Author Topic: settling old debts  (Read 4212 times)

frugaldrummer

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settling old debts
« on: May 19, 2014, 11:02:05 PM »
I have a friend who is a recovering addict. He is finally getting back on his feet, but now that he's no longer flying underbthe radar, collection agencies are starting to pop up to collect on old debts that were ignored during his years of addiction.

His current financial status: approximately 12k in savings, intended to pay his living expenses while he gets a new business off the ground. He is not making money yet in his new business, but I expect it will pay his living expenses within three months. Meanwhile he has an irregular but good paying gig that should cover his expenses so long as it continues.

My questions have to do with Addressing his debt. I have no personal experience with unpaid debts myself, being super responsible, but he has asked for my help.
He has already negotiated an old credit card bill which he paid off for about 50%. His current credit report shows that paid and just another $250 bill outstanding. However there are several credit inquiries in the past year which might be collectoon agencies still to xome.

Also he has an ancient student loan which he is now getting a collection letter on. This loan is from thirty years ago. For a while the irs witheld his income tax refunds to apply to this loan.  But after a few years of that he fell out of the regular economy.
He doesn't know the original loan amount, it was for a welding school he never did attend. The letter says the principal is $2800, interest $7000, and $2400 fees.

I've done some reading and it looks like you should be able to settle a loan like this for the principal plus half the interest. I'm guessing the $2400 fees is collection agency bs.

So....he could save several thousand if he could negotiate that deal. And he would still have a smaller but ok emergency fund.  But we're not sure what other old bills may still crop up.  And we don't know for sure if those previously witheld IRS refunds have been properly applied.

Alternatively, he could just start a payment plan, and keep a bigger emergency fund. That could be safer if other old debts are going to surface. But then he loses the ability to settle for a reduced amount and save possibly$5k in the process.

How would you handle this?

frugaldrummer

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Re: settling old debts
« Reply #1 on: May 19, 2014, 11:08:36 PM »
Btw, he has no assets other than his emergency savings. No car, current living expenses about $1400/mo . (High rent area).

And doing great in his sobriety.

Another Reader

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Re: settling old debts
« Reply #2 on: May 19, 2014, 11:12:39 PM »
Look up the statute of limitations on debt collection in his state.  These debts may be beyond the statute of limitations and uncollectable, with the probable exception of the student loan.  There are protocols to be followed to make this work.  Some research should help him here.

frugaldrummer

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Re: settling old debts
« Reply #3 on: May 19, 2014, 11:29:47 PM »
Thanks. Just looked on Nolo.com, looks like the statute of limitations in CA is only 4 years.

That should offer protection against any other old debts, since they would be more than four years old. The student loan appears to be a federal loan and I'm guessing that means those rules don't apply, since I know you can't go bankrupt on student loans?

TheValentines

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Re: settling old debts
« Reply #4 on: May 20, 2014, 12:03:02 AM »
Check out creditboards.com he should NOT be settling old debt with debt collectors! They have a wealth of information over there on what to do and how to handle all of this.

Another Reader

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Re: settling old debts
« Reply #5 on: May 20, 2014, 06:01:44 AM »
He has to be very careful in dealing with the old debts.  The wrong move will restart the statute.

Thegoblinchief

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Re: settling old debts
« Reply #6 on: May 20, 2014, 06:30:16 AM »
Just because debt collectors are trying, it doesn't mean the debts are validly collectable at this point. And as Another Reader points out, sending even $1 screws him  because it resets the clock on the statute of limitations.

The Clark Howard website may be a good help too. They also (used to at least) do free consultations to help people out of jams like these.

frugaldrummer

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Re: settling old debts
« Reply #7 on: May 20, 2014, 07:06:31 AM »
Thanks for all the good resources, I'll look into them. So far the one debt he settled was within the four years, and like I said, any others that might crop up will definitely be older. So there's only this one ancient student loan. I'll try to find out more about this, before we do anything.

Greg

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Re: settling old debts
« Reply #8 on: May 20, 2014, 10:08:34 AM »
For the very old debts, he has 2 sensible choices.  One is to ignore any notices about them if he is sure they are past the time limit.  Many times the inquiries are from agencies that buy the debt for pennies on the dollar and gamble that with enough harassment, they'll get paid, even if they can be discharged.

The other is to respond with a letter that the debt is too old to collect.  This second method may be risky for the "resetting" reasons mentioned.

The most honest thing to do of course is to pay the debts.

phred

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Re: settling old debts
« Reply #9 on: May 20, 2014, 11:55:49 AM »
Don't respond to ever owing the debt.  If you admit this was once a valid debt - the clock is restarted.  So, no letters.

True that this doesn't work for Federal loans

As to paying or not paying past debts, that is a moral issue for your friend to solve

Can't Wait

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Re: settling old debts
« Reply #10 on: May 20, 2014, 12:26:56 PM »
Yeah, you shouldn't pay on a debt that is out of the statute of limitations. The creditor can't sue you for it anymore and if it has been longer than 7 years, they can't even report it on your credit reports.

If any old negative credit accounts are showing on your credit report, they should be disputed immediately as obsolete and removed.

If your friend is just getting collection letters on these old accounts and nothing is showing on the credit report, then just throw the letter in the trash. Or use it to wipe your ass and mail it back to them..something of that nature.
« Last Edit: May 20, 2014, 12:29:47 PM by GovtWorker »