To settle or pay in full?

**GrimJack** · 07-26-2014, 01:26 AM

Originally posted by bigchaloopa View Post

I have about 20k in debt from a failed business venture about 6 years ago which I haven't been able to repay until now.

My credit score sucks, like 550. I have enough money to pay off the debts, but it's been a while now and the debts have been sold to a debt collection company that I think will take 20 cents on the dollar to settle.

I have read in the past that you can send the companies some kind of paper with a check, stipulating that if they accept this check they agree to a non disclosure on this debt. Then you can contest the debt with the credit agency and since they can't respond after signing the NDA it comes off.

Would this be possible? I'm in the state of Louisiana and if so it would save me $16000 (which to me is a LOT of money!).

Well, if $16,000 is forgiven - the IRS considers this income and must be treated as income. Signing statements on checks may or may not be acceptable in court - I would check with an actual CPA or lawyer.

**dczech09** · 07-26-2014, 08:07 AM

I am not sure exactly what you are speaking of- the collector already has non-disclosure rules under Fair Debt Collection Practices. Could you provide a source and/or link? You have to be careful because there is a lot of BAD information surrounding credit reporting and cleaning poor credit.

As far as collections go...

YOU OWE THE DEBT!!! Plain and simple. I understand that $16,000 is a lot of money to you (its a lot of money to most people). However, you borrowed the money and you have to pay it back. Since you have the ability to pay it, do so.

Settling for pennies on the dollar is a practice for people who do not have money and may never be able to repay their debt. And it is not like they get off easy- their credit will take a while to heal and they can get turned down for rent, jobs, insurance, etc. In order to settlements to be effective, many people have to get CPA drafted financial statements sent to the collector to show that they have no money. You cannot do this because they will see that you have money.

Since you have the money and want to try to settle, you run a really bad risk. That risk is that the collector calls your bluff and decides to sue you (which they can do). If they sue you, you may get a judgment to pay (plus attorney's fees and what not).

You can certainly try to save the $16,000 by looking at settlement, but it is a dangerous game that you are playing. You need to tread lightly and know when to fold. Honestly, you are probably much better off paying. You will avoid a tax bill of approximately $4,000 (assuming you are in the 25% tax bracket), a lot of headache with trying to negotiate, and the possibility of getting your head taken off.

As far as your credit score goes- that ship has sailed. You had a debt that went to collections, so that will not heal for a while (about 7 years). Even if you pay-off the debt, your credit report will reflect that the account went to collections but was paid in full (which is better than just a collections remark). You will not eliminate the derogatory.

Some people recommend negotiating a deal called "pay for delete" where you pay off the balance if the collector removes the derogatory from your credit report. The problem with this, is that it is A) technically illegal and B) can only be done by the bureau or the organization who put the remark on your credit report in the first place (which was probably the original creditor, not the collector).

I hope this makes sense. Feel free to cross-reference what I said with CREDIBLE resources. Be careful with the advice that you find on some website about credit repair- a lot of BAD advice out there!

**cardtrick** · 07-26-2014, 05:35 PM

I completely disagree with the poster above.

1. Pay for delete is not illegal by any stretch of the imagination. The FCRA only says that whatever is reported on your credit reports has to be accurate. It does not force a lender to report bad accounts on your credit report although nearly all creditors and collection agencies will insist that it is illegal for them to delete accounts from your report. What you decide to do with a PRIVATE contract (your obligation to pay them) is between you and your lender. Therefore, pay for delete is completely legal. But the only thing that the collector can delete is their debt, not the item that the original creditor has on your report. Besides, it will help your score only marginally because the original creditor is still reporting a negative item on your report.

2. Putting moral responsibilities aside, if these slimy creditors can use the law to their advantage, why shouldn't you be able to? If society shames defaulters into paying their debts, that's lower default rates and higher profit margins for the banks. I seriously doubt they'll pass the savings onto their customers. Besides, who cares what others think is the right thing to do? You're not breaking the law. You're just understanding it and using it to your advantage.

3. The lender's worst nightmare: The 7 year statute of limitations on debt reporting. The 7 year period starts from the date you made your last payment. If you made a payment at some point again, the period is reset. After 7 years (7.5 years for Experian) you can dispute the items as "too old" and have them removed. Of course here, the reporters can fudge the details and make it stick for longer, so keep all the paperwork you have on this debt. You can write them threatening letters demanding that this be removed from your reports (you can google how to do this. There is a forum that deals exclusively with this issue) or take them to court.

But here is your problem:

The statute of limitations for debt collection (written contracts) in Louisiana is 10 years. Note that debt collection is different from debt reporting. So technically, if you get sued, you would have to pay the lender the entire amount plus attorney fees. So be careful with how much you push it. You can be sued even after 10 years, but then you will have a defense and that is that the statute of limitations has expired. After the SOL, if they ever call you, per the FCRA/FDCPA you can request that they only communicate with you via snail mail and you can pretty much ignore the letters, unless they're serving you a court papers. At that point, you go to court and use the sol defense and the case will be thrown out with prejudice (they can't sue again). If you go this route, you will technically owe this debt for the rest of your life, but they can't get you to pay it and it will stop reporting on your credit report. And since there has been no settlement or forgiveness of debt, there is no income to pay taxes on.

My suggestion: If you can pay it off at least partially and settle, do it just so you have peace of mind. This will trigger a tax liability, so be prepared for that. If not, lay low till the 10 year statue of limitations expires and then you can get aggressive. But, that's at least 4 years away. In this time period, you shouldn't try to make purchases on credit or have new items appear on your reports. The collection agency will be monitoring your report to figure out if you've come into money and if it's worth suing you. Whatever you've been doing for the past 6 years has been working, so continue doing it for another 4 years.

And make sure you know exactly when you made the last payment on the account. And whatever arrangement you work out with the collection agency, make sure you get it in writing and don't pay a dime till you have the full terms in writing. Stay off the phone and don't trust anything they say. Ever. Only communicate via certified mail, so you have a record of everything. If you send them a check with a letter, they'll cash the check and throw out the letter. What will you do then? Sue? It's your word against theirs.

Knowledge is power

To settle or pay in full?