If you are behind on your bills, you are probably receiving all kinds of notices and letters. These letters range from the almost polite “did you forget to send money?” to the threatening “we are going to take your paycheck, your house or your car!” Your first reaction when receiving letters like this might be to make some sort of payment arrangement with that creditor, whether that is paying the debt off in full or in part. However, sending money might be a very bad idea.
First, if the debt is being collected by a debt buyer (LVNV Funding, Portfolio Recovery, or Midland Funding to name a few), they may not be able to prove that you owe them any money at all, or they may not be able to prove that the amount they are claiming is correct.
Second, settling a debt for less than the balance owed may expose you to tax liability. The IRS considers the amount of any debt that is forgiven to be income to you. Settling a debt may also create an unfavorable mark on your credit report.
Third, making a payment on an old debt may reset the statute of limitations. This is the time in which a creditor can legally sue you for the unpaid balance. It will also reset the reporting period in which the debt remains on your credit report.
These are just a few things that you need to consider when faced with collection letters. I am not saying that settling an old debt is never a good idea. Just don’t rush into it blindly – you need to gather the facts and weigh the risks before you contact a creditor and jump into a payment arrangement. There is no one right answer. Each person’s situation is different, and each person will weigh the risks and benefits differently. If you find yourself wanting or needing to resolve a debt, I would be happy to speak with you and help you analyze your situation.
Kimberly Stevens, Bankruptcy Attorney for Mountain View Law Group, located in Ogden, Utah.
Call Kimberly today at 801-393-5555 for a free initial consultation.