Parents ruined my credit!

February 20, 2007 3:43 PM

Bad Credit Filter: When I was 19/20 years old, my credit was ruined. It's nearly 7 years later, are these charges going to disappear, or is that just an urban legend?

Bad Credit Filter: When I was 19/20 years old, I had a decent job and got a few credit cards. I went to college, which my parents said they would pay for and support me during, so I quit my job. When money was tight for them, they said I should use my credit, and they would pay it off. Of course they failed to do that and ruined my credit to the tune of about $5,000. I am now 25 and I'm starting to get back on my financial feet. I have often heard that bad credit only stays on your credit reports for 7 years. Is this true? What is my best plan of action? Should I pay these bills off? Or should I just wait a few more years for them to disappear? From what point are the 7 years counted?

posted by idledebonair to work & money (40 comments total)

Late payments and the like drop off after seven years or so. Money you actually owe will be passed from collection agency to collection agency, and repeatedly reported to the big three credit trackers pretty much until you are dead, or you are sued.

Seriously, you don't really think you can just not pay a $5,000 bill and it will just go away, do you?
posted by M.C. Lo-Carb! at 3:58 PM on February 20, 2007

Bad credit will disappear, not the bills themselves!
posted by Manhasset at 4:03 PM on February 20, 2007

Further, and I could be wrong, but it's 7 years after you pay it off not 7 years from the time the charges were incurred.
posted by Manhasset at 4:04 PM on February 20, 2007

@M.C. Lo-Carb!: If I knew the answers, I wouldn't be asking...
posted by idledebonair at 4:04 PM on February 20, 2007

MC and Manhasset aren't entirely correct; it is perfectly possible for your debt to be considered so bad it is 'written off', at which point it would be federal tax fraud for the creditor to attempt to collect on it. The chance that your debt has gone thru this process varies in direct correlation to the ability of the orginal creditor to resell your debt to a collection company. Because these days it's very easy to find a collection group willing to buy your debt for pennies on the dollar, you likely still owe someone. The key is to scan your credit report for the phrase "charge off". When you see that, it means they've given up on persuing the debt, took the full tax writeoff, and you are in the clear.

debt resale example:
You own CompanyA 10,000 but never make payments, they give up and sell your debt to CompanyB for 200 = 2cents/dollar. You now owe CompanyB the full 10,000, plus penalties, CompanyA took a 9,800 tax writeoff. CompanyB will make you an offer to settle the debt for 5,000, leaving them a tidy profit if you do settle.
posted by nomisxid at 4:15 PM on February 20, 2007

er that should be "You owe companyA"
posted by nomisxid at 4:16 PM on February 20, 2007

If you've paid it off, your credit score should recover. You might consider looking into getting a free credit report to see where you are.

If you haven't paid it off (moreover, if you've made no payments at all) you need to start now. Here are a few similar questions.

Most people say that first, you should call the credit card company, try to lower your APR, and talk to them about setting up a payment plan.

Another is to get a loan from the bank.

Oh, and don't use the card anymore.

I totally sypathize that you feel like your parents left you high and dry. Regardless, I would just take it for what it is, sigh, realize that all of this is still in your name, and regain control of the situation for yourself. Best of luck!
posted by juliplease at 4:25 PM on February 20, 2007

Fair Credit Reporting Act at the FTC. A summary.
posted by gimonca at 4:30 PM on February 20, 2007

I could be approaching this question the wrong way, but states have what are called "Statutes of limitation" as to debt, meaning that the creditor is simply out of luck and can't sue after a certain amount of time passes. IIRC from my bankruptcy course etc. (but since IMNRC and IANYL, this is not legal advice and please don't rely on it as such) if a debt is incurred on January 1, 2000 under a 6-year statute of limitations you can no longer be sued (even if you really owe the money) after January 1, 2006. At this point, from a legal rather than moral standpoint, perhaps the debt disappears as a legal obligation because upon expiration of the statute no one has an enforceable right to collect. When no one has an enforceable right to collect, maybe you have a "disputable" debt as that term is used by the credit reporting agencies that as such can be erased from your credit history. In this way, the bills (if you view them as nothing more than an enforceable obligation to pay money you once owed) DO disappear.

Googling this quickly as a test of my instinct on this question, credit repair agencies seem to indicate that their records of a debt DO expire; not necessarily with the tolling of the statute of limitations, but apparently in varying times for varying credit reporting agencies and the different states.

FWIW those are my 2.5 cents. Good luck!
posted by bunnycup at 4:31 PM on February 20, 2007

Please THINK TWICE about the advice to suddenly start paying these debts - at least until you get further advice from a credit counseling agency or similar. If the statute of limitations has passed you may be off the hook, but making a payment or admitting in writing you owe a debt can "revive" the debt. The consequence of this is that money you owed a year ago but no longer owe, would be owed again because you admitted it. Please don't view this is a moral question of paying what you owe, you have state and federal legal protections here - you know Verizon and whoever else would use it's entire legal arsenal against you, and you should consider using all available, legitimate legal tools to protect yourself. I am NOT a lawyer advocating that you take any legal action under my advice, but I'm just sharing a little information I think you ought to know.
posted by bunnycup at 4:34 PM on February 20, 2007 [1 favorite]

Oh God, jdroth, paging jdroth!

Sweet Christmas, do you know how many people would be out of debt now if you could just write them off after seven years once they were past the statue of limitations? Anyway, a statue of limitations would not mean your debt was gone, creditors would simply be unable to prosecute you to pay it (though knowing credit agencies they'd probably find other means). The debt would remain and continue ruining your credit for years and years to come. At best you wouldn't be sued, but you'd still have a terrible credit score.

Going to a credit counselor is an excellent idea if only to help you consolidate your debts and go about a plan for repaying them and possibly talking the debt down with creditors. If it's any consolation, people with much, much worse debt than you have gotten themselves out of the hole and repaired their financial health. But it is important you do it soon, because the crazy interest on those credit cards is just going to make the debt worse and worse the long you put taking care of it off.
posted by schroedinger at 4:49 PM on February 20, 2007

Saying that your credit was "ruined" is a subjective description for a reasonably-objective item like a credit score. Your best bet is to get a copy of your credit report (free by mail from the credit reporting agencies) and see what it says. If you have a debt that has been paid off, it should drop off of your report 7 years after it was paid off.

If you haven't paid off the debt, then it's likely still on the report, and will remain on there until it is reported as fully discharged by the original creditor or whatever collection company they "sold" the debt to.
posted by gwenzel at 4:56 PM on February 20, 2007

I'm interested in finding out more about what you're talking about, bunnycup. The only way I can see what you're describing applying is if idledebonair has moved and the creditors have stopped pursuing the debt because they can't find him. Then, yes, I'm sure they will start pursuing the debt again when/if he resurfaces.

In the meantime, I hardly think that the creditors aren't dinging his credit with each missed payment; they're just not telling him about it. Of course, all this applies only if he is not paying and still owes. I realize that idledebonair hasn't made clear yet whether any or all of the debt is paid off.
posted by juliplease at 5:04 PM on February 20, 2007

From the Federal Trade Commission:
"A consumer reporting company can report most accurate negative information for seven years and bankruptcy information for 10 years. Information about an unpaid judgment against you can be reported for seven years or until the statute of limitations runs out, whichever is longer. .... There is a standard method for calculating the seven-year reporting period. Generally, the period runs from the date that the event took place."

That is, I believe Manhasset is wrong -- the seven year counter begins when the debts were incurred (not even when they were sold to teh collector). Of course, this presumes, I imagine, that they are paid off before then.

I've actually called the FTC in my state (NY), and I have to say, their operators have been fantastic - answering my questions and letting me know my rights. Give it a shot.

You can order your free reports from annualcreditreport.com -- but you need to pay to see the Credit Scores from the bureaus.

I've been involved in some credit hell from outside my control (service providers screwing up), I really empathize with you. Good luck!
posted by prophetsearcher at 5:05 PM on February 20, 2007

This sucks, idledebonair, and I feel for you. It sounds like your parents screwed you over -- not only by landing you in debt, but by failing to give you a basic financial education. But don't be discouraged. I, too, used to be miserably ignorant about my money and too scared to find out more. I have now upgraded from "miserably ignorant" to "mostly competent" and I'm much happier this way. So, sorry if this post is a little long, but I want to give you the information that I wish I'd had a lot earlier.

Your credit record is tracked by three consumer credit reporting agencies: Equifax, Experian and TransUnion. Most of the things which cause bad credit will drop off the records after 7 years (notable exceptions: bankrupcy and student loan defaults). As Manhasset notes, they're not tracking the money you owe, but the payments you make. Every time you're late on a payment, your creditor reports you and it goes on your record. So, you've probably accumulated a long stretch of black marks.

To find out for sure, you should get yourself a credit report. By law, you are entitled to one free credit report per year from each of the three major consumer credit reporting companies. You should go there right now and get all three reports. Check for outstanding debts, or debts in collections. If your debts have been passed off to a collections agency, their name and contact information may be in one of your credit reports.

I think the best thing you can do (besides finding out who you actually owe money to) is to educate yourself about finances. Some resources I've found helpful:

Young, Fabulous, and Broke by Suze Orman. Despite the condescending title (not to mention the horror of Suze Orman's toothy, ravenous grin), this book offers a lot of good advice. There's actually a section that directly addresses your question. If you can't afford to buy this book, go read it at the bookstore -- and take notes.

Motley Fool's How to Get Out of Debt. It's a helpful primer -- not too simple, not too complex.

I Will Teach You To Be Rich. Optimistic, useful, and generally interesting financial blog for folks about our age.

And, talking to a credit counselor is a good idea. I rely on my credit union for financial advice, because I trust them. They're like a bank, but nonprofit and member-owned, so I know they're not trying to scam me. Looks like there's a similar co-operative credit union in your area. You can join the credit union for $10, and that entitles you to free financial counseling and classes. Good deal.

Good luck -- it will probably take some time, some thought, and some work to get this all ironed out, but it's possible.
posted by ourobouros at 5:06 PM on February 20, 2007 [3 favorites]

The Great Worm has a great answer. There's not much I can add except — and I could be wrong — it sounds as if it may help you to begin taking responsibility for your own actions.

I don't want this to sound harsh — because I certainly don't mean it as such, and I understand your point of view — but one of the key lessons of adulthood is that you are responsible for the things that happen to you. Shit happens. Bad things happen to good people. But ultimately in order to recover from your situation, you need to own it. Using phrases like "parents ruined my credit", and continuing to rely on others to improve your situation, show a lack of self-discipline. I'm not criticizing you for this — lord knows I was in the same boat at your age — just trying to share my experience.

The best thing you can do is to act as if nobody else is going to help you, that you're going to have to make it on your own. Others probably will help you, and you probably won't have to make it on your own, but you can't think like that. You need to think of yourself as an autonomous unit, willing and capable of providing for yourself.

Make a plan. Right now debt elimination should be your top priority. The Motley Fool link that ourobouros provided is a good one. I recommend it. It's going to seem like a long slog, but you can do it: pay off that debt. You may need to economize. You may need to work two jobs. But get that debt paid off. The sooner the better. Own it. Take responsibility for it.

Once you have the debt eliminated, you'll be in good shape. Then you can focus on building credit, and saving for retirement.

Good luck!
posted by jdroth at 5:39 PM on February 20, 2007 [1 favorite]

If you've made a payment or even agreed that you owe the debt you restart the statute of limitations. Ideally you'd call the creditor and pay the amount or settle, but that is up to you. And the problem is that if you settle then that black mark might stay on your report for another 7 years.

I suggest this article for more information and links about how not to pay your bills.
posted by Mozzie at 5:52 PM on February 20, 2007

schroedinger (and others),

The seven year limit refers only to credit reporting not to when they can sue. That depends a) on your state; b) the nature of your debt. Whatever it is, it almost certainly is not 7 years. See http://www.fair-debt-collection.com/SOL-by-State.html for specifics.
posted by TheRaven at 5:59 PM on February 20, 2007

Thanks guys, all of this has been inspired by the fact that I HAVE gotten my free credit reports and I have begun correcting issues and asking the credit agencies to verify every negative charge, just to see if any of it comes back clean. I know things aren't ruined, but my score right now is 500 = "Very Poor." I have not made any payments and I have not ever spoken with any of the creditors. I know I owe this money, and I don't want a free ride, I just want to know what my best options are.

More info: All of the bad accounts are closed by the creditors and all of my student loans are in good standing/paid to current.
posted by idledebonair at 6:14 PM on February 20, 2007

idledebonair, I'll see if I can find any past entries at my site about this issue. I can't recall ever having written about it, but maybe I have. Also, if you're interested, we can ask my readers. They're a knowledgeable bunch. Drop me a line (e-mail in profile) if this appeals to you. I'd be willing to run the question tomorrow morning, if you want.
posted by jdroth at 6:16 PM on February 20, 2007

@jdroth: That IS a little harsh actually, and doesn't the fact that I'm seeking answers show that I'm willing and ready to take this on as my responsibility? I know that only *I* ruined my credit, but what am I going to do at the time, say, "No, Dad, I won't do that, because I have a sneaking suspicion that you will not be true to your word?" My parents DID screw me over, and I'm out there now, working two jobs, not spending money, not buying anything, living as boringly and cheaply as possible in order to tackle this. Other than that, I really do appreciate your advice, so keep it coming, jdroth.
posted by idledebonair at 6:25 PM on February 20, 2007

doesn't the fact that I'm seeking answers show that I'm willing and ready to take this on as my responsibility?

Absolutely. That's why I tried to preface it with the fact I wasn't trying to lecture, but to offer advice. Unfortunately, it's one of those things that would come across best in person. It's difficult for me to convey what I want to convey someplace like AskMe. But I tried! Let's see if my readers can offer some other ideas.
posted by jdroth at 7:09 PM on February 20, 2007

Frankly, it seems a little unlikely that a card issuer or agency would just let a $5000 debt go. Couple of possibilities:

--They may not know where you are. Requesting a credit report using your current address might tell them. You might want to try requesting your credit report copy online using your social security number and your address from 7 years ago when the events happened.

--They may have gotten a court judgment against you, and you weren't served, or you were and didn't pay attention. A judgment is a public record, and the 7-year reporting period IIRC would be from the date of the judgment. In this situation, if they suddenly know where you are, and in particular where you work, they could theoretically garnish your wages, take money from your bank account, etc.

--Or, they've done the somewhat unlikely and given up, in which case you're probably just a year or two from having the items age off of your report, and you'll be clear.

--Another possibility that we can't tell from your initial post: you may have several smaller debts spread among several cards. If so, it's more likely for any individual smaller bad debt to have been written off, and more likely that you might be closer to being able to put the whole thing behind you.

(Me, not a lawyer, but have collected on bad debts/checks before, and I've reviewed thousands of credit reports in the past.)
posted by gimonca at 9:14 PM on February 20, 2007

You said, "I HAVE gotten my free credit reports" and "my score right now is 500 = "Very Poor." "

I think you may have enrolled in a free trial for a credit monitoring service. The Free Annual Credit Report doesn't reveal your credit score, only the information reported (last I checked).

The website freecreditreport.com includes small print:

"ConsumerInfo.com and Freecreditreport.com are not affiliated with the annual free credit report program. Under a new Federal law, you have the right to receive a free copy of your credit report once every 12 months from each of the three nationwide consumer reporting companies. To request your free annual report under that law, you must go to www.annualcreditreport.com."
posted by reeddavid at 10:21 PM on February 20, 2007

The Free Annual Credit Report doesn't reveal your credit score, only the information reported (last I checked).

equifax does report the FICO as part of the free annual deal, at least it did last year. I forget now if I paid an extra fee, but my 'screencap' of my FICO shows it was part of the website deal.

That IS a little harsh actually

it's only harsh if you don't get it, as evidenced by the title you chose for this askme.
posted by Heywood Mogroot at 1:09 AM on February 21, 2007

Long before this post, I went to www.annualcreditreport.com. In addition, six months later, I wanted another report. I went to the homepages of Experian, TransUnion, and Equifax and got their cheapest, most basic reports. I asked for verification on each negative item each of the agencies were reporting. The credit score came with the Experian package.
posted by idledebonair at 6:09 AM on February 21, 2007

Idledebonair - I feel your pain. It's amazing how little education we (generally) know about FICO scores when we start using credit cards for the first time. If you get credit cards at 18, you could very well be impacting your ability to buy a house at 25 simply because you didn't know how to play the FICO score game. I'm learning NOW (at 29) so many basics that I wished I understood when I was 18 and started paying the odd bill late, and otherwise doing things that are bad for my current FICO score. So good luck - at least you're getting things in order now!

Can I piggyback on this question? Please ignore if too much of a derail, but I think answers to these questions might help idledebonair too:

(1) When fixing dings reported erroneously (or not) to the credit agencies, how long does that usually take for the FICO score to go back to what it should have been?

(2) Idledebonair mentions that all bad credit was closed by the creditors - how bad is that on the credit report? And will that always appear on the credit report under "closed accounts", or should that disappear in 7 years too?

(3) I've heard it is a good idea to increase credit limit so that the ratio of credit used to credit available is smaller. But don't the credit card companies have to do a sort of credit check to authorize that? And isn't it a credit score ding every time a credit inquiry is made? And is it more of a ding if the credit card co. decides not to authorize a credit limit increase?

(4) Do student loans (even always paid on time) negatively affect the FICO score?
posted by Amizu at 6:41 AM on February 21, 2007

There's an interesting story here about a guy who successfully reset his credit history by requesting the credit bureaus verify the details of the debt. Apparently the FCRA says that if the bureau is unable to verify the debt within 30 days, it's expunged from the record. Part 2 of the story is here. YMMV, of course.

(Via)
posted by shiu mai baby at 8:04 AM on February 21, 2007

Are you getting calls from collection agencies? It's pretty rare to drop off of the radar completely - entities like utility companies often update your credit report (address, etc) when you open gas / electric service accounts with them. If the creditor is still trying to collect, you'd likely know it from the nonstop phone calls from collection agencies. If you haven't been getting any of these calls, they have probably written it off. Does your credit report list any outstanding collections (there should be a section for collections)?

If the accounts have been closed by your creditor(s), they no longer list a debt balance, and you have no open collections (unlikely, but possible), you're probably home free in a few years. But again, it would be 7 years from the time they wrote off the debt and stopped reporting it, not 7 years from the time the debt originally went bad - so it could be awhile yet.

Your best bet for quick improvement is to eliminate any outstanding collections and bad debts as soon as possible if you have the money. Not to mention that it's the right thing to do if you have the means; it may be something your parents got you into, but it is still a debt that you owe and have a responsibility for.
posted by chundo at 8:17 AM on February 21, 2007

Make sure it is in fact your FICO score (it specifically says FICO), and not a proprietary of one of the three, or the Vantage score (the shared score between the three to compete with FICO).
posted by tdischino at 9:39 AM on February 21, 2007

Christ, what a lot of garbage advice. If you "might be wrong" then maybe you need to not give people advice that could financially cripple them for decades.

*ahem*

Idledebonair, you have two issues intertwined here that you need to confront. Or more accurately, you're discussing two issues - one you should stop worrying about and concentrate on the real problem.

The first, and simplest, is the question of your credit report and FICO score. The 'expiration' or 'dissapearance' you speak of is that derogatory items on your credit report age-off seven years from the date of last activity. Last activity can be the last time you made a charge with the card or it can be the last time you made a payment.

This is significant! Here's an extreme hypothetical explaining why.

Jim and Jane walk into Macy's on South Beach in Florida on Jan 1, 1990. They each open a store credit card and are given $100 credit limits. They each walk to the electronics section and buy a CD player that, with tax, costs $99. They walk out of the store and decide "screw the May corporation, I'm not paying them a cent!" and never make a single payment.

Neither one makes any other credit decisions or purchases. The only thing on each of their credit reports is that one tradeline for that Macy's card, which every month accrues a $29 late charge, a $29 over-limit charge, and 1/12th of the annual 29% interest they charge on accounts in default.

On December 24th, 1996, Jane has a sudden attack of conscience and decides she should make good her debts. She picks up the phone, calls the May corporation and they tell her that her current balance is $15,314.64 and they'll be happy to do an electronic bank transfer for the cost of $20.

Jane of course does not have this money laying around in her jeans, though she's done well for herself, and she tells them as much. Okay, the rep says, following the script, how about 1/3rd that amount? Nope, don't that laying around either.

After much discussion, Jane agrees to a $200 electronic payment and a monthly payment of $100 ongoing. The rep processes the payment quick as a bunny and Jane's on the road to repayment.

In January the debt gets to be 7 years old. The May corporation updates both accounts - accurately, as is required by the Fair Credit Reporting Act - and now Jim's account shows a balance of $15,742 with the last activity on Jan 1990, when he made the purchase. Jane's account is only $15,611.32 (she made that $100 payment before they assessed the 1/12th of 29% interest and tacked on the $29 over-limit fee) and her date of last activity is Dec 2006.

In February Jane, happily, hits 5 numbers in the Florida lottery and wins $28,333. After paying about 40% of that in taxes she's left with $17,000. She writes a check to Macy's to pay off her debt and goes out to Joe's Stone Crabs to celebrate. After bribing the maitre'd to seat her before March and paying for her dinner, she's left with $19.

She's also got a tradeline on her credit report that will expire in March 2004. It indicates a closed account on which she was over 120 days late on her payment. As that ages it's going to have less negative impact on her score but for the moment it's a big black mark. The exact math of FICO scoring is a trade secret but what we do know is that payment history is 35% of the calculation. Until that tradeline is completely gone it will continue to have some negative impact on Jane's score.

The point of this long-winded example is that you want, if possible (and it may very well not be) to avoid re-aging those tradelines. The secondary point is that, with FICO scores, time heals ALL wounds. No matter what it is, after seven years (or 10 for bankruptcy) it falls off if it's remotely negative.

But here's the thing: you have way more important things to worry about than your FICO score. The only reason FICO matters is to get new loans and the LAST thing you need now is MORE things you have to pay back. You need to deal with your DEBT.

I'll talk about Jim's situation in the next response.
posted by phearlez at 10:23 AM on February 21, 2007

"Ideally you'd call the creditor"

Absolutely horrible advice. NEVER deal with creditors over the phone. Do everything in writing. The only time that you should call them is to get their address.
Creditors & collections agencies will lie and cheat and screw you six ways from Sunday to make a buck.
posted by drstein at 10:35 AM on February 21, 2007

I owe this money scattered over a few cards. $1000 to Amex who still sends me letters occasionally. The others, about $2000 to Capital One, $1000 to Providian, and $1000 to Retailers National Bank (Target Card); I hear from every few moths via collection agencies' letters which I'd always been just destroying, (but now I'm going to save them and write letters asking for verification as per
http://www.brokeass-student.com/how-to-fight-back-against-collection-agencies/

I haven't been tracking who sends me what and when, but I do plan to keep a log now. But what I still need to know, is my credit going to be worse off if I do pay these debts. And who am I going to end up paying (or not paying?)
posted by idledebonair at 11:07 AM on February 21, 2007

@ phearlez: if idledebonair were to save the entire amount of money he owes, then contact the agency when he is prepared to pay in full, it sounds like this will still hurt his credit score because it will be considered the last activity; that is, the "ding" will be renewed even by paying it back. Am I understanding that correctly?
posted by juliplease at 11:12 AM on February 21, 2007

Before we talk about Jim, there is one other thing we should mention, called a charge-off. When Jane first pulled her credit report she noticed that he account was noted charge-off and she wasn't sure who to call about the debt. After all, doesn't charge-off sound like they'd thrown it into the metaphorical trash bucket? It sounds like write-off.

A little reading and Jane discovered that the term charge-off is pretty much meaningless to her. It's an accounting term that describes a debt that's over 180 days overdue and it impacts how her creditor, the May corporation, counts that bad debt in their balance sheet. They don't have a choice - it's a federal regulation that they charge off revolving debts of that age - and it does impact their decision making in what to do with accounts. But it doesn't HAVE to, and when Jane called the May corp she discovered that they hadn't sold off her old debt. Charged-off it may be, but they still were carrying the paper. So when she made those payments, she made them to the May corp and dealt with their internal division.

In the world of unfairness, Jane's example situation takes the cake. Jane Did The Right Thing and honored her obligations - no matter how usury-like the typical corporate response to delinquent debtors may be - and is punished for it by keeping that uglyness around for a long time. A perfect FICO score is probably impossible for her till 2004.

Jim, on the other hand, sobered up from New Years in April 1997 and ordered a copy of his credit report after seeing some spam on USENET. When he got it he noticed that there was still an item there from the May corporation that said date of last activity Jan 1990. Reading the stuff that TransUnion sent him along with his report, he figures out that this old tradeline should have expired. He makes the same mistake Jane initially did regarding charge-offs and doesn't worry for a second. So he sends a letter to TransUnion saying this is an over-age item, delete it.

TransUnion gets the letter and confirms. Yep, it's past the 7 year reporting time. They should have just killed it automatically, but just like their two big peers, Experian and Equifax, they chronically screw up and have to be double checked. This one's pretty minor, unlike cases when they merge multiple people's reports into one, and they just fix it.

So they mail Jim back a note saying it's deleted and an updated copy of his credit report, which now shows absolutely nothing on it. Jim is thrilled - he's free and clear! Not only did he get a $99 CD player back in the day - which was a pretty good deal in 1990 even if you paid your bills - but he's dodged the fifteen grand that the May corporation had pushed the debt up to over the years. SWEET.

The only problem is, all that Jim has done is get himself a blank credit report. Credit reporting is a voluntary activity. If you do it - and you don't have to if you're a creditor, you just want to so the system will work well - you have to do it accurately, according to the Fair Credit Reporting Act. But the contractual issues of owing someone money don't have anything to do with the report - the report reflects that debt - partially - but it is not the debt itself.

The reality is that, as a creditor, if you don't want the administrative cost and hassle you don't have to do it. A bunch of us could get together and start loaning money and never report. Or we could be a junk debt buyer who never reports.

In Jim's case, however, the May corp still owns that debt. Whatever their reason for slumber and not coming after him before, they notice him now. So they start sending him letters and calling him. Jim, thinking he's done with them, tells them to screw off and hangs up when they call. He tells them to stop calling him, which would actually work if they were a collection agency and subject that aspect of the Fair Debt Collection Protection act, but they're the original creditor and the rules are a little different. So they keep calling him every day.

Jim gets pissed and changes his number and starts writing REFUSED on the mail he gets from them. The May corporation metaphorically shrugs and sends his file over to their legal department, where they draft a lawsuit against him for the money.

Now, the lawyers know they're past the Florida statute of limitations on this debt. They've got every bit of necessary paperwork so they'd be subject to the five year limit in Florida law rather than the four year limit and they're savvy enough about Florida law to know the distinction. Either way, however, at seven years they're over the limit. They're pretty good lawyers, however, and they know that a statute of limitations defense is an affirmative defense and they might dodge the bullet if Jim's stupid or lazy enough.

So they file suit against Jim asking for the over $17,000 he owes them with fees and interest, also intending to ding him for legal fees if they win. They cross their fingers and have Jim served with notice properly, rather than with what some in the industry call "sewer service" where they do the bare minimum and hope he doesn't really get notice to show up.

Jim's cocky, however, and when the process server shows up at the door he signs for it. However when he sees what it's for he just laughs and throws it in the garbage. He got that deleted!

So the court date comes and the May corporation lawyers show up. Jim doesn't. A very short time later there's summary judgment in the case and the lawyers go ahead and get a judgment against him. It's entered into the civil record and now Jim's on the hook for $20,000 - the $17,561.14 he owed them in April according to their calculations, plus a few grand in legal fees.

The mail from the May corporation keeps coming but Jim never opens it. If he did he'd discover they're not talking about a credit card anymore, now they're talking about a judgment. The only happy news he's missing is that Florida law caps the interest rate at 10% on a judgment and doesn't allow for things like late fees or overlimit charges, so at least his $20,000 is only increasing at .833% a month.

In reality the May corp could probably charge 29% on that judgment based on the way Florida law is written, but someone in collections only asked the intern in legal about it and they didn't pursue matters to be sure, so they just track it at 10%. And every month they report that new amount to TransUnion, Experian and Equifax. $20,000 in April, $20,166.67 in May and so on.

By the time December 1997 rolls around and Jim decides to try to get a credit card the judgment is up to $21,327.88. Barnett Bank tells him sorry, can't give you a MasterCard. Perplexed, Jim contacts TransUnion for the free report he's due when he's denied credit based on their information. They mail him his report and there's a judgment on it since April. Pissed, Jim calls the May corp but all they want to talk about is getting money from him. They won't budge.

He's willing to ignore them but now this is impacting his life in other ways - he discovers that the bank won't make a loan to someone with an outstanding judgment and he's thinking of buying a house. So he finally consults a lawyer.

The lawyer has great restraint and doesn't look at Jim like the fool he is. He does calmly indicate to Jim that for future reference, when you get a summons, you should go. Really, you should get a lawyer, but at least show up do you know what's going on. If you'd showed up you'd at least have known about this a few months earlier.

Or, the lawyer informs him, if you'd showed up with me or even just a cursory knowledge of the law, you could have contested the debt as past the statute of limitations. Jim perks up at this, thinking he's found an out, but the lawyers tells him it's too late. SoL, as an affirmative defense, has to be raised by the defendant - it's not automatic. Even if you'd showed up, if you hadn't mentioned this (really, in a filed response) you could lose if you only try to fight it on other grounds.

The lawyer says well, we can try to question the legitimacy of the summons, what did they leave you? Well, some receipt when I signed for it, but I threw it away, Jim tells them. Signed? Well, that's a pity.

So the lawyer lays it out for him. You've got a fairly unassailable judgment against you and its got a lifetime of ten years here in Florida, like most states. At the end of that ten years, if you haven't satisfied it, they can apply to renew it and they'll likely get that extension for another ten years. Likely it won't come to that, since they know where you are and can attach your salary with fairly simple administrative paperwork with the court.

If they know where you bank - and since Barnett is on your credit report as an inquiry they're probably going to go looking their first - there are procedures to attach your accounts there. You can go try to hide your money but if push comes to shove they can just have a court order you to disclose.

In the end, Jim's going to pay that money. He had a clear credit report for a few months but that didn't impact what he owed. He COULD have gotten out of it because of his creditor's insane ignoring of the situation for so long, but he didn't do the right thing.

Those two situations discussed to death, let's talk about the reality of your situation and what's more probable that a creditor is going to do.
posted by phearlez at 11:24 AM on February 21, 2007 [1 favorite]

@ phearlez: nevermind! answered! thanks!
posted by juliplease at 11:51 AM on February 21, 2007

Reality looks like somewhere in between. Juli, you do understand the situation correctly... mostly. <newt>mostly</newt>

There's some dispute about what constitutes new activity, and the broke ass college student may be over-reaching in the statement that even a nickel restarts the clock. Depending on your location (since you're primarily dealing with state laws in everything other than FCRA and FDCPA) and how mightly your lawyer is it may be that you have to bring the account current again for it to qualify as new activity. So if you're 70 months in arrears like Jim and Jane you might have to make the amount of minimum payment * 71 to really re-age the account.

However that's a reach and from my readings it looks like few people have successfully made that defense. If you think you might be past or close to SoL then you should investigate (and hire a lawyer!) before you acknowledge the debt or make any payment. It's no coincidence that collection agencies try to get you to make a payment, ANY payment, ANY AMOUNT, when they get you on the phone.

The broke ass college student (BACS from now on because I am lazy) also misses one point and overstates another on the case of validation. The first and most important part is that the original creditor does not owe you validation. If you're getting calls from American Express themselves they don't have to humor you in that. Since they don't owe you validation that also means they're not obligated to cease collection activity till they provide it.

Her overstatement is that long-assed letter she posts as an example. You can scrawl on a piece of paper with crayon I DON'T RECOGNIZE THIS DEBT PROVE IT and that's it - you've met your obligation with regards to FDCPA. I'd suggest a pen, or maybe a laser printer, but you don't need to do all that additional crap.

From a strategic point of view you want to not tip your hand that you have done all this research. You want them to be legally obligated to meet their requirements without them realizing you're going to be scrutinizing them for the slightest screwup. Much of the FDCPA also hinges on the question of a naive expectation, so why hobble yourself if this ever becomes a legal issue?

The BACS mentions several important things in passing. One, there's a difference between junk debt (where the person you own money to has sold off your obligation for pennies on the dollar) and debt still carried by the original creditor. Junk debt is very vulnerable to the validation defense since often people don't pay the additional cost to get documentation. If Amex, Capital, etc, still own the debt then that's unlikely to work.

She also accurately states that if you tell them to completely screw off the likely result is they'll sell it to someone else and you'll start over with them. Lather, rinse repeat. She glosses over the fact that big creditors like the ones you're dealing with likely work with many collection agencies and if you manage to hobble one they will return it to Amex/Capital One/Target who will reassign it to a different agency.

How you handle this depends on the answers you get from your validation requests. In junk debt territory if they just leave you alone that's the best of all possible worlds. From a FICO standpoint you're therefor going to end up with that original tradeline until the 7 years goes by but the original creditor will never bother you again. You don't say how long ago you last made a payment so it's hard to say how likely it is this is junk debt or not.

Your best strategy here, in my opinion, is to be mentally prepared to have to pay up. Priority one is to not have this debt hanging over your head. Your FICO may matter to you in the near or far future but getting free and clear should be your #1 priority, and if the result of that is a lower FICO score in the near term, so be it.

Many people have success in being super diligent in their dealings with collection agencies such that they catch them in FDCPA violation. With those violations being to the tune of $100 per offense you can rack up some notable leverage to make a deal. If agency PDQ is coming after you for $1000 on behalf of Amex and they're going to get 30% of what they recover they don't want to do it at the cost of paying you $400 in violations.

The typical term in the debt fighting forums is "pay for deletion," where you use your leverage to get them to agree to take some amount - maybe the full amount, maybe 80%, maybe 5%, depending on the situation - in exchange for leaving you alone and not reporting the debt to the credit reporting agencies.

They hate this and will claim up and down they can't do it, citing the FCRA. Depending on who you're dealing with - AND DON'T BE DOING IT ON THE PHONE - they might even believe it. But the FCRA mandates that reported debt be reported accurately. It does NOT mandate that debt BE REPORTED. Case in point - if my cow orker Skippy borrows $100 for me and doesn't pay it back, am I obligated to report it to TransUnion? No. Reporting is voluntary. I am not obligated to do so.

Can I just decide that I'm going to report that he owes me $1000 because he angers me? No, because that's not accurate. I can report $100 and maybe there's some state allowances since we don't have a written contract - say $105 after a year of interest if VA law allows for 5%. (and this is totally made up here, btw). So I report to TransUnion that Skippy owes me $105.

Skippy comes to me and says hey, look, I'll give you $50 if you just drop it and in exchange I won't tell the boss how you spent three hours fucking off on Metafilter today. Theoretically that's blackmail but I can't find the number for the local cops so I take him up on the deal.

Now, I'm not going to submit a correction to the report saying he paid in full because that's not true. He didn't pay me $105. If he did I'd just report paid and the tradeline would stop saying COLLECTION account and be classified as a PAID COLLECTION. Skippy's a smart dude - a paid collection is almost every bit as bad as an outstanding collection and it starts aging at the date of payment.

Instead, Skippy contests the line with TransUnion saying the amount isn't accurate - which is actually true, it SHOULD be $55. They, as they are obligated to under the FCRA, requests that I verify the amount. Normally I'd do that and if I was a big operation like Amex I'd even have some snazzy terminal to do it on - no papers required. But what I do instead is not verify it - I just ignore the request.

After 30 days (or 45 if Skippy's using a free credit report as the basis for this challenge - one of the nicer giveaways for creditors, that extra 15 days) TransUnion shrugs and deletes the line because it wasn't verified by me, the creditor.

Nobody's lied but the line is gone. That's pay for deletion.

At this point you need specific advice. Your best bet is likely Debtor Boards in the forums. Post there and someone can give you more specific advice on how to proceed.
posted by phearlez at 12:03 PM on February 21, 2007 [1 favorite]

In looking that over I want to make one clarification: the original creditor, acting on their own behalf (ie, me calling Skippy at home saying where's my $100?) does not owe validation.

A collection agency, acting on behalf of the original creditor, does.

So pay close attention to whose name are on those dunning notices.
posted by phearlez at 12:07 PM on February 21, 2007

We've all given you this extremely complicated and contradictory advice. Really you need to seek out an expert in your state to figure out what to do. But I'd like to make a radical statement:

$5000 is really not that much money. Is your time and energy and self respect really worth all this? You could probably make that in less than a year of working a second job or selling your sperm/blood plasma or whatever. It seriously shouldn't even be hard to come up with it. If all I owed was $5000 I would throw a party. The $5000 probably doesn't represent the sum total of whatever debt you are in and I don't know your whole situation. I know you had help getting into this situation, but just because your parents were idiots doesn't excuse your being one as well [this very situation is why student loans exist]. If you haven't been paying this debt on principle, then I think you should get over it, forgive your parents, and maybe visit them [for the purpose of liberating items to sell on eBay]. I'm kidding, mostly.

If this is really all you owe, then dude, work a second job or something, put the money in an ING Orange account, and once you have $700 or so, write to Amex and ask to settle your account for $700. It's important to wait until you have an actual chunk of change, they love the idea that you can pay them something right this second. Ask them to report it as "paid as agreed." Which is a slightly better thing on your report than some of the others. Or be radical and actually pay the full amount you owe. Definitely look into "pay for deletion" Keep going until finished. Your credit is going to be icky no matter what you do really. But it will bounce back to bearable pretty quickly. Will you be able to buy a house tomorrow? Probably not, but if you don't have $5000 you can't buy a house anyway. If your car is about to die, maybe purchase a different one now before you try to take care of this. That will also give you an idea of how crappy your credit really is. When they offer you the 22% interest rate you know you are a roach. [car salesman speak for someone with awful credit]

Lastly, I think you can call into the freaking Suze Ormond show with this exact sort of stuff. Maybe that's something to try.
posted by Mozzie at 2:48 PM on February 21, 2007

I wish there was a bulk "Flag as AMAZING POST" feature.

phearlez would win.
posted by drstein at 1:52 PM on February 25, 2007