Your Questions About How To Pay Off Debt In Collections

Jenny asks…

If I know I cannot pay off my collections debt in 3 years, is it worth it to pay anything at all?

I have a few smaller collections debts ($100-$600) from various companies. I had planned on paying them all off next week in one big swoop. However, recently a college debt has left the college and been sold to a collection agency. Now that it is owned by the collection agency, it is due in full instead of payments, and on my credit report it will show a “Non-Payment” $17,000 debt. So the question is, if I know I cannot pay $17,000 dollars in 3 years, should I even pay any of them. In 3 years they will fall off my credit report, and if I pay them early, I will still have a huge $17,000 debt. Can I have something on my credit report saying I am making On TIme payments to a collections agency? Or is it paid in full or nothing?

P.S.- I understand that it is my debt and I need to pay it, while I appreciate the moral advice, I do not need for someone to tell me it again. If you do not have advice on the question I have, please refrain from demeaning, negative, or otherwise unhelpful comments about how I should pay my debts. Thank you. (I’m not trying to be rude, but I see people attack others on here instead of answering their questions.)

richmama answers:

Generally speaking, when an account is collections and a debtor is making monthly payments the collection agent will not report the monthly payments to the credit agencies. Once the account has been paid off then the collection agent will inform the credit bureaus that there is no outstanding balance. It takes approximately 2 months for the credit report to be updated.

Unfortunately, you are incorrect in that your accounts WILL NOT fall off of your credit report in three years. You are confusing the statute of limitations with the FCRA rules. I will explain to you in detail what these two are and how they differ from each other. After I explain the difference between the two I will provide you detailed information of what the collection process consists of.

Credit Report
Federal law (US Code Title 15, §1681c) controls the behavior of credit reporting agencies. This law is known as the Fair Credit Reporting Act (FCRA). Under FCRA §605 (a) and (b), an account in collection will appear on a consumer’s credit report for 7.5 years. The clock starts approximately 180 days after the date of first delinquency on the account. To learn when an account will be removed by the credit reporting agencies (TransUnion, Equifax, and Experian and others), add 7.5 years to the date of first delinquency. Subsequent activity, such as resolving the debt, is irrelevant to the seven-year rule. However, if the debt is a tax lien, that can appear for seven years from the date of payment. A bankruptcy will appear for ten years from the date of the final order. Delinquent federal student loans can be reported indefinitely, i.e., for as long as they are delinquent.

Statute of Limitations
All states have a body of statutes in their codes of law called, “Limitations of Actions,” commonly referred to as the statutes of limitations. The idea behind these laws is that we as a society have decided that we don’t want old debts hanging around forever — we want people and businesses to be able to move on with their lives without worrying about being sued.

The length of time a creditor has to sue you depends on your state of residence and the type of debt. For example, many states allow longer for creditors to file suit to collect on closed-ended consumer loans than on credit card debts. Most states give credit card issuers three to four years to file suit after default, but some states allow as many as 10 years. Check out the Collection Laws and Statute of Limitations page.

The site I just mentioned has more information about statutes of limitations and a list of limitations by state. If a creditor files a lawsuit after the allowed time, the court will usually throw the case out and not allow the creditor to file suit again (called dismissed with prejudice).

However, you must raise the issue of expired statute of limitations in a written response to the lawsuit, or else the court will not know that the statute of limitations has expired. Although the periods vary from state to state, I believe that there is only one (Ohio) that is longer than 10 years.

Remember: The passing of the SOL does not mean that a creditor cannot sue you. It means if a lawsuit is filed you should have an absolute defense against the lawsuit if you raise the defense. Also, keep in mind that the passage of the SOL does not prevent a creditor from calling you to collect on the debt; it simply provides you an absolute defense in court if the creditor files suit.

To learn more on this topic please read Now onto what typically happens when an account goes into collections, and what implications this can have.

When a debtor stops paying on a debt, a creditor will attempt to contact the debtor on the telephone and via the mail. When the number of days since the most recent payment reaches 120-180 days, the account is no longer considered current and the creditor is required by generally accepted accounting principles to “write-off” the debt. Writing-off a debt does not mean the debtor is no longer responsible for the debt, or that collection efforts cease.

The write-off date has almost nothing to do with the statute of limitations for debts. To learn more about the distinction between these issues, read Charge-Off & Credit Report .

At the write-off point, the creditor will transfer the debt to a late-accounts department, or has the option to sell the debt to a collection agent. The collection agent will buy the debt at a discount. However, the collection agent has the right to collect the entire balance due plus interest.

If a collection agent a debt it states you owe, you have the right to do what is called debt validation . If the debt is many years old or you do not recall the debt, validate it.

A collection agent may use aggressive tactics to when contacting the debtor. The collection agent may threaten to call the debtor’s employer, file charges with the l ocal sheriff, or say they will park a truck in front of the debtor’s house with a sign that reads “Bad Debt” on it. All of these tactics and many others are illegal under the Fair Debt Collection Practices Act (FDCPA). Start here to learn the rights consumers have in collections under the FDCPA.

A creditor — a debt collector that owns a debt account is a creditor — has several legal means of collecting a debt. But before the creditor can start, the creditor must go to court to receive a judgment. A court (or in some states, a law firm for the plaintiff) is required to notify the debtor of the time and place of the hearing. This notice is called a “summons to appear” or a “summons and complaint.” In some jurisdictions, a process server will present the summons personally. In others the sheriff’s deputy will pay a visit with the summons, and in others the notice will appear in the mail. Each jurisdiction has different civil procedure rules regarding proper service of notice. (See Served Summons and Complaint to learn more about this process.)

If you ever receive a summons you should do as it instructs! This is not just a social invitation that you can ignore. In the hearing, the judge will decide if the creditor should be allowed to collect the debt. If the debtor fails to appear, the judge has no choice but to decide on behalf of the creditor.

Therefore, if you receive a summons, the first thing you should do is contact the law firm representing the creditor. Open a negotiation to see if they are willing to settle the debt. If not, it would be wise to respond as indicated in the summons. If there is a hearing, attend it and present your side of the story to the judge. Use facts, tell the truth, dress appropriately, and show the court respect. The court may or may not decide in your favor, but at least you exercised your right to be heard.

The court may decide to grant a judgment to the creditor. A judgment is a declaration by a court that the creditor has the legal right to demand a wage garnishment, a levy on the debtor’s bank accounts, and a lien on the debtor’s property. Which of these tools the creditor will use depends on the circumstances.

Wage garnishment
The most common method used by judgment creditors to enforce judgments is wage garnishment, in which a judgment creditor would contact the debtor’s employer and require the employer to deduct a certain portion of the debtor’s wages each pay period and send the money to the creditor. However, several states, including Texas, Pennsylvania, North Carolina, and South Carolina, do not allow wage garnishment for the enforcement of most judgments. In several other states, such as New Hampshire, wage garnishment is not the “preferred” method of judgment enforcement because, while possible, it is a tedious and time consuming process for creditors. In most states, creditors are allowed to garnish between 10% and 25% of your wages, with the percentage allowed being determined by each state. See Advice on Judgment Garnishment to learn more about wage garnishment.

Levy bank accounts
A levy means that the creditor has the right to take whatever money in a debtor’s account and apply the funds to the balance of the judgment. Again, the procedure for levying bank accounts, as well as what amount, if any, a debtor can claim as exempt from the levy, is governed by state law. Many states exempt certain amounts and certain types of funds from bank levies, so a debtor should review his or her state’s laws to find if a bank account can be levied. See the resource State Consumer Protection Laws and Exemptions for an overview of each state’s rules.

A lien is an encumbrance — a claim — on a property. For example, if the debtor owns a home, a creditor with a judgment has the right to place a lien on the home, meaning that if the debtor sells or refinance the home, the debtor will be required to pay the judgment out of the proceeds of the sale or refinance. If the amount of the judgment is more than the amount of equity in your home, then the lien may prevent the debtor from selling or refinancing until the debtor can pay off the judgment. Again, every state has its own rules about property liens, so debtors with a judgment against them who own property should review their state’s laws to learn creditor can and cannot do to enforce its judgment. See the resource State Consumer Protection Laws and Exemptions for an overview of each state’s rules.

I encourage you to visit the links I have provided for you to learn more.

I hope this information helps you Find, Save, and Learn.


Maria asks…

How do I pay off my debt that is in collections?

I want to pay off all my debt that is in collections (total of $1,500) but I only have one bill that is for $500. I know I owe more to other credit cards that are in collections.. but I don’t have a bill for any of them. How do I find out who I owe and where to send the money to?

richmama answers:

Paying back credit card defaults can be tricky..When did you default and last make payment on the defaults? If they are older than 4 years you may want to consider sitting tight and letting the debt fall off your credit report naturally. 7 years is the max. Amount of time negative items can stay on your credit report.

Paying back a defaulted/charged-off credit card will not restore your credit rating..Your credit report will be updated to a “Paid Charge-Off,” which, while slightly better, is still a seriously derogatory item. Per the Fair Credit Reporting Act, a charge-off, whether paid, settled for less or not paid at all, will remain on a consumer’s credit reports for up to 7 years….so you’ll be stuck with damaged credit regardless of what you do… after you cut the checks, you’re still going have bad credit anyway.

– You can find out who has your accounts by pulling your credit report. is the real free site to check your credit file for free once a year without a credit card.

– Below is a list of the worst collection agencies in the nation. If any of these agencies have your accounts, you may want to think twice about renewing contact with them.

If you pay, offer to settle @ 20% and go from there.
– Never pay a debt collector without first getting a signed settlement agreement on their letterhead stating that the account will be paid in full upon receipt of the agreed-to amount. If you don’t, the debt collectors will come back demanding more money.
– Pay only via USPS money order. Photocopy and keep in your permanent records along with the settlement letter.

Sandra asks…

Does your credit improve if all of your debt is in collections and you pay it off?

If I settle all of my debts, which are about 11 different items, will my score go up or do I have to wait 7 years for it to be cleared? If the score will not go up by paying off those collections, how do I get it to go up?

richmama answers:

Heck No….That’s the point. The credit reporting agencies are paid off by the banks to make money for THEM. They scare you into keeping your score high and scare you with bad credit horror stories if your score is low; they win both ways. Even if you clear it up you’ll still have the items on paper for 10 years so if you apply for a loan in the future you are at risk to a scam. If you have a 700 score with a repo from 8 years ago they will quickly point it out and slap you with a %14.99 rate.

Lisa asks…

Is it better to let my ex’s debt go to collections or pay it off myself?

I have a divorce decree where we agreed that my ex will refinance a student loan into just his name. The ex hasn’t refinanced and hasn’t made but 2 payments in 18 months and now the debt has been charged off by Sallie Mae. I understand a lot about credit and debt collection, but I am a little fuzzy when it comes to this specific
scenario. The ex obviously has no intention of repaying the debt. What are the worst-case scenarios as to how this will play out and what is my best course of action assuming that the ex has no intention of paying this bill ever? My assumption is that Sallie Mae will eventually sue both my ex and I individually in court. We will
each lose because we are both on the note. Sallie Mae will secure a judgment on each of us and then will start garnishing our wages. If
this happens, my question is can I sue my ex for the amount that is garnished from my wages because he was supposed to refinance that debt into his name according to the divorce decree? I realize that even if I CAN sue him and win, that I too will only receive a judgment and then will have to go about the business of collecting via wage garnishment or other method, but I’d like to know if that is even an option. The problem with that scenario is that it could take years for
Sallie Mae to obtain a judgment and years more to fully be repaid. By that time, a $5,000 balance could potentially reach $10,000 and my credit is tarnished until the entire thing is resolved and I can get the derogatory information removed from my credit report based on the divorce decree. As much as it pains me to think that the best option
would be to pay it off myself and completely relinquish him of his obligations, it is possible that it will cost me less in the long run and
help me clear up my credit a lot quicker and I can finally be done with all this nonsense. If I choose that path, will I win a court case where I
sue him for the debt that I paid on his behalf based on the divorce decree or will the judge simply say that I am a saint for paying off his
debt and I am eligible for no repayment? If I can get a judgment, I believe it would be in my best interest to do it now vs. waiting 4 or 5
years, possibly more. Does anyone have any professional insight into this situation? Your professional experience and advice is welcome and will be very appreciated.
I did try to file contempt of court and he showed up with a denial letter showing that he applied for a loan to refinance the debt and was turned down. Go figure, he makes 2 pmts in 18 months and gets denied for a loan. Then at the master’s hearing where we also negotiated child support, he asked the master if he paid off the student loan within 3 weeks, could he get a lower child support payment. To me that indicates that he is using the sallie mae debt as a bargaining chip, and has the ability to pay it off completely were he compelled to. The master’s hearing resulted in a denial of the contempt of court order. I guess I will have to consult a financial planner or a professional in the field of debt collection who can tell me what my worst-case scenarios are. It could be worse, it could be more than $5,000. Not so much money in the big scheme of things. You just hate to see a good-for-nothing a-hole get away with anything. Thanks for your help.

richmama answers:

You need to speak to a fee only financial planner. Yahoo! Answers is a great place for ideas, but your situation requires the advice of an expert if you want to try to avoid costly mistakes.

In addition, you may want to consult a lawyer. I know the perceived costs involved may be daunting, but I think in your situation it’s better to pay a little bit now rather than let this spiral out of hand (do you have any idea how much a lawsuit costs?).

Good Luck!

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