Debt doesn’t go away when lender writes it off
Dear Liz: About two years ago, I bought a new car but was lied to about how much it would cost. After a year I simply could not afford the car and could not refinance as I was incredibly upside-down. The auto lender wasn’t willing to help, so I did a voluntary repossession. Nissan came after me for the balance remaining after auction but eventually wrote it off as a bad debt (this shows on my credit report). The debt has been sold twice to collection companies that call me on my cellphone and at work but don’t leave messages. I can see they’re checking my credit but they haven’t reported the debt on my credit report. Is this legal? I feel if Nissan wrote the debt off (and I am suffering from that via credit reporting), there should no longer be debt to collect.
Answer: When a lender charges off a bad debt, the debt itself doesn’t disappear. The lender is simply declaring that it doesn’t think it will be able to collect. The debt can be sold to collection agencies, which can post the collection account on your credit reports.
The charge-off is what typically does the most damage to your credit scores, although the collection accounts increase the toll.
There are limits to how long creditors can pursue you in court over debts. The limits vary according to each state’s statute of limitations. There is also a limit on how long bad debts can show up on your credit reports (typically seven years and 180 days from when the account first went delinquent).
But debts only disappear when you pay them or have them legally erased in U.S. Bankruptcy Court.
One of the things you should learn from this experience is not to trust a lender to tell you how much you can afford to borrow. The other is that you should always arrange financing in advance before you venture onto a car dealership lot. If the dealership can beat the deal you get from your bank or credit union, great. Otherwise, you’ve got financing you know you can afford.
Weigh ability to cut debt before bankruptcy
Dear Liz: You dropped the ball badly in your response to the man who was in debt after an ill-advised career change. Why didn’t you mention the “B” (bankruptcy) word? Like the gentleman in your article, my wife and I found ourselves overloaded with debt. We took on too much debt in starting our own small business in 2005. Things went very well for a couple of years and then we, like the rest of America, got caught up in the Great Recession. We went through consumer credit counseling and the counselor advised us that bankruptcy was an option we should consider. We filed in November 2010 and it was finalized in January 2011. We were able to keep our business. We also kept our house and our vehicles, which have loans outstanding, by “reaffirming” those debts. Bankruptcy is not a crime. It is the last resort, and it is unpleasant but it is an option. And here’s the kicker for us: Two months after the finalization of our bankruptcy, both my wife and I started receiving credit card offers in the mail (again). Don’t worry, history will not repeat itself in our case.
Answer: Bankruptcy is frequently mentioned in this column as a possible solution for overwhelming debt. Having a lot of debt isn’t the same as being overwhelmed by it, however. What matters is whether you’re able to make sufficient progress on paying down that debt.
The gentleman in question might discover that getting rid of a too-expensive house frees up money to pay down the family’s debt. Otherwise, it would be smart to talk to both a legitimate credit counselor (the National Foundation for Credit Counseling, at https://www.nfcc.org, has referrals) and an experienced bankruptcy attorney (referrals from the National Assn. of Consumer Bankruptcy Attorneys are at https://www.nacba.orghttps://www.nacba.org).
Keeping your tax data safe
Dear Liz: In a recent column, you discussed two instances in which the tax preparer screwed up, and yet you concluded the problem was with the post office. I’m not a fan of the post office, but your logic escapes me.
Answer: In both instances, sensitive financial documents were entrusted to the U.S. mail system. Although this is common, it’s certainly not secure, since such mailings aren’t tracked and they certainly aren’t encrypted. The two taxpayers didn’t think to question the way their papers had been handled until those papers went missing, but both taxpayers and tax preparers would be wise to use more secure methods to transmit sensitive data.
Liz Weston is the author of “The 10 Commandments of Money: Survive and Thrive in the New Economy.” Questions for possible inclusion in her column may be sent to 3940 Laurel Canyon, No. 238, Studio City, CA 91604 or via asklizweston.com. Distributed by No More Red Inc.
