Ouch. Having your car repossessed, frankly sucks. This repossession mark can legally stay on your credit report for a maximum of seven years.
However, you don’t have to serve the maximum sentence. It’s true, every single year the credit bureaus remove millions of negative items from consumer’s credit reports. And long before the maximum seven-year sentence.
Let’s discuss details. If you’ve had the unfortunate experience of your car being repossessed, chances are good, you’ve got a double ding on your credit reports. These dings, blemishes, and negative marks are what cause a bad credit score.
This is how it works, once the car is actually repossessed, it’ll be resold typically at auction. If your loan, for example, was for $25,000 and the car is resold for $18,000 then there would be a $7,000 balance.
This $7,000 balance is called an auto deficiency. Often, this auto deficiency (the balance on your car loan) will be sent to a debt collector. Naturally, this debt collector will begin calling you, sending letters, and they’ll report this account on your credit reports.
This is the double ding. You have a repossession listing from the original lender, or finance company. And then the debt collector will also report a collection account on your credit report, for the outstanding auto deficiency debt, in our example the remaining $7,000.
What’s worse, is many folks have to deal with less-than-perfect credit for much longer than the maximum seven-year sentence. Because, this seven-year time window is supposed to start as of your first missed payment, also called your original delinquency date.
However, for a variety of reasons, many folks will have this repossession stay on credit report files for much longer. To clarify, according to federal legislation the seven-year window starts on your first missed payment, not the actual day the car was repossessed.
As we shared, it’s likely you’ll get the double credit report ding for an outstanding balance on your original loan. Because that balance, or auto deficiency will frequently be sent to a debt collector.
This debt collector will view your account as brand new when they report it to the credit bureaus. So you’ll have the repossession mark, and then a few months later there will also be the collection account for the auto deficiency debt, despite these two marks being directly related.
There are debt collectors that specialize in this type of work. One of the biggest is American Recovery Service who virtually works exclusively collecting auto deficiency debts.
They and other debt collectors have two big motivators to pressure folks into paying. First, they’ll report the negative information on your credit report, using our example the $7,000 auto deficiency balance.
In addition, if they’re unable to collect payment, they often will file civil lawsuits against consumers. In other words, they’ll sue you for the remaining balance. Their goal is to win a judgement against you, because then they’ve really got you by the short and curlies.
Judgements can result in wage garnishment, liens being placed against you and or your property, and even asset seizure. For full details, check out your local legislation, because each state has unique laws.
The worst part about all this, is this judgement can remain for seven years on your credit reports. Getting slapped with a judgement on credit report files, will decimate your credit score.
To clarify, the repossession is only supposed to stay on your credit reports for a maximum of seven years. This seven-year time window, begins with your first missed payment, or original date of delinquency.
Later, the auto deficiency balance on your car loan, will be sent to a collection agency. This collection agency will often report the account as brand new or for seven more years from the date the debt collector came into possession of the account.
If legal action is taken and they win a judgement against you, then this judgement can stay on your credit report for seven more years. In total, most people have negative credit consequences from a repossession for much longer than the maximum seven-year sentence.
We don’t share this to discourage you. Because with wise action you can remove a repossession from credit report files, along with any other negative credit report marks, and long before this maximum seven-year window.
After all, O.J. didn’t have to serve his maximum prison sentence. And chances are, you too won’t have to serve your maximum bad credit prison sentence, if you take appropriate action.
Before we get down to the nitty-gritty, we need to share your credit score is a lot like your Grade Point Average (GPA) in glory school days past. It doesn’t matter if you’re acing all your classes, if you’re failing The Art of Walking, because this negative mark will ruin your overall GPA.
This same principle applies to your credit score. This is why if your working to get a better credit score, it’s of such paramount importance we take action to remove the repossession and any other credit report dings, blemishes, and negative items. We need to get you a clear credit history.
4 Steps For Dealing With Outstanding Debt
Now, let’s discuss how to address this outstanding auto deficiency debt, and first get that off your credit report. The Fair Debt Collection Practices Act (FDCPA) is federal legislation intended to regulate the debt collection industry.
In brief, it says debt collectors are required to be honest, up-front, and straightforward. It also says they’re required to treat you with that modicum of respect and dignity, every human being deserves.
It says a whole lot more, and it’s worth your review at your convenience. And yes, the FDCPA is violated just about as often as our drug laws in this country.
Nevertheless, the most pressing concern for most folks is does paying off collections improve credit? You’d think so. It certainly makes sense that it would.
But, as of 2018 no. You see, the only thing that happens if you just pay collections, and nothing more, is a change in the status of that item on your credit reports. It’ll be changed to a paid collection.
This is still a negative item. Anthony Sprauve, a spokesman for FICO, says collections on your credit report can damage and drag your credit score down by as much as 100 points. That’s huge!
Look, the key to raise your credit score is to remove this item entirely from your credit report. And we can. In full disclosure, for some folks, they may discover paying off debt in collections is the most effective way to get a clear credit report.
1. Request Debt Validation
The very first step for dealing with debt collectors is to request debt validation. This is your right as a consumer, granted by the FDCPA.
It’s most effective to make your request in writing, and send it using certified mail, with return receipt requested. This way you’ll have evidence you made your validation request, and they received it.
This is performing the necessary due diligence on your alleged collection account. Because the debt collector is required to respond by providing you with the documents, paperwork, and evidence that does, in fact, prove this is truly your debt.
If they fail to validate your account, for any reason, then you’re no longer legally responsible for payment. Further, they’re supposed to notify all three credit bureaus to have them remove collections from credit report files, regarding this account.
2. The Legal Time Window
If your debt is validated, our next step is to review this paperwork in detail. We’re looking for your last date of account activity. You see, you’re not legally responsible for repayment forever.
In fact, the statute of limitations is what says exactly how long you are legally responsible for payment. This is state law, and it does vary, so for full details, check out your local legislation.
Generally, it’s about seven years from your first date of delinquency. In other words, your legal obligation for repayment only lasts as long as the statute of limitations.
Once this time window runs out and expires, so does your legal obligation to repay the debt. In other words, the debt is legally forgiven when the statute of limitations expires.
The statute of limitations applies to most types of debt including auto deficiencies, charge off accounts, medical collections, utilities, telecommunications, retail, and so many more. The few exemptions are federal student loans in default, and federal income tax.
Warning. Yes, a warning and this is big. Debt collectors, especially late-stage debt collectors are notorious for re-aging consumer accounts. Often this is done illegally, and with the obvious purpose of continuing to attempt to collect payment, despite your legal obligation being over.
3. Negotiate a Settlement Agreement
There’s two parts to your settlement agreement, and it’s best to get this in writing. First, we need to negotiate to settle and pay off collections for just a fraction of the total balance.
Often, you’ll be able to negotiate and settle for as little as 15% up to around 45% of the total balance. For instance, keeping with our earlier example, and a $7,000 auto deficiency debt, you may be able to settle for as little as 25% or $1,750.
But wait, we need to get this second part of our agreement in place, otherwise, we’ll get stuck with that paid collection on our credit reports. We must get this debt collector to agree that in exchange for our payment, they’ll stop reporting our account information to all three credit bureaus.
Pay For Delete
Have you heard about a pay for delete approach to dealing with debt collectors? If not, this is where you first demand the debt collector delete the negative item from your credit reports, and then you’ll make payment.
It sounds terrific. However, it’s about as realistic as PETA (People for the Ethical Treatment of Animals) opening a butcher shop on every American street corner. In other words, it’s beyond wishful thinking.
In our decade-plus years of working with folks first hand fixing credit, we’ve yet to hear of even one debt collector ever making this agreement. Unfortunately.
Instead, the much more effective and pragmatic approach is to simply get them to agree in writing to stop reporting your account information to all three credit bureaus, in exchange for your payment. This is an agreement they will make, albeit in some cases reluctantly.
4. How To Remove Collections From Credit Report
In our fourth step, we’re looking at how to remove collections from credit report files. And to do this, we’re going to discuss how to dispute credit report items. This requires us to use more of your consumer rights.
This time those granted by the Fair Credit Reporting Act (FCRA). This federal legislation enables us to challenge and dispute any item on our credit reports, so long as we believe it’s incorrect, misleading, or made in error.
There’s three ways to dispute credit report items: online, over the phone, and by mail. Once the credit bureaus get our dispute, they first get to deem it valid or frivolous.
This is a conversation for another time and place. So make sure to sign up for our free newsletter for more credit score help with Dan Willis, and join our congregation.
Once the credit bureaus deem our dispute valid, they’re required to investigate the item. They’ll call it a re-investigation. Nevertheless, during their re-investigation, they’ll contact the debt collector and ask them to verify the account.
As per our settlement agreement directly with the debt collector, they won’t verify the collection account during the credit bureaus re-investigation. That’s the second part of our settlement agreement.
As a result, and in compliance with the FCRA, the credit bureaus must remove this item from your credit reports. This is how to get rid of bad credit, legally, and by exercising your rights as a consumer.
How To Remove Repossession From Credit Report
We still have that repossession on credit report files, from the original finance company, lender, or creditor. We also need to get rid of this item from your credit reports. Again, we’re going to use the FCRA, and file a credit report dispute.
The only difference is this time around we’re disputing the repossession item. On a sidebar, if this repossession is on all three of your credit reports with Experian, Equifax, and TransUnion we need to file three separate credit disputes.
One dispute per bureau. As in we’ll need to file a TransUnion dispute, to potentially remove this item from our TransUnion credit report. In addition to an Experian dispute, for our Experian credit report. And so on.
This time when the credit bureaus conduct their re-investigation, they’ll contact the finance company or the original lender or creditor to verify the account. However, because the original finance company has, in most cases, sold the rights to the account to a third-party debt collector, the finance company won’t verify the account when the credit bureaus investigate.
As a result, this item must be removed from our credit reports. This is how to remove repossession from credit report files, and long before the seven-year maximum sentence.
Hang with me here, when your car was first repossessed and the original finance company resold it at auction. The remaining balance on your original loan was charged off and sent, sold, or assigned to a collection agency.
This means, the original finance company has gotten all they can from the account. They repossessed the car, so they got their property back. And if there was a balance, or a difference in the loan amount and the money they collected this account was charged off.
And then sold, in most cases, to a third-party debt collector. In other words, the original finance company has received payment for everything. They got the car, and resold it. And they sold the rights to the auto deficiency or remaining balance on the loan to a debt collector.
There is nothing left for the finance company to gain. And contrary to popular belief, for the finance company to spend even the man-hours, to verify the repossession mark when the credit bureaus investigate, is only an expense.
There is no possibility of a return on this expense, for the finance company. They’ve washed their hands of the account. This is why you have very good odds, of the repossession being unverified when the credit bureaus investigate, and as a result, the repossession being removed from your credit reports.
Every last one of those dings, blemishes, and negative items on your credit reports must be verifiable. If not, then in compliance with the FCRA, the item must be removed. This is how to remove bad credit.
We must share, the biggest obstacle you’ll encounter in all likelihood will be in getting the credit bureaus to deem your dispute valid and subsequently investigate the item. Most likely, they’ll respond by saying your dispute is frivolous, and they’ll request additional information.
Comply with their request and provide the requested information. But, don’t hold your breath, because what most people won’t share with you, is for the credit bureaus to investigate an item that too is only an expense.
The only reason they do these investigations or re-investigations is to comply with federal law. And that’s debatable. In 2015, all three credit bureaus paid $6 million to 31 states attorney generals for allegedly violating consumer rights under the FCRA.
We must share one of too many stories to illustrate. In 2013, a woman by the name of Julie Miller woke up one day to discover 38 bogus collection accounts on her Equifax credit report. Obviously, causing her to have a low credit score.
She followed the law and the FCRA, and filed her Equifax dispute. For the next two years, they kept responding to her dispute claiming it was frivolous and requesting additional information.
She complied and supplied them with her W-2’s, tax returns, pay stubs, DNA, and her firstborn child. Yes, small exaggeration and all to no avail. Finally, Julie got fed up and sued Equifax and won.
A federal jury awarded her $18.6 million which was later reduced by a federal judge to $1.8 million. But even a federal judge found Equifax’s behavior so unconscionable that he awarded Julie nine times her compensatory damages in punitive damages.
In other words, her compensatory damages, the money that’s supposed to make your life whole again was only $180,000. While the punitive damages, the money for the aggravation and annoyance, was a whopping $1.62 million. Nine times as much.
Look, it’s not easy living with less-than-perfect credit. The embarrassment, the frustration, nor the expense of a low credit score in our brave new world, can drive you mad.
And put a real dent in your pocketbook. Nor is it easy trying to deal with debt collectors, or the credit bureaus. These guys aren’t your friends. To put it mildly.
Most folks, feel as if they’re living in ancient biblical times and they’re David going into battle with Goliath. You’re telling me all I get is this lousy sling-shot, and a couple of pebbles. Come on, man!
Keep in mind, your credit score is much like your GPA in glory school days past. It doesn’t matter if you’re acing all your courses, if you’re failing The Art of Walking, because this negative mark is going to ruin your overall GPA.
We encourage our members to consider professional, legal, and legitimate credit repair companies to help. Because the good news is in 2016, over 9 million negative items were removed from consumer’s credit reports.
One of the best firms is The Credit Pros. They’ve helped their client’s successfully remove repossessions, collections, late payments, charge offs, judgements, liens, and so many more negative credit report items.
Get a free credit consultation with a certified FICO professional by calling toll-free 1-877-418-7596. And for more tips, techniques, and strategies about how to get your credit score up with Dan Willis, sign up for our free newsletter and join our congregation.
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