A personal loan that you have not paid for years may fade quietly into the background. But like a sleeping lion, it can come back to life at a moment's notice and cause serious trouble. Unfortunately, many people assume simply because they have not heard anything from the bank or loan company that they are in the clear, but you still owe the money and eventually someone will try to collect.
Collection Agencies
Personal loans are often transferred or sold to a collection agency after the original bank has written off the loan from its books. The first agency that acquires the debt will probably attempt to collect by calling you and sending letters. If it is not successful, it may take a break for a while, before resuming the process. This break can be for a period of several months or longer. If the agency is not successful with collecting the debt from you, it may transfer it to another agency, which repeats the process.
Phone Calls
Each collection agency will begin its collection attempts with phone calls to your home or business. Some will even call your neighbors. Federal law prohibits the collection agent from disclosing what the phone call is about to anyone other than the original debtor but collectors may say that they are just looking for you. These phone calls are often successful in intimidating people and making them pay. The calls will probably become more aggressive as time goes on and the collectors may threaten lawsuits. Some collectors illegally threaten physical violence or arrest if you don't pay your debts.
Statute of Limitations
All states have a statute of limitations on loans and other debt. After the statute of limitations has expired, the collection agency may no longer sue you to collect this debt but can continue to call you. You may unknowingly restart the clock on the statute of limitations by acknowledging that the debt is yours or by making a payment, no matter how small. Once the statute has been re-started, the agency may proceed with a lawsuit legally. You should not acknowledge a debt if it may be past the statute of limitations. It may be best not to talk to the collector at all.
Credit Report Listing
Generally, the original lender will list your account as an unpaid charged-off account by the time the account is six months past due. Subsequent collection agencies that take on the debt may also list the account showing that they own the debt. Negative collection information can only be reported for seven years from the date of the last activity on the account. After seven years, the information must be removed. Often, collection agencies will transfer the account and another agency will claim that the debt is new and re-list the debt with the credit bureaus. This is not accurate, and you can generally get the information removed with some effort.
Settlement
Even though the debt gets older and may go past the statute of limitations you still owe the money and the owners of the account can still attempt to collect. To make the account permanently go away, consider settling the account if it is your debt. If the personal loan is several years old, the collection agency may have only paid pennies on the dollar and may settle the account for 25 percent of the balance or less.
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