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Archive | May, 2013

You Can Add Points to Your Credit Score by Beating the “Charge off Date” Scam

You may be able to knock a few negative items off of your credit report by disputing old debts that are no longer due, and watch your credit score rise as a result!

Reporting invalid “out of statute” debt as currently collectible obligations is an old bill collector’s scam. If you fall into this trap, you could be tricked into paying money you don’t owe.

Did you know that consumer debt that has been in default for more than six years is not collectible using any sort of lawsuit or legal process, and therefore should not be reported on your credit report? However, there is an important exception to that rule in the case where debt is owed as a result of a lawsuit judgment that was issued at some time within that six-year period. I’ll explain how this exception applies later in this article.

Many Americans have several “out of statute” debts –debts that should not be listed as currently due on their Experian, Transunion or Equifax credit report. These debts are too old to be carried on the credit report. In these cases, you should write to the collection bureau that lists the debt and dispute the entry so that the debt no longer appears on your credit report from that credit reporting bureau.

Q: How do bill collectors get away with this?

A: Once a debt has been in default (unpaid) for six years, the statute of limitations to collect the debt has expired. The creditor cannot file a suit to collect the debt once the debt is too old, as having been in default for six years. However, to trick you into thinking that the creditor has additional time to collect upon the debt, the creditor will (out of thin air) make up a phony date called the “charged off date”, and put that phony “charged off date” on your credit report as the date of default.

Q: Why is my credit score important?

A: The benefits of improving your credit score are undeniable; improved employment prospects, cheaper car insurance, and low-interest rates for future car loans and mortgages are among the perks of a better credit score. A FICO credit score of 700 or higher is ideal for the best of benefits –850 is considered “perfect” credit.

Q: My credit is pretty rocky. Will disputing “out of statute” debts really help?

A: If your credit is already really troubled with many enforceable unpaid debts, then disputing a few here and there might not be that helpful–a bankruptcy filing might be the right call. We can help you determine your best course of action, contact us at www.washingtonbankruptcy.com. But if your credit is reasonably clean, you should make a habit of securing your free credit report each year, and checking it for errors. Even after a bankruptcy filing, you should get in the habit of making an annual review of your credit report. You can obtain your free credit report at www.annualcreditreport.com.

Q: Why do creditors report “charge off dates” as occurring months or years after the date you defaulted on the debt?

A: It is a trick to fool you into believing that an aged and invalid debt is still valid and collectible. Actually, “Charge off date” is a term of no legal significance. So definitely make a written dispute of all credit report debts that have been unpaid and in default for six years or more, regardless of the “charge off date” reported in your credit report.

Q: Can you give me an example of a phony “charge off date” for an “out of statute” debt?

A: Let’s assume that you received medical or dental services on May 20, 2005 (8 years ago) that were billed to you on June 1, 2005. Let’s assume that you made one or two small payments and never paid again after August 1, 2005 (7 years 9 months ago). Finally, let’s assume that as of today, May 22, 2013, the remaining unpaid medical/dental bill balance appears on your credit report as “charged off” on December 31, 2009 –only 40 months ago. What should you do?

In this example, you should make a written dispute to each credit bureau that lists this debt as still due–based on your current credit report that you obtained for free at www.annualcreditreport.com–so that the debt can be removed from your credit report for each credit reporting bureau that lists the debt as due. The date of default for the debt was really July 1, 2005, the last date you made a payment that did not pay the debt in full. The last date that the creditor could file suit to collect the debt was six years later on July 1, 2011. You have been “free” of the debt for 1 year and 10 months, since July 1, 2011.

Q: What should my “out of statute” credit report dispute letter say?

A: The credit report dispute letter should be sent to each of the three credit reporting agencies: Equifax, Transunion, and Experian. In addition, I always recommend that you include a copy to the original creditor. In order to address the example debt we examined above, I suggest that your letter contain the following language: “If I even ever owed this debt reported as owing to _____, I dispute that I presently owe the debt. If I ever owed it, then I defaulted upon this debt on July 1, 2005 and the six-year statute of limitations to commence a collection lawsuit passed on July 1, 2011. Today is May 22, 2013. No lawsuit was ever commenced. This debt was erroneously reported on my credit report as a valid and collectible debt having a “charge off date” of December 31, 2009. This entry is thus not accurate because the debt would no longer be collectible under local law as it is an out of statute debt. I require that you remove any and all reference to this debt from my credit report at once and that you recalculate and amend my credit score without the effect of this debt computed into the calculation. Please provide me with a copy of the amended credit report within 30 days of the date when this letter was first written as shown above.”

Q: Do Sporadic Payments “Reset” the Default date?

A: Probably not. I do not believe that must judges would rule that a few sporadic payments here and there over the years would rescind your default on the debt. Back to our example: medical and dental bills are almost always “due upon receipt”. When you did not pay the debt off in full within a short period following the date you received the initial bill on June 1, 2005, you were then in default upon the terms, even if the medical or dental creditor did not “declare” you to be in default until 54 months later on December 31, 2009.

The “charged off date” is just the date at which the creditor declared the bill not readily collectible for its own internal accounting purposes, and in most scenarios the creditors choose an arbitrary and ridiculously late “charged off date” to fool you into thinking that the default date (and thus the commencement of the running of the six-year statute of limitations) occurred much later than was truly the case.

Q: But I always thought “Charged off” means “forgiven”?

A: Some folks innocently confuse “charged off” as meaning “forgiven”. Please, don’t make this mistake. “Charged off” does not mean “forgiven”, “written off” nor “pardoned”. If you see “charged off” on your credit report for a relatively recent debt, do not take comfort! The debt is still collectible by lawsuit for six years from the date that you were supposed to pay the debt—the amount of the debt that you did not pay. And there are more problems.

Q: How long can I be pursued for a valid debt?

A: If a debt is valid—the debt is still due and payable within six years of the date of default—the creditor can file a lawsuit and obtain a judgment provided that the lawsuit is filed with the court before the six-year period expires. Once a judgment is obtained in the creditor’s lawsuit to collect the debt, the creditor has ten years after the date of the judgment to pursue and garnish you based upon the lawsuit judgment. There is even worse news. After the first 10 year period draws to a close, the creditor can ask the judge to extend the judgment for an additional 10 years (for a total of 20 years!). That’s right; the creditor can have up to 20 years to garnish and collect from you.

Q: When is bankruptcy the best choice to recover and rebuild my financial life instead of disputing credit report contents?

A: If you have no hope of repaying your existing debt off within 24 months, consider a bankruptcy filing. Your credit can often return to health with amazing speed! To learn how, please read my article entitled, “Rebuild your credit score after bankruptcy”. Even better, please contact my offices to make an appointment for a free, confidential, personal consultation so that I can advise you about your individual circumstances. Don’t wait; the creditors won’t go away unless you act now!

Throughout our lives, we must remain ever vigilant of our credit report contents in order to protect our financial future. Remember, you can dispute any and all debts that have been in default for more than six years—regardless of the date reported by creditors as the “charge off date”.

Biggest Loser Turns Biggest Winner. The Little Known History of the Credit Card.

Between 1979 and 1981, Citibank lost over $500 million on its credit card operations. By 1990, this had changed and credit cards were suddenly profit leaders at the bank. What happened?

Easy answer: Citibank (and many other banks) realized that they were pitching credit cards to the wrong market segment. Since nearly the inception of credit cards, banks had been offering credit cards almost exclusively to the financially well-off; but after years of lackluster profit performance with credit card operations, the banks finally realized that the truly big gains were to be made by offering credit cards to lower income and middle income market segments. They began to market to the elderly, the student and to most anyone of modest or lower income, specifically targeting low-wage clerks, young professionals, clerical support staff, struggling teachers and many laborers. The banks saw it as a matter of survival—theirs, not yours!

Banking was at a troubled crossroads in the late 1970s. Bank industry profits were flat or in decline as traditional business and mortgage lending suffered losses associated with the troubled economic times. Compounding the profitability problems, the usually more glamorous and profitable areas of banking business such as third world lending and commercial realty lending were also then of hit-or-miss profitability. The banking industry needed a new profit source. Credit cards issued to middle/lower income borrowers were then introduced to fill the profit void.

The best explanation of this shift in credit card marketing focus to the less well off might be found with Robert D. Manning’s year 2000 book, “Credit Card Nation”, published by Basic Books. ISBN 0-465-04366-6. The following quotes from the book appear in chapter 1, pages 9, 12-13 and 20: “During the 1980s, the credit card industry’s marketing campaigns successfully expanded into middle-class markets, including blue and white-collar workers who suffered unexpected employment disruptions due to corporate downsizing and recession-related layoffs. This profitable linkage with lower-income households early in the decade emboldened banks to target other nontraditional niche markets such as unemployed college students and retired senior citizens in the mid-1980s, then the working poor and the recently bankruptcy with secured credit cards in the late 1980s and early 1990s. The results were impressive. The profusion of credit cards generated rapidly escalating consumer finance charges, merchant discount fees, and, of course, profits. Between 1980 and 1990, the charges of the average U.S. household jumped sharply from $885 to $3,753 per year, or more than twice as fast as disposable income, while average cardholder debt soared from $395 to $2,350. Credit card issuers earned between three and five times the ordinary rate of return in banking in the period 1983-1988.”

“By the end of 1994, the typical American card holder had amassed nearly $4,000 in revolving debt on a total of three of four bank credit cards with an annual interest rate of about 17 percent.”

Credit card marketing budgets concurrently exploded, too. Marketing expenditures by Visa, MasterCard and American Express had climbed to $75 million by 1985. The big three then more than doubled marketing expenditures by 1994, with a 1993-1994 2-year total combined expenditure of $385 million, (plus another $40 million spent by Discover) over the two-year period 1993-1994. Then combined credit card industry marketing budgets doubled again within a mere four-year period, climbing to $870 million total expenditure for 1998.

So, in a mere 14 years ending in 1994, the average household credit card revolving indebtedness had increased by about 1,000 percent (a 10 fold increase!) from $395 to nearly $4,000, and credit card industry marketing budgets had increased by something approaching 400% (a 4 fold increase).

So, does credit card marketing contribute to bankruptcies and indebtedness? Quite possibly.

1998 saw 1,441,891 bankruptcy filings. 1980 filings stood at about 300,000.

So putting it all together, average household revolving debt increased by 10 fold (about 1000 percent) 1980 through 1998 to a high of $4,000 as 1980s and early 1990s marketing expenditure of credit card products (much of which was to lower and middle income households) concurrently increased by a nearly similar 1000 percent (10 fold) 1985 to 1998 to $870 million. Following suit, bankruptcy filings in roughly the same period 1980—1998 increased nearly 5 fold (a little less than 500 percent) from 300,000 to about 1.4 million.

The banks found a way to turn the biggest loser in their stable of operations into the biggest winner of profits. The banking industry turned a broken-down, sway backed and under appreciated old nag of a pony into a Kentucky Derby jackpot winning thoroughbred—in part by feeding it what grew into an $870 million annual diet of marketing. Profits jumped and a whole new industry was created: the modern credit card. This led to an amazing turn around for the banks, mostly at the courtesy and expense of middle and lower-income America.

If you are struggling under a mountain of debt and do not see much hope of completely escaping from the debt within the next 24 months, then you should strongly consider consulting with us regarding a bankruptcy filing. Your initial one-half hour consultation is completely free!