Tax Refunds and Credit Card Debt
During tax season I get numerous phone calls from individuals who are looking to pay off or pay down debt. Below find some suggestions and considerations.
For those in default on debt(s):
Thing you should know:
- The statute of limitations on (most) contractual debt in Massachusetts is six years (unless a judgement has been issued against you). If you are considering paying off a debt that is over six years old stop considering. Making a full payoff is unnecessary. A partial payment will reactivate the SOL; meaning, if you pay $1 on a $1000 debt that is over six years old the debt will be reactivated and you can be held for another six years for the other $999. If you arrange a settlement anyway you can still be taxed on the difference if over $500.
- When paying a debt collector make sure of the following:
- Ask for “Proof of Assignment” the contract showing the legal purchase and sale of the debt. Anyone can call and say they bought a debt, make them prove it! They legally have to provide you with this in order to demand any sort of payment. If they cannot provide this consider reporting them.
- Check their licensing. Google “division of banks find licensee”. Check their listings. If the company attempting to collect is NOT licenses in MA then they cannot legally collect and you can potentially have the debt wiped from record. If they are not licensed consider reporting them.
- If all the above is verified keep in mind: Debt collectors pay (on average) three cents on the dollar. You do NOT have to pay full amount. In all honesty, you should likely settle for between 30% and 50% (again, keep in mind taxation). If the company is a representative (not a collector, meaning they did not buy the debt they were just hired to collect) you will likely have to settle for between 50% – 70%.
- Ask for a “pay per delete” agreement. This means if your default was reported to the bureaus they will agree to delete the negative listing once payment is received.
- Payment to creditors directly: Settlements (I generally do not suggest a consumer pay defaulted accounts in full, it will not gain you more points on your credit rating and the creditor has likely already charged the account off and received a tax break).
- The older the account default date the better the settlement. If your account is one year old shoot for an 80% settlement. For each year after that subtract 10% (so two years offer 70%, three years 60% etc.)
- Keep in mind settlements are PERSONAL! If you speak with a customer service representative who is having a bad day (or simply doesn’t like you) they can and will demand a higher settlement. To fix this simply hang up, call back and speak with someone else.
- Get your agreement in writing before making your payment! A verbal confirmation is great until the company “can’t find the recording” and claims you did not hold up your end of the bargain then demands the remaining balance.
More information to come! For questions or a personal consultation please reach out to: ChaffinCreditConsulting@outlook.com