>>A friend told me if I leave the country for three years, my debts will
be cleared. Is this true?<<
The short answer is "No." The longer answer is "Not only will they
not be cleared, they will continue to rack up finance charges, and bad
debt will stay on your credit report at least seven years."
As panicked as you must certainly feel, running away from your credit
card debt is not the answer, and neither is defaulting on your student
loans. If you want it gone, you're going to have to make it go away
the hard way - you'll have to pay it off. BUT! Take a deep
breath...it *can* be done. It's just going to take patience and time.
Let's break this down for ease of understanding. We'll work on the
easy bits first, OK?
>>Can I be sent to jail for not paying my creditors?<<
No. Not paying your bills is not a criminal offense, it's a civil
matter. You can have your shirt sued off your back, but you cannot be
sent to jail:
"Simply owing money on a bill is not a criminal matter. You can not be
arrested because you don't pay your bills. Yes, you can be sued, but
this would be a civil matter and you would not be arrested. There is
no debtor's prison so this is an illegal threat.
If a bill collector tells you that you are going to be arrested
because you haven't paid your bill report them to the FTC."
If You Don't Pay You're Going to Jail
>>How long will unpaid debts be on my credit record?<<
Depending on the kind of debt, anywhere from seven years to forever:
"The public record information and adverse credit information are
reported as follows:
Bankruptcy ------------------------------- 10 years
Tax Liens ------------------------------- 7 years
Judgment ------------------------------- 7 years
Foreclosure ------------------------------- 7 years
Notice of Default ------------------------------- 7 years
Collection ------------------------------- 7 years
Repossession ------------------------------- 7 years"
Know Your Credit Report
Many liens are renewable, meaning that they can stay on your credit
report until you pay them off entirely.
>>How long do I have to ignore my creditors (credit cards and student
loans) before they write me off as a loss?<<
It depends on the creditor. Typically, accounts are "charged off"
anywhere from 3 to 12 months after you stop paying (student loans are
not included in this).
Please understand that being written off as a loss does not mean that
you are no longer responsible for repaying the debt. Charged off
accounts are often sent to collection agencies who will dun you
repeatedly, and will continue to do so for as long as they think they
have a chance of getting you to repay.
Adverse information about each account will remain on your credit
report for up to seven years. If the agency sells your account to
another agency (a very common tactic), the cycle starts over again.
Defaulted student loans, on the other hand, never go away. Here's
what can happen if you ignore your student loan payments:
-- Additional collection fees and agency commissions will be added to what you owe
-- Your Federal Income Tax Refund can be taken each year and applied
to your loan balance.
-- Ten percent of your wages may be garnished.
-- If you receive certain payments from Social Security, they may be
seized, up to $9000 total
-- The Department of Education may file liens against valuable
personal property, and may go after your bank accounts. If they file
a lien against your car, you cannot sell it until the lien is removed
- and that can only be done by paying the lien holder.
Student Loan Collections: What might happen if you fall behind on
your student loan payments.
Facing Loan Default
As long as we're on the topic, let's deal with your student loan problems first.
If your student loans are not yet in default, there are a number of
options available to you for getting payments deferred, temporarily
stopped, or even cancelled altogether. This article gives a detailed
outline of options:
When You Can't Pay Your Student Loans: Cancellation, Deferment and Forbearance
How to postpone student loan payments or cancel your loans altogether.
"If you are unable to make your loan payments, act quickly to avoid
default. Possible options include:
* postponing payments through deferment or forbearance programs
* eliminating the loan altogether through loan cancellation, or
* discharging the loans in bankruptcy."
The article does explain that while student loans can be discharged in
bankruptcy, it's quite difficult:
"Another possible solution is to discharge your student loan in
bankruptcy. However, due to a 1998 change in the bankruptcy law, this
is harder than ever to do. In general, you can discharge a student
loan in bankruptcy only if you can prove that repaying the loan would
be a severe hardship for you. There are several factors that courts
consider in making this determination, but suffice it to say, it's a
very difficult standard to meet."
According to Federal Student Aid, student loans can only be discharged
in bankruptcy after you've been in default for seven years.
Depending on the type of student loans you have, you may be eligible
for consolidation through one of three programs offered by the
Department of Education:
FFEL Loan Consolidation Program
The William D. Ford Direct Loan Program
The US Department of Education Loan Rehabilitation Program
Addtionally, if you've already defaulted, you can negotiate a lower
payment on your loans:
"All guaranty agencies and the U.S. Department of Education (ED) will
accept regular monthly payments that are both reasonable to the agency
and affordable to you. You should call us at 1-800-621-3115 and one
of customer service representatives will assist you with determining a
repayment amount that is right for you."
I want to pay my defaulted student loan in monthly payment that are
affordable to me.
Whether you're already in default or it's looming ever closer, there
is help available. It's going to require that you make some calls,
fill out some paperwork, and stick to whatever payment schedule you
can get worked out, but it's much better for your state of mind and
your credit record than trying to ignore it.
Now let's have a go at the credit cards.
If you're having difficulty paying your credit card bills, and you
haven't already been charged off and sent to collections, you can
still repair your status with your creditor. The first thing you need
to do is contact each creditor individually, and try to negotiate a
lower monthly payment for a specified period of time. You may even be
able to get some fees waived and your interest temporarily lowered or
even suspended - but you have to *ask*. Your creditors will be more
inclined to work with you if you let them know what's going on and try
to make arrangements with them.
Make sure you get *all* arrangements *in writing*, and stick to them.
This is *vital* - if you stop making payments under the new
agreements, those agreements are void, and you're right back where you
started. If for some reason you *can't* stick to the plan (say you've
been laid off or injured on the job and can't work), call the
Do this with collection agencies as well, but keep in mind that it's a
little trickier - they get paid on commission, and they *will* argue
and fuss and squirm and try everything under the sun to keep from
making reasonable arrangements with you. Again, get the arrangements
*in writing*, and stick to them. If you skip your payments, you debt
will immediately come due and payable in full again, and you open
yourself to the possibility of being sued.
Alternatively, you can seek help through a consumer credit counseling
agency. These agencies will act as mediators between you and your
creditors, negotiating lower payments on your behalf. They aren't
free, but they can be helpful if you're unable to negotiate with your
creditors on your own:
National Foundation for Credit Counseling
American Consumer Credit Counseling
The Association of Independent Consumer Credit Counseling Agencies
You may find the following resources useful:
Do Not Ignore Your Debt Problem
Rebuilding Credit FAQ
I Hate Debt - Resources for Getting Out of Debt
Building A Better Credit Record (Includes sample dispute letter)
Credit Repair: Self-Help May Be Best
Erasing Bad Credit - Audio Presentation from the FTC (Requires
Credit and Your Consumer Rights
Credit Basics: Ignoring Overwhelming Debt Will Compound the Problem
If you're not sure who holds your outstanding debts, you can find out
with the help of your credit reports (and you can also dispute
anything that doesn't look right or doesn't belong to you, helping
pave the way to cleaning up your credit):
P.O. Box 740256
Atlanta, GA 30374-0256
Consumer Disclosure Center
P.O. Box 1000
Chester, PA 19022
P.O. Box 2002
Allen, TX 75013
If you find any inaccuracies, compose a letter to each agency
explaining which information is incorrect, and ask them to either
verify the information or delete the listing. Enclose a copy of the
report with the mistake circled, highlighted or otherwise clearly
Also include in your request:
* First, middle, and last name (including Jr., Sr., III)
* Current address
* Previous addresses in the past two years, if any
* Social Security number
* Date of birth
* Current employer
* Phone number
With some time and a bit of strong will, you *can* get your debt
situation under control, without making it worse by running away. I
wish you the best of luck. Hang in there!
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