How to Write a Collection Agency About Debt That Is Over the Statute of Limitations

Many people stumble in the course of building a credit profile. Bankruptcy, divorce, the loss of a job, struggling to pay for college or severe medical debt can derail the efforts of even the most conscientious to maintain good standing. If your mistakes are in the distant past, congratulations on setting your course aright. However, predatory debt collectors can sometimes crawl out of the woodwork to try and capitalize on old mistakes. Make no mistake -- if the debt has exceeded your state's statute of limitations, you are completely in control of the outcome. They cannot sue you.

Instructions

Decide Whether to Pay

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How have your money habits reflected on you?

Evaluate your overall credit profile. Although the collection agency can no longer legally sue you to recover any monetary value of the debt, the information could still remain on your credit report until it exceeds the federal statute for inclusion and you actively request to have it removed. If your credit use in the intervening years has been positive, the blemish may not have much of an impact. If you've since used no credit, it may carry more weight.

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A small debt will have only a minor impact on your credit score, even if it is old.

Determine if the debt is easily manageable. It is likely that the collection agency has added innumerable penalties, interest, and fees to the amount of the original debt. However, since they have no legal recourse, they are likely to take what they can get. The original debt with no penalties included is a safe estimation of the maximum you may have to pay -- if that amount is relatively small, take that under consideration.

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Homeowners may not find repairing minor credit blemishes to be a priority.

Outline your immediate credit needs. The time between the state statute of limitations for debt recovery and the moment you can request for a negative item to be removed from your credit report forever is typically only one to two years. If you have no need to make a major purchase of a house or vehicle, it may be in your best interest to wait it out.

Contact the Collector

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Make sure you have paperwork detailing your credit activity.

Gather the paperwork that provides the facts to be detailed in your letter to the collection agency. This includes a copy of the original debt with the amounts owed, with the date of last activity (the last time you made a payment), and the letter from the agency. If you have only been contacted by phone, request all future communications to be in writing so that you have a record of the specific demands.

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Composing the right letter may convince the collector to stop frequent calls.

Outline what you want to accomplish. If you wish to settle the debt, decide beforehand what amount is acceptable to you and can be paid in one lump sum -- never agree to a payment plan. If you simply want to stop the calls and letters, verify that your information is accurate and resolve to take a proactive stance.

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You can easily find books and websites that demonstrate the proper form of a business letter.

Write the letter in the form of a business communication. Type it on a computer to either be printed and mailed or sent via e-mail; do not hand write it. Place your name, address, and the date on the upper right corner. Address the first line to the contacting agent, if you know it, or To Whom It May Concern if you don't, followed by a colon. Type and sign your name at the bottom after the body of the letter.

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You may feel persecuted by collectors, but calm action will prevail.

Leave emotion out of it. When writing the body of the letter, do not include angry statements about how upset the communications have made you or whether you think the debt was unfair -- the collection agency does not care. State the facts: the date of last activity was thus; this state has a statute of this many years, the debt can no longer be collected. Be courteous and concise.

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Point out that you are aware of your state's collection laws regarding age of debt.

State what you want to happen. If you want to make an offer to pay the debt, give the exact amount you're willing to pay and request a written bill that states explicitly that the debt will be satisfied before you pay it. If you want the calls and letters to stop, state firmly but respectfully that the agency has no legal recourse to collect the debt and that you have no intention of paying it at this late date.

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A collection agency can file some uncollected accounts against its taxes.

Be realistic. The statutes do not invalidate the debt but only posit that you can no longer be taken to court to force payment, and the agency retains the legal right to make communications to you concerning a valid debt. However, the agency can usually write off uncollected debt as a tax benefit. If you are courteous and provide correct information, they are more likely to either go ahead and write off the debt or accept your offer of payment.

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Both regular mail and e-mail are considered legally defensible documents in collection activity.

Mail or e-mail the missive to the collection agency. Keep a copy of the letter for your records. Be sure to read any future communications so as to be aware of the collection agency's response. If you agreed to pay the debt, do so promptly after receiving the settlement letter and request that the information be updated on your credit reports.

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How to Assume a Spouse's Student Loan

When you get married, you might want to share student loan debt jointly with your spouse or move your spouse's student loan debt into your name. However, the Higher Education Reconciliation Act of 2005 made it impossible for lenders to put student loan debt in a spouse's name because it would become complicated in a divorce. Therefore, you have to convert the student loan debt into a different type of debt if you want to put your name on it.

Instructions

Consolidation Loan

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Ask banks and credit unions about interest rates and terms on personal debt consolidation loans.

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Choose the bank or credit union with the best rates and terms. In general, you want the lowest interest rate possible with a low origination fee. If you are also trying to lower the amount of the monthly payments, look for a loan with a longer repayment term than the term that remains on your spouse's student loan.

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Apply for a consolidation loan of an amount equal to the sum of your spouse's student loans that you would like to assume. Add the amount of your loans in the application if you want to put them in the consolidation loan as well. Loan approval will be based on several factors, including your income, employment stability, other debt commitments and past credit history. Making debt payments on time, applying for credit sparingly and keeping low balances on your credit cards in comparison to their credit limits all help your credit score and increase your chance of approval.

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Use the money from the consolidation loan to pay off your spouse's student loans.

Home Equity Loan

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Multiply your home's current market value by 0.8 and subtract the outstanding balance on your mortgage to calculate the amount of equity in your home. Multiplying by 0.8 assumes the lender offers loan amounts based on an 80 percent loan-to-value ratio, which means the lender will loan you 80 percent of the home's appraised value. Some lenders offer loans based on different loan-to-value ratios, in which case that number should be used to calculate equity.

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Compare the amount of equity to the total balances on the student loans you would like to consolidate. If the equity exceeds the loan balance, you might be able to consolidate with a home equity loan. Using a home equity loan to consolidate is typically more cost-effective than getting a personal debt consolidation loan, because the home equity loan is secured by the home and has a lower interest rate.

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Apply for a home equity loan of your desired amount with a lender of your choice. This could be your mortgage lender or a different lender.

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Complete the application and loan origination process with the lender. If approved, use the money from the loan to pay off your spouse's student loans.

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Debt Elimination & Relief

Debt has a tendency to creep up on you when you're already down -- when you've lost your job, for instance. It also becomes a problem if you have trouble controlling your spending. When you are struggling to dig out of a debt hole, it's to your benefit to seek debt relief and elimination.

Budgeting and Expense Tracking

The biggest weapon you have against debt is expense tracking and budgeting. Debt is very hard to eliminate if you don't know how much you have left to spend or where your money is going every month. To really get control over your finances, you must write down everything you spend, right down to the pack of gum you grab at the gas station. Keep the receipts you get, or use a notebook or cell phone application to note charges. Once you've been doing this for at least a month, look back at your spending list and create a realistic budget. You'll likely find that funds are leaking from one category, such as food if you eat out a lot. Don't deviate from your budget if possible once you've created it -- often debt happens not because a budget isn't OK, but because a person doesn't stick to it.

Refinancing or Debt Consolidation

You have options for reducing your debt if budgeting and expense tracking alone don't solve your problem. The first thing to do is get some debt counseling. Organizations like the Federal Trade Commission and Department of Housing and Urban Development both offer free counseling, and you can find other local agencies that help through your local chamber of commerce. Next, try refinancing or debt consolidation, which usually reduces your interest rates or the amount you pay each month. If this fails, negotiate with your lenders and creditors for forbearance, lower rates of interest or forgiveness -- settlement -- of some or all of your debt. Debt resolution is a specific type of negotiation in which an attorney negotiates for you and, if necessary, represents you in court. You also can use debt management, a technique in which you pay a debt management company to pay your creditors on your behalf. The last option is to file bankruptcy, which either eliminates some of what you owe or lets you set up a plan for paying your debt with future assets. Settlement and bankruptcy both hurt your credit score, so use these options as a last resort.

How to Pick a Method

To pick a debt relief/elimination method, look at your finances and the willingness of the creditor to negotiate. If you have enough money to pay your debts but can't stay organized, look into debt management. If you need just a little more financial leeway to get a handle on your debt and your credit score is at least 600, go for refinancing or consolidation. If you know you can't pay all of what you owe and legal trouble looms, use negotiation, resolution or settlement. File for bankruptcy only if your lender or creditor refuses to work with you and already has started legal proceedings.

Considerations

If you can't afford legal representation about a debt issue, contact your State Bar Association. Ask for the name of a pro bono (free) lawyer who specializes in debt-related cases. Although most agencies related to debt relief and elimination are legitimate, others are outright scams. You can get most debt services for free, so think twice about hiring a company that charges. Always check that the company you use has a good Better Business Bureau rating.

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Credit Restoration Tips

Credit restoration means restoring your credit records to a positive state after having financial problems that cause payment delinquencies, defaulted balances and perhaps even a court judgment, wage garnishment or repossession. You can even restore good credit after filing bankruptcy. The My FICO credit score website explains that you can fix credit most efficiently by focusing on the things that have the biggest influence on your credit rating.

Payment History

Your payment history makes up a hefty 35 percent of your credit score, according to the My FICO site, which means on-time payments go a long way toward restoring a damaged credit file. Catch up any late accounts as quickly as possible. Set up electronic payments that go out automatically if your financial institution allows it, which prevents lateness because of mail delays. The late payments stay on your credit reports for seven years, but their impact goes down when your most recent history is all good.

Balances

The amounts you owe on credit cards, loans and other accounts hurts your credit if the debt loan is high or you are at or close to the credit limits. My FICO advises that your balances influence 30 percent of your credit score. Pay them down by funneling extra money to the accounts with the highest interest rates, the Motley Fool financial website recommends. This strategy has the most impact because the interest chews up much of each payment. The extra funds help pay down the actual balance, and your credit is restored as the owed amount falls.

Time Frame

Old accounts look better on your credit reports than newer ones, according to the My FICO site. Your history of credit use makes up 15 percent of your score. Make a special effort to maintain your oldest credit card accounts in good standing once you catch them up. Keep them open even if you pay them off. Consumer advocate Clark Howard's website advises buying something small every few months on your old accounts and paying it off quickly. This tip restores your credit by generating current positive activity.

Account Types

Credit restoration requires balancing your accounts between installment loans, like automotive financing, and revolving accounts like Visa and MasterCard credit cards. Your credit score goes down if you fill out too many applications, the My FICO site warns, but you may need to get new accounts if your old ones were closed involuntarily by the lenders because of your credit problems. Start out with a secured credit card, which requires you to guarantee repayment with a deposit, or open a gasoline or retail store account, MSN Money writer Liz Pulliam Weston advises. Restore a good history for a year or two, then expand to a regular credit card.

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Advice After Bankruptcy

Filing for bankruptcy can eliminate the obligation to repay most of your debts. The effects of a bankruptcy are long lasting, and most people consider bankruptcy as a last alternative to debt problems. But even with a bankruptcy on your credit report, you can reverse the effects and rebuild your credit history.

Effects of Bankruptcy

Creditors and the court system will report your bankruptcy to the credit bureaus. This information remains on your credit report for up to 10 years. A bankruptcy on your public record can present challenges when applying for new credit accounts, such as mortgage or auto loans. If approved for financing, a bankruptcy generally warrants higher interest rates and some lenders may require a larger down payment. Bankruptcies may also affect employment opportunities and result in increased insurance premiums.

Secured Credit Cards

Building a better credit score after bankruptcy entails opening new credit accounts. Because your options are few after a bankruptcy, consider a secured credit card to help re-establish your personal credit history. Secured credit cards differ from other types of credit cards. They require opening a savings account with a bank and depositing a security deposit into this account. Creditors provide a credit limit that matches the deposited amount.

Reaffirming Debt

Filing bankruptcy doesn't necessarily mean removing all your debt obligations. You can choose to keep some of your debts and continue paying these creditors and lenders as agreed. For example, you can keep your car loan, mortgage loan, student loan and other debt obligations. Excluding debts and holding onto these obligations involve reaffirming debts. Keeping these accounts active and in good standing helps repair your credit score after a bankruptcy.

Pay Off Balances

Excessive debts and the inability to manage debts likely contribute to bankruptcy. Start anew and learn how to manage debt better to avoid a second bankruptcy filing. Use credit cards for emergencies only, and only apply for credit if necessary, and if you can afford the payments. Pay off credit card balances in full each month to avoid massive debt. As a rule, stay below 30 percent of your credit limit on credit cards.

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How to Raise a Credit Score With Charge-Offs

A charge-off occurs when a creditor writes off an unpaid balance on a credit account. If this happens to you, it will show up on your credit report, and do serious damage to your credit score. However, the damage is not irreversible. By taking the proper steps, you can build your credit score back up again. This process may take one to three years to produce significant results.

Instructions

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Order a copy of your credit report from each of the three major credit bureaus (Experian, Equifax and TransUnion). In order to fix your credit, you need to know exactly what your credit reports contain. Each credit bureau puts different information in its credit report. When lenders evaluate your application for financing, they will look at each of your credit reports, so you need to take steps to fix all three. By going over your credit reports, you can also see if they contain any mistakes that may be affecting your score. For example, if you notice an account that you did not open, you can ask the credit bureau to remove it, which can improve your score.

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Pay off any old balances that are still showing up on your credit reports. If the original creditor has charged off your account and sold the debt to a collection agency, the account may not appear on your credit report any longer. If this is the case, paying the original creditor will do you no good. However, if the credit report still lists a balance, paying off that account can help.

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Make payments on all of your accounts every month. One of the biggest factors in calculating your credit score is your payment history. If you miss any payments, it can negatively affect your credit. Getting in the habit of paying your bills on time can make a big difference in building your score back up.

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Keep your credit card balances below 30 percent of the total credit limit. Completely avoiding the use of credit cards is not the best way to build your credit back up. Instead, you need to make periodic purchases with your cards, and try to pay the balances off every month. If you do this, your credit card companies will report positive information to the credit bureaus, which will help to boost your score.

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How to Remove Write Offs From a Credit Report

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