Chapter 8 - Questions and Answers

Sometimes I’ll get off the wall questions from my clients, and I wonder, “Why didn’t I think of that?” I decided to start keeping track of those questions and have compiled this chapter full of them. As a side note, I have a section on my website which is dedicated to questions and answers. I set it up that way so people who have firsthand experience in resolving a financial problem can pass it along to help others.

Let’s get started!

Q: What happens if I have a co-signer on my credit cards, and I go delinquent?

A: The co-signers credit score will be affected. This can get tricky. I’ve known some consumers who were married and then separated or divorced. One of the spouses or partners ended up falling behind on the cards and didn’t notify the other until it was too late. In addition, the co-signer was legally liable for the debt, which means, they were susceptible to wage garnishment, bank levy and property lien. So, think twice before you stick that court summons in your trash can or your kitchen cabinet above the fridge.

Q: I recently went delinquent on my loans, my husband is NOT a co-signer on the accounts. Can they still go after him for my debts?

A: If you live in a community property state, then a spouse or partner may be liable for your debts. Even If your husband isn’t on the account, he can still be affected. You can do a quick search online to find out if you live in a community property state. 

Q: I have several debts being handled by the same collection agency. I’m disputing two of the accounts as I have no knowledge of ever accruing them. I recently made a payment, only to find out they applied it to one of the accounts I’m disputing. Is that legal?

A: If you owe more than one debt, any payment you make must be applied to the debt you indicate. A debt collector may not apply a payment to any debt you believe you don’t owe. If you’re mailing checks or a money order, mark the proper account number on the check. If you’re calling in a payment over the phone, make sure the call is being recorded and give them the appropriate account number. 

Q: Can I negotiate and settle my car loan for less than the original loan amount?

A: Yes, and No. If you still have the car, going delinquent on your loan will inevitably cause repossession. So long as you still have the vehicle, your loan is considered secured, and the chances of working out a settlement are slim to none. You’re more likely to work out a settlement if the car gets repossessed, or you turn it in to the dealership. At that point, the debt would be un-secured, and the settlement potential is very high.

Q: How do I know if my account is past the statute of limitations?

A: This is pretty easy to find out. When did you make your last payment, and what are the statute of limitations time lines for your state? If you know these two things, then you’ll have a pretty good idea of when your account is past the statute of limitations. If you don’t know when you made your last payment, you can ask the creditor that’s handling the account, or pull your credit report to see when the account went delinquent.

Q: I’m still receiving collection calls for a debt that is over 15 years old. Isn’t that illegal?

A: It depends. If you’ve been sued for a debt and lost, you probably have a judgment. Judgments are good for 10 years or more, depending on your state. If you weren’t sued, they can still attempt to collect an old debt by calling you or sending letters; however, it should have been removed from your credit report. If you don’t wish to receive phone calls for an old debt, just send them a cease and desist letter and remind them that they are violating the statute of limitations for your state.

Q: I’m receiving calls from a collector about five times a day, seven days a week. Is that considered harassment? How often are they legally able to contact me?

A: The FDCPA doesn’t specifically state how many calls constitute as harassment; however it’s generally thought to be when you’re receiving calls constantly or back to back. In your example above, five times a day from the same collector would definitely be considered harassment. Collectors should attempt contact once or twice a week.

Q: A debt collector called my house and spoke to my eight year old the other day. They informed him, “Mommy owed a lot of money!” Is that legal?

A: No! It is NOT. Unless you’ve given the collector prior consent, this is completely illegal. You should notify the collection agency or file the proper complaints.

Q: What’s the difference between debt consolidation and credit counseling?

A: Debt consolidation is when you pay off all your debts with one or several loans. You still owe the same debt amount, but you’ll probably save money from high interest accounts depending on your original interest rates. Credit counseling is typically a service from a non-profit company that’ll reduce your interest rates or restructure your payments. Most of these companies pay your monthly minimums on your behalf. In the end, you still owe the same principle amount and most likely will take you years to pay off, depending on how much you owe. 

Q: If I cancel some of my lines of credit will it affect my credit score?

A: Yes, and No. There are so many variables when it comes to how the credit bureaus score your credit. For example, if you only have three lines of credit and you cancel two, then I would presume your credit score will lower. If you have pages and pages of lines of credit and you cancel some, it may increase your score as you have less debt.

Q: I heard you can pull your credit report for FREE once a year. How can I do that?

A: You are correct! Visit www.AnnualCreditReport.com.

Q: My debt was originally $3,000. I’ve been delinquent two years and just received a collection letter claiming I owe $7,000!? Is that legal?

A: What does your original contract say? Most credit card agreements will tell you what your “default rate” is. It can be as high as 30 percent or more! Let’s not forget late fees and other fees that the banks charge. Each state has its own laws on how much interest they can charge, it’s called Usury Laws. Start by asking the creditor to provide a written itemization showing how the current balance was calculated, including charges and payments made, interest added, penalty fees, late fees, and any other charges added.

Q: I received a 30 day letter regarding a debt that I believe isn’t mine. I sent the collection agency a dispute letter within the 30 day time frame. It’s now been several months and I have yet to hear or receive anything from them. What do I do now?

A: Sit and wait. Depending on your state there may be no time limit on how long the creditor has to provide you with proof of the debt. You can do a quick search online to find out. Just keep in mind that during this waiting period a collector can no longer attempt to collect the debt until such time as they prove you actually owe it. If you’re 100 percent sure it’s not your debt, you may want to send a dispute letter to the credit bureaus.

Q: I disputed a debt and requested a number of documents including a copy of my original contract. However, a few weeks later, all I got was a huge envelope that consisted of three years of statements. Now they’re trying to collect the debt again by calling me constantly.

A: Unfortunately the FDCPA only specifies that a collector must provide (1) a copy of the judgment (if there was one); (2) name and address of the original creditor. It doesn’t state that they MUST provide you with a copy of your original contract. If it’s a case of identity theft; file a police report, fill out an FTC Identity Theft Affidavit online and forward the information to the collector and the credit bureaus at once.

Q: How much do I start saving every month in order to begin settling my debt?

A: Good question! While there are many variables to this, you can apply a simple mathematical equation. First, set a target date to be debt free, but be realistic. For example, if you have $50,000 of debt, decide on two or three years. Next, divide the 36 months by the debt amount you have. This should give you a figure of $1,388 per month that should be put into a savings account, mattress, or cookie jar. Once you’ve saved 30 percent of the smallest balance account, you should begin negotiating. Start with one account and once complete move on to the next. Remember, that this equation is not set in stone because interest and penalties can accrue on accounts. This is simply a guideline to get you moving. The best thing to do is take every penny you can possibly muster, and put it away. The more you put in, the faster you get out of debt.

Q: My account was in collections for seven years and eventually removed from my credit report. Within a month, I was notified by another collection agency that they were attempting to collect the debt. Does that mean the seven year statute of limitations starts over again?

A: No, it doesn’t. Your account could bounce from agency to agency numerous times during or after the seven years. The statute starts from the moment you go delinquent and only restarts when you make a payment toward the account.

Q: I settled my account over two months ago and have yet to see any difference on my credit report. How long does it usually take?

A: Once an account is settled it could take 30-60 days for the credit bureaus to update your report.

Q: I almost filed for bankruptcy a couple years back. I’m now trying to negotiate a debt; however the creditor’s telling me they can’t settle because the account was included in a bankruptcy. How do I prove I never filed?

A: This can be a difficult thing to sort out, I mean, how do you prove you did NOT do something? You can always try writing a letter and include any documentation you have such as a dismissal notice from the bankruptcy court. Realize that bankruptcy is a matter of public record.  If you file for bankruptcy, your name will be included in the federal court’s system known as PACER. Obviously, if you NEVER filed, you won’t be in the database. Some creditors have access to this system, ask them to check.

Q: I became delinquent on a loan over a year ago; however, it’s not showing on my credit report. I thought the creditor had 120-180 days to report it.

A: It’s up to the creditor whether or not to report your delinquency to the credit bureaus. Consider it a good thing.

Q: Is it better for me to settle one debt at a time or several at once?

A: It’s up to you! Some folks aren’t the best at managing their finances or simply don’t have enough money to settle more than one debt at a time.  If you feel comfortable settling multiple accounts at once and have the funds to do it, then go for it! This just means you’re going to be debt free and have your credit report on its way to recovery sooner than later.

Q: How do I know if a collection agency is legitimate before I pay them? I want to be sure they aren’t some scam company looking to profit from unsuspecting consumers. I’ve heard this sort of thing has happened before.

A: You can always do a quick search online with the Association of Credit and Collection Professionals (ACA International). However, not every collection agency is a member. You can contact your states business licensing office, by calling or e-mailing to find out whether or not the agency is licensed to do business in your state. Keep in mind that some states may not require that all types of companies be licensed. You can also see if they have a website and an attorney listed. If so, you can go onto your state bar’s website, and find out if the attorney is listed and in good standing.

Q: I want to pay off my debt in full. I offered the creditor $100 a month, but they told me they would refuse my payment. Can they do that?

A: You can pay as little or as much as you want toward a debt, but the creditor doesn’t have to accept your payment. In fact, they can send your money right back to you if they choose to. If you read your original loan contract carefully, you’ll notice a small clause that states they don’t have to accept anything less than payment in full. You can always try mailing payments as you wish, and in most cases they’ll still cash them in. However, keep in mind, they’re not legally obligated to do so. In most cases, if a collection agency rejects your payment, it means they’re planning to file a lawsuit against you, by accepting payments they’re agreeing to those terms and can’t sue a consumer unless they default on the payment arrangement.

Q: I incurred a debt in California several years ago, however, I’ve since moved to Texas. Which statute of limitations applies to my debt?

A: Another great question! I’ve been asked this many times. In general, the statute of limitations for your current state of residence applies. But, there are exceptions. Read your original contract thoroughly and/or get familiar with your state laws.

Q: I’ve been contacted by a collector for a debt I’ve never heard of. When I asked for proof of the debt, he flat out refused. Now he’s calling me twice as often. What can I do?

A: You can dispute a debt at any time. I recommend sending a validation of debt request letter. Verbal requests aren’t as effective. If you’ve gone past the 30 day validation/dispute period; the creditor must still provide you with the documentation, however, in some states there’s no time limit. In addition, they can still contact you and attempt to collect. If you’re genuinely concerned about the debt, consider writing a dispute letter to the credit bureaus.

Q: I’ve been served a summons to appear in court regarding a debt I owe. Should I send them a validation of debt letter?

A: No, you’re wasting your time. A VOD letter will not stop legal action. What you need to do is file a “Response” or “Answer” with the courts, so you don’t get a default judgment immediately. If proof of debt is the issue at hand, include that in your court document.

Q: I have a delinquent student loan which is now over 20 years old. I was just served with a summons to appear in court. How do I know if this debt is past the statute of limitations?

A: Federal student loans have no expiration date or statute of limitations. Privately funded student loans generally have the same statute of limitations as would a regular loan. I suggest doing some research to find out if your loan was federally or privately funded.

Q: If I chose to settle my debts can I still use a credit card during the process?

A: You can, however, I don’t recommend it. Collection agencies and some creditors will check your credit history before determining what settlement to approve. If they see you’re current with one card and not with them, they may take it personally. For example, you’re trying to settle a debt with Chase because you went delinquent; however, they look at your credit report and see that you’re current with three other cards. Why would they settle? They’d want you to pay in full because your other cards are current. I do recommend that you keep a credit card for emergency use only, but don’t use it unless you absolutely have to.

Q: Do I have to pay taxes on the money I save on a settlement?

A: Believe it or not, YES! Once an account’s settled, any savings over $600 is considered income and is taxable according to the IRS. The creditor will send you a 1099C form at the end of the year showing that your account was settled. If you didn’t receive a 1099C from the creditor, call them and ask for one. Most consumers that are faced with delinquent debt are financially insolvent.

Financial insolvency can be best described as having no money or assets in relation to your debts or financial obligations. In order to determine whether you’re insolvent, you’ll need to visit the IRS website at www.IRS.gov and file form 982. This form determines if you’re eligible for financial insolvency. They’re going to want to review your income and assets such as, bank accounts, home, vehicles, retirement accounts, IRA’s, 401K’s etc. There are no guarantees the IRS will approve your request, talking to your tax professional will assist you with this process.

Q: Can I settle with a credit card company if my account is current?

A: I’ve actually seen, on very few occasions that a credit card company will settle for a lesser amount if the account is current. However, it’s highly unlikely. What’s their incentive to settle the account at that point? That’s right, NONE. First of all, if you’re current, they’re making money on your interest and want you to continue to do so. Next, they don’t want to make it easy on you. If they settle with you, then your credit won’t be marked as delinquent, and they’re out all the money in the future. Here is where your biggest decision comes into play. If you’re current and want to settle, then you’ll have to go delinquent. This is tricky because if there’s no legitimate hardship on your part, and you can afford payments, it wouldn’t be ethical to break your agreement with the bank. But, if you have a hardship, something that’s explained earlier in the book, and you’re looking at bankruptcy, then you need to decide what’s best for you and your family. Take a good look, get all the information and make the right decision, whatever that may be.

Q: What do I do now?

A: That’s a good question. Well first all, you’re at the end of the book, and hopefully you have the ammunition you need to move forward. Do the exercises, reread sections that you didn’t understand, and contact me for anything that you feel wasn’t covered. If you’ve decided that debt settlement isn’t for you, my first book “Money - Paper or Plastic” can help. It will give you the necessary information on the history of the credit card, and how to put a budget together so that you can get out of debt without going delinquent. Believe it or not, there are many other ways to handle your situation. If you’re in need of consulting, then give me a call, and we can work out a plan that’s unique to your situation.