Expert: Chris Ebert - 10/1/2009

Question
QUESTION: I am negotiating with a creditor collection department on behalf of my son.  We live in Texas. He has nothing and and got behind when he was first furloughed a day a pay period (despite the fact that he is exempt, they called him at home, and he had to make up the work he missed on his day furloughed). Then he was fired when he couldn't keep up.  The bill was $4800, but they offered to take off interest and fees and an additional $300 if paid in one payment.  $3500.  They offered a credit bureau update to Settled.  I am asking for Paid as Agreed if I pay that kind of money.   He said that it was against the law to give that rating under the circumstances.  He also said that after they update the credit report, he would ask the bureau to delete the account and they would.  What is the truth?  Is it against the law to give a paid status?  Can he have the account expunged if it states Settled?  I was going to offer them 25% and go from there.  There is another account that I haven't been contacted about yet.  It has a $6400.00 balance.  Thanks for any help you can be.

ANSWER: In short, some will delete and some will not. There is a debate as to the interpretation of the law on this issue.

As a practical matter, I know from experience that most creditors will delete. You may have to pay a little more and go up the chain of command a few rungs. But it can be done.

To make it a little easier, we created a Debt Settlement Sheet to help deal with the creditors. It can be found at http://www.henleycreditlaw.com/269/

Finally, paying off or settling debts will not affect the credit score today. However, it will positively impact the credit as time goes on. In 12 to 24 months down the road, it will be like it did not happen on the credit score.



---------- FOLLOW-UP ----------

QUESTION: Thanks, Chris.  When I looked at my question again it wasn't clear.  I had too many undefined "he"s.  I read the FCRA and it appears to me that, if a creditor reports an inaccurate score, it is the debtor who has a remedy.  I read nothing in the act that requires the creditor to report a negative score.  Is that your reading?  Is there case law?  The creditor rep said that my son could ask for the settled to be deleted and the bureau would do that.  I read your answer to say that some bureaus will do that and others will not.  The only things to be gained here are, for the creditor, some payment, and for me some peace of mind that this will not haunt him, especially in a job search.  With regard to my son, he has nothing to lose, if his credit is already tanked.  Thank you for the work sheet. Does the fact that I don't have a legal obligation to pay change things at all?

ANSWER: Peggy,

I think that the issue is that most creditors cite is FACT Act as the reason they can not delete an item off the credit report. Also, it is in the credit bureau's contract with the credit furnishers (debt collectors). The bureuas are held to the FCRA and the third party debt collectors are held to the FDCPA.

I would not accept a creditor or debt collector telling me to settle with them and then go to the credit bureaus to report a different way. Get in writing from the person your are dealing with at the collection agency: a) settlement amount b) release c) how it is going to report to the credit bureaus.

As far as cases to cite, I do not have any.

Also, as far as your obligation to pay, you have none but this is concerning your son's credit. The creditors are going to look at it that way. They do not care where the money comes from to settle as long as they get it.

---------- FOLLOW-UP ----------

QUESTION: I spoke with the creditor today and he put his manager on.  Marcus Lee stated several times that he was not with a collection agency.  The manager said that they were a collection agency and subject to the FDCA.  I pointed out that Marcus had lied to me on this issue.  He said "appropriate action would be taken" if that were true. The other bill he owes is with Chase recovery department.  I have reason to believe that they will likely settle for 25%.  So, my question is, is there a difference between a bank's recovery department and a collection agency.  If it is the bank's recovery department, will there still be two entries on the credit report.  I am really doing this to save his name for employment purposes.  He obviously is not responsible with credit.

Answer
In Texas, it does not matter whether you are speaking to a collection agency or main creditor. Both are held liable to Texas Finance Code concerning collections.  

If you are dealing with the in house recovery then there should only be one collection account listed on the credit report. If it is at a collection agency it is hard to tie to the collection agency to removing the original creditors entry.