. In reality, financial intelligence should be taught in all grade schools, high school and college.
I thought that in many cases it is not helpful to the credit report to pay off or settle some of the debts because the payoff is an activity that can cause the account (and its history) to remain on the report for 7 years after the payoff.
Hi Jennifer. I'm on NyQuil so I hope I made sense.
The question is legally vs morally. There are too many issues that this is a problem. Debt can be paid anytime, but sometimes it is hard to find the one owed. Debt can only be collected with specific time limits. Jason, I want one of your credit cards too.
Jason~ I believe if you borrow money you should have to pay it back, period. Why would anyone borrow and then think that they shouldn't have to pay it back?
I never understood that kind of thinking...............have you? I mean your word is your word! Right? Better yet, just don't borrow money.....
Jason~ I believe if you borrow money you should have to pay it back, period. Why would anyone borrow and then think that they shouldn't haveto pay it back? I never understood that kind of thinking...............have you? I mean your word is your word! Right? Better yet, just don't borrow money..... (that was me above- don't know why I showed anonymously)
I never want to judge anyone, but . . . I think all should pay debts back. Now, that being said it will depend on who it is and when it is. If you are my client/buyer and it is discovered that you have an outstanding debt on your credit report, I am, for sure, going to tell you that you should call the collection agency and negotiate with them. I will also tell my client not to tell them they are trying to refinance, or buy a home, then they will not be as flexible. I work as a fiduciary agent and I have to do what ever is in the best interest of my client and letting them know that collection agencies negotiate is something I would think I would have to disclose.
Hi Jen :)
Sardi - I didn't realize that this was the case, but I'm not surprised, since there are plenty of things I don't know. Very interesting indeed. Thanks for the informative post. I actually agree that I would feel compelled to pay it back at some point, if humanly possible.
Jason, may I borrow a little money? I would be glad to pay you Tuesday for a hamburger today! If I didn't believe the same as you I wouldn't have so much debt! Thanks for the post.
Later in the rain~Deb
My honey is a STAR!!!
I just love when this happens :) Congratulations!!
Hi again sick Mandy :)
Hi Audrey :)
What an interesting snap shot of the inner workings of the collection process! You earned your little gold star on this one!
Very interesting how the way the system works. I have heard that each time the bad debt issold it is give a new account number so now you have two bad debts and the amounts are different too because of the extra fees from the collection agencies.
Jennifer - I'll decide whether the sweater is cute or not:-) Actually, you will decide and I will roll my eyes and agree. Heck, I still have a car and a lot of my possessions out there with the chap I was going to move to Allentown with. The sucker owes me a lot of money and if he is reading... drop me a Franklin and I'll call it a day.
Michelle- I'm not sure which part you disagree with? Legally, I believe you are correct in regards to SOL's. Another part of my point though, was that qualifying for any type of mortgage loan these days requires any outstanding collections to be paid off. While paying off an old debt probably won't do anything wonderful for one's credit scores (it may even drop it initially) it will relieve one of that barrier to home-ownership or refinancing if they already own their home. Thank you for the link, I'll check it out.
Christopher and Stephanie - "In reality, financial intelligence should be taught in all grade schools, high school and college." I agree with you there 100%... the next debate will become who is teaching them and what is being taught. And yes, I'm open for business. I have the lowest rate in the Great State of Pennsylvania.... 0%. We don't make loans, we give away money. All you have to do is add me to the title of your home:-)
Amanda- I'm not a credit expert per se, though I play one on televisionActive Rain. Here's what I know; as long as a collection account is showing on one's credit or title (of the collateral, your home)... you have to pay if off to get a mortgage. Whether it be Conventional Financing or Government Loans (FHA, VA, etc)... bad debt still showing has to be taken care of. When Sub-prime Mortgages were the loan du jour, that wasn't necessarily the case.
On another note, I've never taken NyQuil. I hear it's a good buzz:-)
Fred - I could have a field day with the laws in regards to debt and credit. It's very interesting... to say the least. Your new IBJS Credit Card is in the mail, just don't use it for approximately two weeks. We are trying to work the AIG angle over here...
Vickie - You would think. I'll stand up for consumers all day long, yet I also believe in personal responsibility. I personally believe there are many credit granting companies out there who aren't worth (ethically) the dollar they just lended to you. But, if you took it... you should pay it back. I'll deal with the accrued interest, late fees, rate changes, etc... that's where the legal part comes into play. That's where SOL's have their place. Life is interesting, most things are negotiable.
I have had a few credit reports from buyer clients that show a balance that was written off and Never have figured out how long it takes before it is off the report.
Audrey - Someday I hope to work together. Better yet, would love to hang with you and your family. I appreciate your outlook and not just because it resembles mine:-)
Crouch - There are so many rules, rights, obligations, regulations (whether they may be enforced or not) that it is mind boggling. Some of me hates those higher-ups... some of me respects them for taking the time to work the system. ALL of me wants to make sure nothing is abused. Impossible task, I know.
Deb - Please refer to my comment to Fred, but I'd gladly issue you a card. There's even a 10% discount when you fly with whatever joint marketing campaign we got going on with ABC Airport.
Jennifer - I was more content being underground... but that's my bad.
Patricia - There was a part of me that wanted to call you just now and pose as a debt collector. My guess is you'd have me for lunch and I didn't want my feelings hurt. So, thank you.
Charles - Duplicates happen, I see them on credit reports frequently. Education is the ultimate cure to debt... well, that and having money:-)
Terry - 7-10 years seems typical, but that is a general statement by me. The laws of bad debt seem set by those lending us our next dime.
Nice star, Jason! I have to agree with Stephanie and Christopher (or the other way around?) that information like this needs to be taught in our schools, and credit card companies need to STOP preying on young college students. They should be FINED for doing so, or something to that effect. Bank of America kept hounding my kid to get a credit card while he was a college student living out of state -- no job, no money, attending school full time on school loans -- and they issue him a card after he finally caved to their *great* offers. Dumb, dumb, dumb. Luckily it wasn't a huge amount, yet he still managed to max it out. Not a great way to start out in life.
Hey - aren't these the rules that Fannie and Freddie used to play by?
So, while they're not paying their debts, guess who is...
Debt doesn't go away; even if you don't pay it, you'll pay it sooner or later. It's called risk-assessment and it's why credit card rates are soaring.
Maybe it's time to bring back debtors' prisons?
Grin,
Matthew Ferrara
Jeannie - I'm embarrassed to say I didn't know what a 'mortgage' even was before entering this business. Some of the response is, "Well, what high school & college did you go too?" I say, "Clarion... look it up." One can't speak about education without also speaking about the curriculum involved.
Matthew - For the most part, I agree with ya. And there is a debtors' prison... we are living in it right now.
Jason,
And IF you negotiate a settlement on such an arrangement, be sure you get the collecting entity to release or satisfy the debt once and for all...!!! Thanks, Fran
Absolutely @ Mr. Fran!
Jason- This is very helpful information. I have found that bad credit entries go away after 7 years and that bankruptcy is off in 10 years and so are judgments. But judgments can be renewed over and over again and thus haunt you for years to come. But if they don't renew the judgment, you can get it off your credit report.
Here in Florida, you can get creditor liens on homesteaded property. That is a great thing about living here but it also creates a lot of people moving here and then filing bankruptcy. The only things that affect your homestead here are IRS tax liens, Property Tax liens, Mortgages, HOA and Mechanics liens.
Jason.. Great advice.. some of the debt collectors can get ugly..they will threaten to all ends
Here are the "Statute of Limitations" on bad debt. The time starts from the "Date of Last Activity". Collection agencies do sometimes update this date and if you dispute or challenge a collection account on your credit report the date of last activity is updated to match the date verified by the creditor. According to the FCRA, neither of these are legal reasons to change this date and you can make them change the date back to the original date.
You are correct in that the "date of last activity" is the factor that determines how much the account impacts your credit score. If an account is over two years old and isn't required to be paid off to obtain a mortgage, you are better off not trying to remove it, settle it, or paying it off as any of these activities will cause your credit score to drop.
If you are convinced that paying it is "the right thing to do", make sure you wait until after you or your customer completes the purchase or refi before dealing with it. I don't think one more month on a two or more year old account will make much difference from a "moral" sense.
(in years)
Agreements
Contracts
Notes
Accounts
:-)
Here is a little more stuff to help put you to sleep, but may come in handy some day.
Generally good accounts remain for up to 10 years and bad accounts remain for 7 years.
Again, the time periods are measured from the "date of last activity"
Courthouse Records remain for 7 years from the date filed except:
Bankruptcy - Chapters 7 and 11: remain 10 years from date filed.
Bankruptcy - Chapter 13 non-dismissed or non-discharged remains 10 years from the date filed.
Paid tax liens remain for up to 7 years from the date released and unpaid remain indefinitely.
New York satisfied judgments remain 5 years from the date filed; paid collections remain 5 years from the date of last activity.
California tax liens remain 7 years from the date filed.
..."If an account is over two years old and isn't required to be paid off to obtain a mortgage," Well Craig, it is required...end of story. That's my point. That's Conventional and/or Government obtained financing. As far as the rest of the credit loopholes, we simply have a difference in idealogy. I understand what you wrote but if you lend me money, I don't pay, and years go by, what will you think of me then? Legally, I could get out in a heartbeat. 'Morally'... well, I didn't sleep with your wife.
Roland - Once you have the knowledge, the threats are indifferent.
Katerina - Key word = liens. We can make it disappear but they may make it re-appear if it is accurate. Loopholes and reality...
Craig - Unless they are in default, are utitlity expenses reported to the bureau? If they aren't, why not? You don't pay them, they report. You do pay them, they remain silent. I'm just looking for some semblance of consistency, that's all.
Jason, the law is the law and I don't have anything to do with that. I don't endorse not paying the debt you owe. Like I said, Jason, "what's one more month if you haven't paid on a debt in over two years". I sure with the high standards that you have, you have never done a mortgage for anyone who has collections or failed to pay someone back, but the rest of us probably have. I am only answering some of the credit questions above. If you don't like my answers, prove them wrong.
..."If an account is over two years old and isn't required to be paid off to obtain a mortgage,"
Please note the word "and". I think you mistook it for "it". Please read it a little slower before "ending the story".
Oh, and 'Morally'....my wife was hit and killed by a drunk driver in 2004 so I'm glad you didn't.
Utility companies don't want to pay to report accounts. It's much cheaper to just report the bad accounts which are the only accounts they can get a return on investment. If you want something worse, most business accounts are the same way.
Craig - Wow... I'm sorry man. Forgive me for that... my bad.
I shouldn't have wrote that. I'm very sorry...
This was incredibly interesting -- learned more about debt, mortgage, date of last activity - and zombie debt - a totally new phrase/concept -- a good thing. And agree that people do need to pay their debt -- my dad was in lumber business, in Southern OR - partner ran off with $/receipts, etc and my mom and dad worked 6 years to pay off. I remember the day my mother sent the last pmt. So it's big in my DNA to do that. And YET, I always have this nagging question about the people who lost a job, had big medical bills, some other catastrophe, weren't THAT much in debt, missed a pmt or two and the interest rate shot up to 20, 26 or higher % --- used to be called usury -- and got slammed, and get into a downward spiral. where is our compassion for situations like that -- as a nation seems to me there is little to none. Even bankruptcy is harder to do - and there are times when maybe that is a consideration, at the least to be able to reorganize in a relatively painless, or inexpensive way. I personally hate credit card companies -- even though I have cards. In some cases of 'bad' debt there is a punitive aspect that I think is out of balance. How long should something follow a person?? Oh, too much going on as a result of the post! thanks, you did give me some more things to talk to my clients about.
Character creates chaos in us all.........chaos creates character in us all........interesting concept......
Jason, and what is interesting about debt, is with the huge debt problems some financial institutions have instead of going bankrupt they get a bailout. Go figure.
Jason,
Here is the problem with the moral argument. You are absolutely right that if you lend me $5000 I have some sort of obligation to pay you. The problem is that once I don't and the account is charged off and you get a tax write-off, you will then sell it to a company that buys junk debt, not for $500 but more like 1 cent on the dollar packaged up in a big portfolio of other junk debts who will then try to threaten and lie to me in order to get me to pay the debt. Now if I suddenly come into money and feel obligated to pay you back, I can't because you've sold my account. As Fred (who spells his last name wrong) points out there is a real question about who the right person to pay is.
As far as the "zombie debt" reference that someone made, these are debts that seem to rise from the dead, and are past the SOL on collection and credit reporting. A collection agency cannot get a judgment on a debt that is past the SOL if you prove that this is the case.
As far as paying off to obtain a mortgage, I understand why it would be required to be paid off within the SOL, not when it is outside of the SOL. I haven't come across this and would be interested in what others say.
Michelle
This is how I explained something to one buyer client: Before the bank lends you money (alot of money!) to purchase a home they really really REALLY would like to see that you have paid what you owe and have been asked repeatedly to pay.
She got it then, and worked on paying off her delinquent accounts. I should also mention that she said she felt a lot better about herself once the last delinquent account was paid in full.
There is a huge variance from state to state....I got a medical bill almost 2 years after the service was rendered that I was unsure was mine....doctor was unfamiliar....too many Sally Hansons....and learned that medical folks have 7 years to bill you....doesn't matter that the insurance will not pay cuz you may not have the same insurance...some things can result in credit issues, clearly not the fault of the consumer...thankfully ours did not.
I appreciate the info - Had no idea - how collection agencies work - and how negotiation is open and can be a great way to go if someone ends up in trouble on the amount of the debt...
Bro,
Those blood sucking slime balls do this for a living so they are just licking their chops waiting to collect extra...If I could buy everything in cash I would...I never really cared that much about interest...now I look and say ...good thing...what kind of interest is there now anyway. I get more dust under my pillow then I do from a bank.
Jason,
I've haard of people being harrassed about old debts that weren't even valid. Good post.
Jason Sardi,
Congrats on the star man. Good input and excellent insight into your market. Shows why you're an industry leader in Pennsylvania! Keep up the good work associate.
I detest "credit reporting companies" and the lack of accurate data that is employed by them. Yes, they are needed but I am amazed at the massive amount of incorrect information and the complete lack of any attempt n their part to try and clean up the mess...but wait, that's not my point. Adebt is always a debt and a persons obligation is to make it good never goes away.
Oh by the way, I traveled to Dallas to watch my son's rugby team from Tulsa play SMU this weekend and told him about you and Mick Foley and he was impressed and amazed at the same time, mentioning that I have extremely interesting Friends "out there". Now Rugby...that's sort of like a gang version of WWF with 15 members on each team...more later!
Credit reporting agencies are nigthmares, underregulated and spoiled by banks and financial instituitions, one of these days we are gonna see some regulation to this nightmare business model and I will make sure to be there to applaud the decision.
Jason,
I also try and order a copy of my credit report for free every year and I have disputed things and won. Unfortunately, you can have claims on there that have nothing to do with you or that you have resolved and still show up.
I think many people feel lost when it comes to trying to make arrangments too pay back their debts. They for the most part don't have relationships with their creditors and definitely not with the collection companies. Good post to dispel fear.
Jason, the eerie thing is, you just hit on a key point of why we as a country are where we are today. People can point the fingers all they want at the Real Estate and Mortgage crisis, but until people are really ready to face the fact that if you borrow money, you should pay it back. If not, the people that you borrow from are the ones that get hurt.
Think of it this way. You borrow money and do not pay it back. Sooner or later, the company that you borrow from can not pay their bills and they go under. Then it effects the companies that are their vendors. And so on and so on. It is a trickle down effect that most people ignore caused by the fact that they are not going to pay that $500 bill.
Great comments by all!
Thanks for the blog, Jason. Excellent chart, Craig. All readers will be better educated after reading this thread.
-Sean
Jason and Craig,
Utility companies do report late payments- at least in Wisconsin and Illinois. I think it's good to try and pay back debts, but I also think we all need to take a walk in our neighbor's shoes.
If the person selling the product/service knows that the person they are selling to might have a hard time affording it and they sell it anyway- is that morally just?
If the a parent has a child or other family member who needs hospitalization or care and their insurance company doesn't foot all the bills and they can't seem to make sufficient payment arrangements for the collection companies who continue to harrass. Are these folks intentionally harming us?
So many variables when it come to credit and the ability/willingness to pay back debt- usually not always black and white.
But big companies can spend money they don't have and write it off in tax credits or declare banktruptcy- is this equality?
Just sayin'.
Jason... great topic of conversation here.... I just don't have time to read the comments. But I did read Craig's comment, with those figures... very interesting. Overall, it's scary and sad. You wonder if there is anyone out there that trys to abuse this information... I would bet...
Hi Jason,
Great Great post Jason. Thank you for the education. It was needed.
Alexsandra - I still love how you spell your name:-) I'm glad this post was able to shed some sort of light on a sometimes very confusing part of our capitalism.
Liz - And a more interesting reality...
Gary - I always kind of thought Chapter 11 was the worst case. Silly me, get the Gov (taxpayers) to flip the bill.
Michelle - You are a smart cookie and (to my knowledge) legally correct. I speak write about principles at times and I believe while debts should be paid back, the debt system is almost as corrupt as Modern Day Taxation. I got your email and will respond in the morning.
Kris - It is a relief, psychologically. It's kind of like the 'Clean Slate' mentality being shoved into one's brain. Your explanation is succinct, I'll give you that.
Sally & David - Makes you want to study law, doesn't it?
Marcia - Hope this helps and read the comment stream; there is some great info and education from a variety of sources.
Neal - Your new picture is outstanding!
Diane - You'd be surprised, or not, what the credit report looks like of that bully on the other line. I'm just saying...
Castellum Realty - I will give it a shot, man.
Russell - I'm running out of steam and need to hit the sheets. I will leave you with this.
Jason,
Thanks for this blog. The credit reporting agencies really want to keep consumers in the dark and I love to see people educating themselves on this subject. For anyone interested, I hope to have our top credit guy join activerain and start blogging. His name is Andy LaFever and I really don't think you will find anyone who knows more about the credit reporting industry.
James - I'll be the guy standing to your right.
Rebecca - That's why education is so darn important. Most folks don't have the slightest clue in regards to credit.
Danny - That's a very relevant angle as well that I don't think many take into consideration.
Sean - I'm very glad this information is out there, arming fellow peers and consumers with vital knowledge.
Rebecca - They (Utility Companies) also report late payments in Pennsylvania. What grinds me is that is the only way they report, they don't report if you pay on time. How fair is that? They can hurt your credit but not help it???
Jeff - I would bet as well...
Patrick - My pleasure, my friend.
Thanks for stopping by. I look forward to seeing and learning from Andy once he joins AR. Give me a heads up if you can.
Jason,
I respectfully disagree. Not with the content per se but with the fact that ALL lenders require ALL collections to be paid. The Agency rule is that the lender must determine if the collection could pose a threat FNMA's first lien position. A $50,000 medical bill probably poses a threat, a $150 utility collection probably not. It's up to the lender to determine that. If collections are required to be paid the best time to do that is at closing even if it is a purchase. That way escrow is handling the payoff and you don't effect the score prior to settlement and don't have to chase around after proof of payment
Beth - I will keep that in mind on the next loan I float over your way:-)
Financial freedom and home ownership. My clients paid off over 4k in debts to make sure they have clear conscience and freedom from debt.....so they can move into their new home with no worries :) Great bunches of advice and info her lil bro...wouldn't have expected anything less :) :)