How to Set Off and/or Discharge Debt

Discharging debt is possible through successfully declaring bankruptcy or allowing a debt to expire through the statute of limitations in the state from which the debt was issued. Debt set-off occurs when a collector seizes funds or property from a debtor to reduce the overall owed balance. These two processes are entirely different, and require an alternative set of actions to enact them. All of these courses of action carry significant risks.

Instructions

Debt Set-Off

1

Review the the statutes of your major debts by requesting copies of your credit reports from the three major bureaus (Equifax, Experian, TransUnion). Look at how much you owe on each debt and determine which are secured and which are unsecured. Secured debts authorize the creditor to seize assets, such as a car, home, cash or valuable property to cover the balance. Unsecured debts can still be collected on through a lawsuit, but are more challenging for the creditor to collect on.

2

Stop making payments on the loans that you'd like to discharge. Be aware that this will result in the creditor downgrading your credit rating, which can impede your ability to take on more debt in the future. As you're aiming to set off the debt through a seizure, this will also make it so that the creditor will take your property at some point.

3

Allow the creditor to repossess property to cover at least part of the debt. If the property has depreciated beyond the amount still owed on the debt, you may still owe a portion of the balance even after the property seizure. The creditor may then sue you to collect the rest of the balance.

Bankruptcy for Debt Discharge

4

Contact a bankruptcy lawyer to schedule a consultation. Most reputable lawyers will at least allow you to speak with them about your issues for 30 minutes. If all of your questions aren't answered during this period, you can continue contacting lawyers until you're certain that you are prepared to declare bankruptcy. Chapter 7 bankruptcy is the most common for individuals, and will discharge all unsecured debts while generally allowing you to keep your most important property such as your house and commuting vehicle. Bankruptcy remains on your credit report for up to 10 years, and will impair your ability to borrow money in the future.

5

Prepare for your bankruptcy filing with the assistance of your lawyer. In general, you'll be expected to refrain from borrowing any additional funds for 180 days before your filing. The judge may deem extravagant spending before your bankruptcy a disqualifier.

6

File for bankruptcy with the assistance of your lawyer. When the process completes, the majority of your debts, with the exception of student loans, will be discharged.

Statute of Limitations for Debt Discharge

7

Review your credit reports from the major bureaus to determine the amounts of money that you owe from the three major bureaus (Equifax, Experian, TransUnion). If the amounts are small--each debt below $5,000--it's likely that the companies will avoid the expense of suing you. Secured debts will be collected on rapidly, however, and may result in only a set-off of the portion owed.

8

Stop making payments on your debts. Review the statutes of limitations on debt collection from the state that issued each debt that you carry. Once that statute of limitations expires based on the last date that you provided payment, you will no longer be liable for the debt owed.

9

Attend all court dates that you're summoned for. If you appear at the court date, you will at least get a chance to contest it, and it may not result in a seizure of your funds. If you fail to appear at your court dates, the creditor will receive a default judgment against you, and may seize funds from you to offset a portion of the debt.