6 bad reasons debtors reaffirm debt

Consumers sometimes reaffirm old debt when they don't have to

Consumers sometimes reaffirm old debt, even when they are not legally obligated. Here are some of the reasons why:

1. They feel obligated or guilty. Often debt collectors will use all of the weapons at their disposal, including guilt. "Consumers want to do the right thing," says John Ventura, author of "The Credit Repair Handbook" and director of the Texas Consumer Complaint Center at the University of Houston Law School.  "They are susceptible to debt collectors who are nice and just want to help them work things out."

The lesson: Your morality is your own business. Just be sure that you're not letting someone fast-talk you into something.

Another point to consider: You may feel you have a moral obligation to pay the original debt, if you can. But if a number of third-party collectors have bought the debt in the interim, and each, in turn, has added months or years of fees, and hiked the interest rate, the current debt might be far more than your original balance. So what is your true obligation?

2. They are worried about their credit report. While most states don't allow creditors to force collection on credit card debt after a certain period (usually three to six years, but the statute of limitations for credit card debt varies by state), a negative item can stay on your report for seven years from the time it's charged off or turned over to collections. So even if a debt is too old to collect, creditors can and do use the threat of negative reporting as leverage.

What you need to know: Paying an old debt will not remove it from your credit report. "It won't have any effect on your score, good or bad," says Barry Paperno, manager of consumer operations for Fair Isaac Corp., the company that pioneered credit scoring and formulates the FICO score. "There are advantages to it showing up on your credit report as paid, but not with your score," he says.

During that seven-year reporting window, every time the debt is sold to a new collector, the collector can add a notation to your collections history with the date it acquired your account, and your FICO score will treat that collections item as if it were a new delinquency, says Paperno. (But that collections notation still has to come off when the original debt does.)

While paying the debt won't help your current score, it could possibly prevent the company from reselling it to another collector who could add another "fresh" debt notation to your file.

3. They don't want to get sued. Most consumers don't know the statute of limitations in their state. So if collectors threaten legal action, consumers believe them.

Instead, hit the computer to find out what the rules are in your state. (You could be governed by the state law where you live or where you lived when you made the charges.) And if you get an official notice that a creditor is suing on an expired debt, act immediately to show the court that the obligation is too old.

4. They get tricked. One Louisiana man received a credit card solicitation in the mail. The company, whose card he'd carried prior to a charge-off, congratulated him on rebuilding his credit and offered him a new card with a $500 credit limit and a low interest rate, says David A. Szwak, attorney and owner of Bodenheimer, Jones & Szwak  LLC. When the man applied, the company opened an account, transferred his old debt balance, set his new credit limit below the transferred balance, gave the account a 36 percent APR, and wouldn't send him a card, says Szwak.

Not a legal move, since the original debt was beyond the statute of limitations and the man never agreed to revive it, says Szwak. The man sued, and the company eventually settled, he says.

5. They don't realize the debt is not theirs. Not all debt collectors have accurate information, and a scant few may even play fast and loose with the truth. In the worst case scenarios, collectors have been known to try to collect a debt that was past its expiration date, belonged to a different consumer with a similar name or Social Security number, had already been paid, was discharged in bankruptcy, or was from an account on which the consumer had charging privileges but no obligation to pay (authorized user).

The Fair Debt Collection Practices Act requires collections agents to furnish verification that the debt belongs to you. A letter stating you owe it and demanding payment doesn't count.

Failing that, write the three credit bureaus by certified mail, return receipt requested, and tell them you're disputing the debt. They have to note your file and investigate. You can also have your own explanation placed in your file. If the bureaus' investigations don't produce any real evidence but everyone still insists the debt is yours, you need to talk with an attorney. (See 9 questions to ask before reaffirming debt)

6. They need a clean record. These days it's not just presidential candidates who have to worry about something ugly popping up from the past. If your job requires a background check, a professional license, or a certification exam, bad debt can sometimes come back to haunt you. Some professional groups and licensing boards won't admit you or let you take their exams if there is old unexplained bad debt on your record, says Jack Williams, resident scholar for the American Bankruptcy Institute.

Almost every year, at least two or three of his students aren't allowed to sit for their bar exams because of disputed debt, Williams says. Most of the time, especially with smaller amounts, they just end up paying the debt because it's cheaper and easier in the long run, he says.

But the best defense is often a good offense, he advises. Monitor your credit report regularly. If you find a debt that you don't recognize, dispute it and ask the credit bureau to investigate. In the meantime, put your own explanation into your credit report, and make professional organizations aware of the dispute in advance. Says Williams, "It creates this aura of responsibility, and that's what these bodies are looking for."

See related: What is debt reaffirmation?, 9 questions to ask before reaffirming debt, Statutes of limitations for credit card debt, State by state bankruptcy filings, Bankruptcies creeping upward as economy sours, 5 tips for those considering bankruptcy 

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Updated: 11-22-2017