When you stop making payments to a lender, the company will not wait indefinitely for you to catch up payments and bring your account current. It is not advantageous for loan companies to carry unpaid loans on the books, and lenders eventually write off these loans. Writing off uncollectible debt allows business to claim a tax deduction in lieu of payment -- but it does not erase your liability to pay what you owe.
Consumer Misconceptions
When a lender "writes off" your loan balance, it merely alters the debt's status as a performing account to that of a non-performing account to obtain a tax break on the unpaid balance. You still owe loans that your lender has written off.
A lender has the option to hire a collection agency to collect the debt on commission -- granting the agency a percentage of the amount it collects -- or to sell the debt to the collection agency. In both situations, however, the debt collector can and will pursue you for the written-off amount.
Secured vs. Unsecured
The majority of unpaid loans sold or assigned to debt collectors are unsecured loans, but a collection agency can also pursue you for a defaulted secured loan. Unlike unsecured loans, which lenders award on the basis of your credit history and income without requesting collateral, secured loans give lenders the right to seize the consumer's secured asset when he stops making payments. For example, if you stop making payments on your mortgage loan, your lender claims its secured asset through foreclosure.
Reclaiming and selling the secured asset, however, does not always provide a lender with enough money to cover the loan's outstanding balance. If you do not pay off the deficiency voluntarily and your lender chooses not to sue you, it will often sell or transfer the debt to a collection agency.
Collection Methods
Collection agencies employ similar collection methods for collecting all debts, regardless of the debt's origin. Expect to receive telephone calls, collection letters and, if you leave the loan balance unpaid for a long enough time, settlement offers.
While lawsuits against consumers serve as a scare tactic more frequently than an actual threat, some collectors do sue debtors for their unpaid debts. The more you owe, the higher your chances of facing a lawsuit.
Debt Validity
Not only can a collection agency pursue you for a loan the original creditor wrote off, but it can do so indefinitely. Each state has laws limiting the amount of time a collector has to file a lawsuit against you, but the expiration of this statute of limitations does not invalidate your debt -- it merely protects you from lawsuits. You continue to owe the unpaid loan balance until you pay it off or file for bankruptcy.
0 comments:
Post a Comment