Settling Collections Before the Statute of Limitations Expires

Hi Lee,

I currently have an account with citi and another with usaa at $4000 each which were just charged off. I would like to get a paid for delete for both at most 50%. I plan on buying a house in a year. A CA is managing the Citi account but Citi still owns it. What do you suggest is the best way of handling both of these debts. I live in Florida SOL is 4 years and I am no where near that. I realize that settling without a PFD would not help my credit score.. Help!! Thanks..

- SA


SA,

I appreciate your enthusiasm. Unfortunately, your odds of getting a pay for delete from either of these creditors is slim to none. Let me explain:

The credit card companies want the full amount. The collection agencies also want the full amount because they collect a percentage of whatever they can convince you to pay. Even if the collection agency were to agree to a pay-for-delete for a debt this young, they only have control over their own trade line. The original creditors' trade lines that illustrated the charge offs are still going to be there unless that pay-for-delete comes from the credit card companies themselves.

I see what you're trying to do. You want to negotiate a pay-for-delete with the original creditors. Doing so would require them to pull the debts out of collections – effectively eliminating the collection agencies' trade lines – and delete their own charge offs as part of the arrangement. You then get a clean credit report and the ability to qualify for a mortgage while only paying half of the debt. 

These days, however, pay-for-delete's are a rare beast and you'll almost never be able to negotiate one with an original creditor. You may be successful in getting the debt settlement you want, and you may be successful in getting it from the original creditors instead of the collection agencies, just don't expect a pay-for-delete to be a part of that agreement. Most of the time, there's really no point to paying anything on a debt if the creditor in question won't delete it from your credit report. 

Buying a house in the future isn't an immediate concern. The potential for a lawsuit is. Although a lawsuit is more likely when you owe more than $1000, collectors in this tough economy are often suing for much less – and you're sporting two debts with a $4000 price tag each. 

Whatever you do, tread carefully. If you start making calls and asking for a settlement, that's going to show your creditors that you have some extra cash on hand that you could be using to pay the debt. Why should they agree to settle the debt with you for half of what you owe when its much cheaper for the credit card company or collection agency to simply sue you and force you to pay the whole thing? Collection agencies often don't have a leg to stand on when it comes to lawsuits, but your debt is relatively recent and there's a fair chance that the paperwork to back up your debt in court is still easily attainable – especially if its the original creditor who opts to sue. 

Don't get me wrong, I'm not saying its not a good idea. I'm just saying its not a good idea right now. If you wait until the SOL has expired on both debts before starting negotiations, the collection agencies have no choice but to work with you if they want to get paid (and if you're offering 50% of a $4000 debt, they'll want to get paid). Do it now however, and its akin to waving a red flag in front of a bull. If you think collections will hurt your chances of qualifying for a mortgage, wait till you see what a civil judgment and garnishment will do. You can certainly try, but in my opinion it simply isn't worth the risk. 

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Settling Collections Before the Statute of Limitations Expires

Reviewed by pada mama
Published : 2013-04-24T05:23:00-07:00
Rating : 4.5