Your Questions About How To Pay Off Debt Collection Agencies

Robert asks…

If a debt has been charged off, how much are you obligated to pay the debt collection agency?

Minor debt I forgot about – moved, and obviously never got the statements so I forgot about it and never paid it.

Any way just checked my credit report, the original creditor charged off the debt for $120, but they sold it to a collection agency, who is asking 219$.

What, if anything, am I obligated to pay the collection agency?

richmama answers:

You may owe nothing depending upon your state statute of limitations and the type of debt.

If the debt is time barred, then they can not seek legal action to collect.
If it is NOT time barred, then simply offer them a pay off figure and include a “pay for deletion” from your credit report. Get it in writing before you make any payments.
Try negotiating with them.

In most cases, they purchased the debt for pennies on the dollar.
The amount that companies pay for bad debt depends on the type of account and its age. In general Debts that have recently been charged off: 6 to 7 cents on the dollar. Accounts that are slightly older and on which a collection agency or two has already taken a whack: 1.5 cents to 2 cents on the dollar. Years-old, out-of-statute debts: A penny or less.
A growing number of companies are discovering that these very old accounts, once thought to be noncollectable, are just the opposite. Squeezing even a small payment from these debtors can make collection activities worthwhile.

You will not be able to get the original creditors charge off removed from your credit report, the damage has already been done. Under Running of Reporting Period – Section 605 [15 U.S.C. § 1681c] this will have to remain on your credit report for seven years. The time runs from the date of the delinquency, plus 180 days.

Example: If a payment was due on an account on January 1, 2000, but the debtor defaulted, and never caught up to become current again, and the account is eventually declared a charge-off by the creditor, then the seven year reporting time limit starts running on July 1, 2000, with the item scheduled to expire from his/her credit reports on July 1, 2007.
Here is a link to find your state statute of limitations
http://www.bcsalliance.com/statute_of_limitations_on_debt.html

Hope this answer is of help to you
LEGAL DISCLAIMER: The answer provided here is intended for informational purposes only. It is not intended nor presumed to be legal counsel or professional legal advice

Nancy asks…

How do I go about asking the collection agencies to pay off my debt?

I only want to pay pennies to dollars. Think about it, I am willing to pay but not all those fees added or could there be a simple way of asking to pay off a debt cheaper than what they want?? For example my phone bill went to the collection agency 3 years ago They want $500 (I initially only owe $290) I am willing to pay $300.Any clever way of asking to reduce my debt??

richmama answers:

Actually, a 3 year old phone bill could probably be settled for a lot less than $300.

Send the collection agency a letter. Be very careful not to acknowledge the debt (you could reset the Statute of Limitations (SOL), the timeframe to bring lawsuit). Literally say “this is not an acknowledgment of this debt”.

Indicate that you would like to expedite removal of this derogatory item on your credit report and are willing to pay $125 if they will delete the item from your credit report.

If this settlement is acceptable, have an authorized agent of the collection agency sign and return of copy of the letter to you. Upon receipt of their acceptance, you will send payment.

They may give you a counter offer. Just make sure you have a written agreement before you pay. Do not give them direct access to your bank account.

The older the debt, the more likely you an settle for less. If the forgiven portion of the debt is $600 or more, you may get a 1099 and have to pay income taxes on the forgiven portion.

Ken asks…

Is it to my advantage to pay a collection agencies on a debt that a credit card charges it off as bad debt?

I ignored a huge balance on a credit card and finally decided to face the music by checking out my credit report. It showed that the debt was “charged off as bad debt” and it’s listed two other times by two seperate collection agencies on my credit report. I’m confused on how I should proceed to settle this. I do owe the money but I dont know who I should pay and how do I get it removed once it is paid. And what do I do about two collection agencies listing it?

richmama answers:

If they sold the debt to a collection agency, the collection agency has the right to collect it. The credit card company has been paid already by the collection agency.

Linda asks…

How do I contact the collection agencies to negotiate and pay off debt?

richmama answers:

DO NOT PAY OFF COLLECTION AGENCIES.

The reason being is that the original creditor as allready written your debt off as bad and sold it to the collection company. The in turn contact you and offer some bogus settlement. The damage to your credit is done and will not be reversed unless you get that in writing from the creditor. It will be listed on your report as debt settled/paid by debtor but it wont help.

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Your Questions About Lower Debt To Equity

Sandy asks…

I have a rather large home equity line of credit debt.?

We used 98 thousand out of 120 thousand line of credit to do major home improvements. We are very happy with the improvemnts but now have about 700 dollars per month in interest only payments. My husband wants us to also have a savings account filled up with funds in case of emergency. I think we should dump any extra money into the home equity debt which will SLOWLY lower our debt and payment amount. Then, if we ever have an emergency we could draw from the home equity loan. What do you think we should do?

richmama answers:

I agree that it makes little sense to be paying 8% on your line of credit, while earning 2% in your savings account. That being said, as long as you are certain the line of credit can’t get closed on you for some reason, you should pay down the line of credit. You will save money in interest, and hopefully be able to start paying down your line of credit.

Interest rates have dropped lately, it might even make sense to refinance and roll that line of credit into a new first mortgage. I’d assume that even if your rate is Prime + 0%, you’re still at 8.25%. First mortgage rates are about 2.5% less than that right now.

Thomas asks…

Is there any option for debt consolidation if you are NOT in default with good credit but no equity?

Are there less risky unsecured financing options for those with good credit outside local banks who want secured credit? We want to pay off debt at lower interest than credit cards currenly held. Any options out there besides all the scary ones?

richmama answers:

Since you are not in default you can call the credit card company and ask to have your interest rate lowered. If they won’t lower it, you can open a new 0% interest rate card and transfer your balance. The 0% introductory rate usually last 6-12 months and you could pay off your credit card in that time period. If you have more than one high interest rate card, transfer as much as you can to the new 0% card from your highest interest rate cards. With luck you can transfer ALL of your high interest rate credit card debt to low or 0% cards. After you get your transfers done follow this system:

Pay the minimum due on all of them and then put your extra money towards paying off the highest interest one first. After you get that one paid off, you put the money you were paying on card #1 (the minimum payment and the extra payment) towards card #2. That will pay card #2 off faster. When that is paid off, you put all three payments towards card #3 and that one will be paid off pretty quickly. As an example:

To start :
Card #1 (highest interest): minimum payment+ extra payment
Card #2 (middle interest): minimum payment
Card #3(lowest interest): minimum payment

Card #1: paid off
Card #2: minimum payment from Card #1+ Minimum payment from Card #2 +extra payment
Card #3: minimum payment

Card #1: paid off
Card #2: paid off
Card #3:Mimimum payment from card #1+ minimum payment from Card #2+ minimum payment from Card #3+ extra payment.

That way, you will get them all paid off, on time, and pay the least interest. It will also help towards rebuilding your credit since you will no longer have any late payments. This works no matter how many different debts you may have.

Donna asks…

How is Bad debt accounted in the Balance Sheet?

My understanding is that bad debt is charged as an expense in the income statement and also remove the amount of bad debt from the asset side of the balance sheet.

if net assets = equity, then if asset is lower due to bad debt, then equity must reduce to balance the balance sheet. But, what is deducted in the equity side?

Thanks

richmama answers:

My understanding is that bad debt is charged as an expense in the income statement and also remove the amount of bad debt from the asset side of the balance sheet.
– Your understanding is correct.

What is deducted in the equity side?
When bad debt is charged as an expense in the income statement, that will ultimately go to reduce equity via reduced profit which leads to reduced retained earnings.

Carol asks…

Reliable Gearing currently is all-equity-financed. ?

It has 10,000 shares of equity outstanding, selling at $100 a share. The firm is considering a capital restructuring. The low-debt plan calls for a debt issue of $200,000 with the proceeds used to buy back stock. The high-debt plan would exchange $400,000 of debt for equity. The debt will pay an interest rate of 10 percent. The firm pays no taxes.

richmama answers:

This is NOT a question. If the firm pays not taxes, SELL ASAP. They are either not profitable, or are committing tax fraud.

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