Must I pay of old unsecured debt?
Must I pay of old unsecured debt?
Must I pay of old unsecured debt?
Legally, you must pay back a debt until it's paid off, settled, or dismissed in bankruptcy. Many people erroneously think their obligation ends any time a collector charges off the debt. But a charge-off is basically just an accounting term. The creditor can continue trying to collect or sell the debt to a collection agency, that may try to get you to pay. Your obligation to pay doesn't end when an delinquent debt falls off your credit history after seven years. The creditor will not be allowed to report the account, but collection actions can continue. Similarly, your state's statutes of limitations define how long a creditor or collection agency can take you to court over a debt. But even if you cannot be sued, a creditor or collector can certainly still harrass you to pay. Given everything, shouldnt you merely pay what you owe if you possibly can? Many individuals would say yes, indicating that we have got a moral obligation to repay the debts we incur. But the reply to this question is actually trickier than it might appear, for a lot of reasons.
Paying for Old Financial Debt Could or Cound Not Hurt Your Fico score
For a long time, a quirk within the credit-reporting process meant that paying old credit card debts could actually hurt your credit. Once the creditor or collection agency modified your credit report to reflect the payment, the FICO formula was often fooled into thinking the old, troubled account was newer than it actually was. Because the formula is designed to weigh recent actions-good and bad- more heavily than past behavior, anything that looked like you had incurred recent problems could really damage.
Fair Isaac worked with the credit bureaus to fix this problem. The issue can still arise, though, if your mortgage company is using an old version of the FICO formula to compute scores. Fair Isaac spokesman Craig Watts said the company does not know how many lenders use the old versions, but he thinks it is a very small percentage of the total. Still, it is a possibility that paying aged outstanding debts could hurt you in the eyes of some creditors.
Simply Contacting an Old Creditor Can Leave You Susceptible to a Litigation
Each state has distinctive guidelines on how long a creditor can prosecute you over an unsecured debt, but some states have provisions that allow this time limit to be prolonged if you make a payment on an old debt or even acknowledge that you are obligated to pay it. You could be making a good-faith effort to pay your bill or be talked into making a "token" payment as part of discussions with a collection agency, and the creditor could use that as reason to take you into court and get a judgment towards you-an action that might not have been allowed if you had just left the debt unacknowledged and outstanding. The judgment would be a new and significant black mark on your file that could be reported for yet another seven years.
You're Normally Not Working with the Original Creditor
The company that you owe the money to might have long since cleared the debt off its books, taken a tax write-off for the loss, and sold the debt, usually for cents on the dollar,to a collection agency. The original creditor might not accept money if you tried to present it, but would instead direct you to the collector. Many people understandably feel less compelled to a collection agency that bought their debts for a tiny fraction of face value than they do to the company that originally extended the credit.
You Could be Exposing Yourself to Some Relatively Bad People
Despite laws designed to curtail them, many collection agencies employ individuals who lie to, harass, and abuse debtors. They might yell at you, use nasty language, or threaten you with jail time. All of these activities are, of course, illegal, but if you do not believe they happen, you need to take a look at my mailbag. Even if collectors are considerate to your face, they might do things behind your back to further endanger your financial existence. Collectors might promise to get rid of a damaging remark from your credit file, and then not follow through or make the black mark even more difficult. They might organize an option that they say will settle your credit card debt, and then sell the unpaid portion to another bureau that renews collection activity.
http://www.articlesbase.com/finance-articles/must-i-pay-of-old-unsecured-debt-3544134.html
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