What Is Closed-End Credit?

Using credit is the process of paying for products or services over time, as opposed to paying the full amount at the time of purchase. Credit enables users to more easily afford expensive items without having to deplete financial reserves. For certain types of purchases, you can expect to use a type of credit known as closed-end credit.

Identification

Closed-end credit is a debt obligation where you borrow a specific amount of money and repay it over a fixed period of time, typically in equal monthly installments. Examples include a car loan where you repay the debt over five years, or a home mortgage where you make payments for 30 years. At the end of the time frame, the obligation is repaid in full, assuming you have made all payments in a timely manner.

Open-End Credit

Closed-end credit differs from open-end credit vehicles, such as credit cards. With open-end credit, you can make repeat purchases up to the amount of a predetermined spending limit. The minimum amount you must repay each month is calculated as a percentage of the outstanding balance you owe, meaning your monthly payments can fluctuate. Unlike closed-end credit, open-end credit instruments do not include a finite ending date, so you could conceivably carry the debt for the rest of your life.

Advantages

An advantage of closed-end credit is that there is less risk of incurring financial difficulties caused by accumulating additional debt. The amount you must repay each month remains fixed and your total obligation decreases as you continue to make timely payments. Closed-end instruments, such as home and car loans, typically offer lower interest rates than open-end instruments, like credit cards, and the interest rate typically remains stable for the life of the obligation. An exception is an adjustable-rate mortgage loan where the interest rate could move up or down at certain points during the loan term.

Disadvantages

A disadvantage of closed-end debt is that it often requires the use of collateral, usually consisting of the property for which you used the debt instrument to purchase. If you default on the loan payments, the lender could take possession of the property, such as a home or car, to fulfill your obligation. Closed-end credit is often more difficult to obtain than open-end credit, requiring you to have a more favorable credit score and history.

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What Can I Do if I Paid a Bill & Collection Agencies Keep Writing to Me?

Often, when you owe a bill that has been outstanding for some time, the creditor turns the account over to a collection agency in the hope that they can collect the debt. If you have already paid the bill, but the collection agency continues to contact you, you should contact them in writing to dispute the debt. State laws govern what a bill collector can and cannot do when attempting to collect a debt; however, in most states a bill collector must confirm a debt once you dispute it and may not continue collection efforts while the bill is being disputed.

Proof of Payment

Locate proof of payment. If you paid the bill in full, request a copy of the canceled check from your bank, locate the money order receipt, or request a copy of the credit or debit card payment from your card holder. If you paid the bill in cash, you may have a problem proving it was paid unless you received a receipt for the payment.

Letter to Collection Agency

Request the official mailing address for the collection agency the next time they contact you. In addition, make sure you get your account number from them. Your original account number with the creditor and your account number with the collection agency are likely different. Write a letter to the collection agency. Reference your name and account number at the top of the letter. Include in the body of the letter that you have paid the bill and the date you paid it. Indicate that you are including a copy of proof of payment. Insist that the collection agency cease and desist all collection efforts and that they verify the account with the original creditor. You should send the letter to the collection agency certified mail as well as a copy to the original creditor to put them on notice of your impending dispute.

Disputing the Debt

State laws vary with regard to what a collection agency may do to collect a debt. In most cases, however, a collection agency cannot continue to call you or send letters to your home once you have disputed the debt. Once you dispute the debt, the collection agency must verify the debt with the original creditor. Sometimes there is simply a lapse between the time you pay a bill and when a collection agency receives word that it has been paid. Regardless of the reason, the collection agency must receive a confirmation from the original creditor within an allowable period of time that you still owe the debt in order to continue collection efforts.

State Attorney General

If a collection agency continues to attempt to collect a debt from you while the debt is in dispute, or if the original creditor confirms the debt despite the fact that you provided proof of payment, consider contacting your state Attorney General's office. In most states, the Attorney General is responsible for consumer complaints and for regulating bill collectors within the state. If the collection agency is violating state law, you may have the basis for legal action against them.

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Florida Statute of Limitations on Wage Garnishments on Judgments

Wage garnishment is a post-judgment remedy authorized by Florida law that permits a judgment creditor to take a portion of a judgment debtor's wages as a means of obtaining satisfaction for his judgment for money damages. However, under Florida law, the judgment holder has a certain specified period of time within which to collect or "execute on" his judgment. Once this statutory period has expired, the judgment creditor can no longer enforce or collect on his judgment.

Statute of Limitations for Filing Civil Actions

The statute of limitations for filing civil actions should be distinguished from the statute of limitations period for enforcing judgments. Florida, like other states, has established limitations periods for filing civil actions in court for various legal causes of action, e.g., breach of contract, negligence or fraud. A plaintiff must file his civil action in court within this designated period after his cause of action accrued or his suit will be dismissed as time-barred.

Statute of Limitations for Judgments

Every state also establishes a certain period of time within which a valid judgment can be enforced against the judgment debtor. Title VIII, 95.11(1) of the Florida statutes provides that the limitations period for judgments shall be 20 years. A Florida plaintiff who timely files his action within the applicable statute of limitations period and then ultimately prevails against the defendant, has 20 years from the date the judgment is entered on the court's docket to enforce his judgment.

Wage Garnishment

In accordance with the Florida statute of limitations, a wage garnishment order remains valid for a period of 20 years from the date the judgment was issued. In addition, should the judgment debtor work for a new employer, the judgment creditor must apply to the court for a new wage garnishment order directing the new employer to set aside the designated portion of the employee's wages approved by the court. The duration of any successive wage garnishment orders is still determined by the 20 year time period that has elapsed from the date of the original judgment.

Considerations

Wage garnishment is only one of several post-judgment collection procedures authorized by law. Under Florida law, a judgment creditor can also seek to obtain a lien against a judgment debtor's real property as well as an order to attach the personal assets of the judgment debtor. If approved by the court, each one of these additional post-judgment procedures can be enforced for a period of 20 years.

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Hardship Forbearance Reasons

If you get behind on your credit card or other loan payments, the lender will start the collection process. This could include obtaining a judgment against you and severely damaging your credit score. However, most lenders will work with you if you have a temporary situation that has affected your ability to pay your debts. A forbearance halts the collection process for a period of time to allow you to get back on your feet financially.

The Forbearance Process

Every creditor has its own rules regarding the collection of overdue debt. While federal and state law provide some regulation over what creditors cannot do, there is no law that requires them to work with debtors over and above the contract terms. However, most creditors have a formal forbearance program where they will agree to suspend collection efforts for a period of 3 to 12 months. Debtors must apply to these programs and the creditors can choose whether to accept the application or not. If the forbearance application is denied, the creditor will continue its collection process.

Disability

If you become disabled, you may lose your ability to work or have to take a job with a lower pay. You may also have increased medical expenses that make it difficult to pay your other bills. If the disability is short term, such as a broken leg or viral illness, a creditor may agree to a forbearance arrangement that stops collection action for the length of the agreement. Once the forbearance period comes to an end, the creditor will resume collections. The forbearance will give you time to get healthy again and resume work.

Income Reduction

You may not be able to pay your debt because you were laid off from your job or lost a large customer in your small business. A forbearance agreement gives you time to find a new job and have income coming in again. In order to qualify for a forbearance agreement in this situation, you may be required to provide documentation that you lost your job and proof that you are actively searching for another one. Forbearance agreements for unemployment reasons are often shorter in nature than disability claims.

Catastrophic Event

A disaster such as a house fire or tornado might make it difficult to keep up with payments on your debt. Out-of-pocket costs for shelter and basics may take a larger portion of your income. Another catastrophic event that might impact your ability to pay your debt is the death of a spouse or other close family member. In these extreme circumstances, a creditor may enter into a forbearance agreement until the extraordinary financial circumstances have been sorted out.

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Debt Settlement Reduction

There are many reasons that you may find yourself with huge amounts of debt that you may not be able to pay off. These include loss of job, medical expenses, or poor financial management. Debt consolidation combines bills into one debt that you pay monthly whereas debt settlement reduction negotiates unsecured debts to a lower, more manageable payment with each creditor. You can successfully reduce unsecured debt if you approach it systematically.

Determine if Debt Reduction is Right for You

If your debt is the result of financial naivete or mismanagement, you may be a suitable candidate for credit counseling and consolidation. This can help you get back on track to paying obligations and learning to keep yourself in the black in the future but generally does not reduce the amount of debt you owe. These methods create a plan based on existing debts (secured and unsecured). But if you are trying to refrain from a bankruptcy, which stays on your credit history for seven years, you may be a candidate for debt reduction. An ideal candidate is someone who has no secured credit such as a mortgage but is no longer able to pay the existing debt under the current account requirements. Basically you have no other assets to pay the debt off nor the income to meet monthly minimum requirements. Creditors know what you have and don't have. Remember they have your social security information. If they see that their only option is to reduce the amount you owe or charge the amount off, many will try to find a solution.

Reduction Assistance

You have decided that credit counseling is not an option and that you want to try to pay the unsecured credit off, preventing bankruptcy. Now you need to figure out how to negotiate a reduction. There are companies that will do this such as DebtFreeAfterAll.com or FixDebt.com. These companies do charge a fee to help you renegotiate the amounts owed. But if you are at the end of your rope and don't think you can do it yourself, this is a great alternative. But beware of companies that ask for fees upfront; many are scams. Most of these places work on a percentage, often about 15 percent of the total debt you owe which can be be paid in installments. These places generally don't accept people who have less than $10,000 in unsecured debt but can often reduce the amount you owe anywhere from 30 to 60 percent.

Do-It-Yourself Debt Reduction

If you are trying to negotiate this yourself, make a list of all the unsecured debt you have (credit cards, medical bills, personal loans, overdue utility bills and unsecured bank loans). Once you have the list, total it up and determine a reasonable amount you can pay for the total debt and then factor that into how much you can pay each lender. Contact each lender and state your desire to find a way to work with them. If you have credit card fees that have skyrocketed, ask to have the card canceled stopping new fees, and give them an amount you are willing to pay for the total owed. Start with 60 percent of the value. Depending on how far behind you are, you may find lenders very eager to claim some of the money. Always get the agreement in writing and note the contact information of anyone you speak with. This is to protect you in the event that you send in an "agreed payment" based on a reduction agreement and later receive a bill as if the conversation never took place, leaving you with the same balance and payment due that you had prior to the phone agreement.

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Does a Creditor Lose Priority Upon the Filing of a Renewal for Summary Judgment?

To expedite the process of collecting a debt, a creditor can file a motion for a "summary judgment." Summary judgments do not require both parties to present their cases during a hearing. The Federal Rules of Civil Procedure note that a creditor is entitled to a summary judgment if he can provide the court with documentation backing his case. Regardless of the type of judgment, state laws determine the creditor's freedoms or limitations in enforcing that judgment.

Judgment Liens

After receiving a summary judgment, the creditor -- now a "judgment creditor" -- can attach a lien to the debtor's real estate. The exact process for recording a lien varies by state but, in general, the debtor can neither sell nor transfer ownership of the property without paying the creditor. The lien, however, is only enforceable for the time the judgment is valid or until the debtor pays his debt.

Lien Priority

Companies can attach liens to real estate for a variety of reasons, but all lien holders have one thing in common: They can foreclose on the home at any time. Should a foreclosure take place, the foreclosing lien holder must follow the state's laws regarding lien priority.

While all states differ, lien priority is typically determined by the date each lien holder recorded its lien. Lien holders who recorded their liens after the foreclosing creditor's lien have their claims wiped away in the foreclosure. The foreclosing creditor, however, must pay off any liens that were already present against the property when it filed its own lien. Previously filed liens are referred to as "superior" liens while later liens are "junior" liens.

Judgment Renewal

If the judgment creditor's attempts to recover the debt are unsuccessful, it can renew its judgment and continue pursuing payment rather than allowing the judgment to lapse and losing its ability to collect via force, such as through a real estate lien.

In some states, such as Florida, renewing a judgment automatically renews any liens the judgment created. Should this occur, the creditor's lien priority order remains unaffected. If the creditor allows the judgment to lapse in its entirety, however, it can still renew the judgment but must re-file the lien -- stripping it of its priority. Still other states, such as Montana, require creditors to file a new lawsuit rather than renewing their old judgment. The new lawsuit would result in a new judgment and, subsequently, a new lien at the bottom of the property's priority order.

Alternate Options

While losing a lien's priority order puts the judgment creditor at a disadvantage, it does not prevent the creditor from collecting the debt. A summary judgment provides a creditor with more options than just real estate liens. Judgment creditors can levy bank accounts, garnish wages and, depending on the debtor's state's laws, seize some forms of personal property from the debtor, such as jewelry or furniture, to satisfy the judgment.

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What Happens With a Personal Loan After Several Years if I Don't Pay?

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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