Debt lingers on credit report even after garnishment, repayment
Let's Talk Credit
Dear Let's Talk Credit,
If my wages were garnished to repay a secured loan I took out
years ago, should the loan still be showing on my credit report as a charge-off? I paid the entire amount due on the debt through the garnishment process.
Thank you in advance! -- Ronald
It's great that you paid off your debt. However, paying the
debt in full does not remove the account from your credit report. The loan will
continue to show up on your credit report for seven years from the first
date of continued delinquency. The Fair Credit Reporting Act requires that most negative items be removed from your
credit report after seven years. However, until that period elapses, the
item will continue to be reported as charged off.
The good news is that you paid what was owed on the account.
Anyone reviewing your credit report before the account drops off will see that
you did pay, even though it was late and not as agreed. You said that the loan
was charged off several years ago. Another
piece of good news is that the more time passes, the less negative impact
the charge-off will have on your credit score.
You don't say why you defaulted on your loan, but I hope your
circumstances have changed for the better and that you have a spending plan in
place that includes saving money each month. With an emergency savings cushion
of at least six months' living expenses, it is much easier to avoid unwanted
debt and the consequences of being unable to make loan payments. If you are not
currently saving, I recommend that you start now. Putting aside even a small
amount each pay period will add up faster than you think.
For you and other readers, I wanted to say a few things about
wage garnishment. In order for creditors to collect what is owed them through wage garnishment, they must first sue you in court. The creditor is required
to notify you that it is suing to collect, and you have the right to defend
your side of the case. If the debt is valid and owed, the creditor will likely
receive a judgment from the court for the amount due. The judgment can then be
executed by the court in the form of a wage garnishment, bank levy or a lien
against real personal property.
If at all possible, it is better to work out a repayment plan
with the creditor before it reaches the courts. Offer what you can reasonably
afford to pay each month and if the collector agrees, get the agreement in
writing before you start making payments.
Let's keep talking!
See related: Your first budget, in 3 easy steps, How wage garnishment works, how to avoid it, 3 ways to rebuild credit after garnishment
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Published: May 9, 2013