Expert: Yan Ross - 10/15/2009

Question
To simplify, I have struggled personally and professionally for five years. Recently started to get back on track and when trying to pay the last $7,600 on a $265,000 loan... found it had been classified as "Charge Off."  I had been trying to reach my account rep for several months without a reply. Now I find that he left the company many months ago.

This loan has never been reported to my credit report as it had started as a business loan, and then personal... and the bank simply never reported it. So, it seems smart to try to negotiate a 20-25% settlement? and utilize the little bit of cash I have today to continue pulling myself farther out of my hole.

Would I be wiser paying 100% with proof that they change the "chargeoff" status to paid in full and also have them apply it to my credit report? Is it worth attempting the paid in full and report to credit if I pay a reduction such as 50-75% or would I be wasting my limited energy?

My FICO has been hit hard these last few years and fell from 800 to now 567. No time like today to get all the crap on the table, fix it and then start rebuilding my FICO and my life.

Which brings up another question, I have 4-6 other small debts ranging $50-300 and some are past the 3 year statute of limitations. Should I negotiate settlements with the collection agencies or contact the original creditor? I would like to take responsibility and my self-esteem needs to see me stand up and do what's right. But I'm aware that I would be foolish to pay 100% on the old debt that is already hurting my FICO.

Other debt is $54,000 with an old Bank Card (boy would I love to negotiate a settlement at 50-70% on that one, but it is not delinquent),a student loan of $20,000 that is currently in deferrment til spring 2010, $30,000 to my business landlord (I've committed to some lump sum payments to get the balance to $15,000 by end of 2009) and I have still not completed or paid my IRS taxes for 2006, 2007 & 2008 (anticipate debt of $25,000).

I'm still not creating consistent income and my confidence can waver into paralysis.

Thanks for your insight and assistance.
dee

Answer
Dee,

You certainly have a lot of moving parts in your financial situation. As you might expect, it is not easy to come up with a single coordinated "plan  of attack" as you call it, but let me start with some general guidance and see if I can help.

Let me remind you before going on that I can't give you legal advice, but I can share with  you some ways to approach the situation.  You will probably need to seek legal counsel in your State to determine the answers to issues like "statute of limitations" on debt or possibly evaluating a Chapter 13 (reorganization) or Chapter 7 (liquidation) bankruptcy.

You have not indicated how much you have in available funds to service (pay down, pay off, or otherwise settle) your debts, but you have said your income is not consistent.  You will also need to take into account your future living expenses and prospects for generating income.

I'll try to address the items in the order you presented them.

The business/personal loan -- although the loan is in "Charge Off" status, it does not necessarily mean the lender does not still consider it enforceable against you.  Even if you pay it off, however, the "charged off" notation may not come off your credit report or immediately increase your FICO score.  At a minimum, it will take some time for that negative item in your credit file to be modified r deleted.  I would suggest getting in touch with the lender and get a responsible officer there to review the situation with you and see if you can work out something that would be positive for both parties.

Small loans in delinquent status or in collection -- you have not indicated whether there have been attempts to reduce these to judgments or what the total principal & interest & penalties & fees might be.  They could be larger than you think.  Again, I would encourage you to seek legal advice on the "statute of limitations" issue, and to find out the exact status of these loans.  It may be that they can be paid off & brought current and reported to the credit reporting agencies -- but it is not to be expected that the collection agencies will be very helpful in getting positive reports to your credit files, especially once they get their money.

You have not indicated the status of the "Old Bank Card" -- whether it is just accruing interest, or whether there are penalties, or some other status.  As a large single item, it could be instrumental in affecting your FICO score.  But more important, if you do negotiate acceptance of something less than the full amount in satisfaction of the account, you will again be creating a negative situation for your FICO score.

The student loan may be particularly, important, because default on a student loan (if federally insured, for instance) can deprive you of access to other government-related programs.  You have apparently gotten that deferred for a period of time, however, and it now becomes an item for future planning  -- I'd suggest you make sure you reserve enough to keep that loan out of delinquent status.

Your business landlord is probably a place you have some room to negotiate -- perhaps when you get your overall payment plan together, you can set up a payment plan, to conserve cash & avoid having the lump sum drain you of liquidity.

Of course, you saved the "best" for last - -the IRS.  I can only suggest (again) that you seek legal counsel to help you get that resolved -- especially the failure to file, not only the back taxes, interest, and penalties you will be paying.  From what I understand, the IRS may be willing to settle for less, and that should not have a negative impact on your FICO score.

I hope that's helpful.

Good luck!