Options in case 'written off' debt reappears on credit report

To Her Credit columnist Sally Herigstad
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for CreditCards.com, and also wrote for MSN Money, Interest.com and Bankrate.com, and has guested on Martha Stewart Radio and other programs.

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Dear To Her Credit,
I have been unemployed due to grief and depression issues. I unsuccessfully attempted to finance Shaklee and doTerra businesses on my individual Nordstrom credit card in 2013. I continued to make payments until January of 2014 when our financial situation dictated that we could no longer pay.

My credit report indicates that my debt may have been written off, but I need to know if the grim reaper is going to come back and stalk me. Please advise. Thanks. -- Jana


Dear Jana,
Whoever convinced you to finance two multilevel marketing businesses on a credit card should be told a thing or two. Taking measured risks in business is one thing. A measured risk, in my opinion, would be investing money you can actually afford to lose. High-risk investments are quite another story. If you have to put something on a credit card and don't have money in hand to pay it off, you can't afford it -- at least at that time.

Regarding your credit report, a common misconception is that a credit report is some kind of scorekeeper. Some people seem to think the fact that something is or is not on a credit report determines whether the debt is really owed. The credit bureaus have no legal authority to determine who owes what to whom. They only report the information they receive. You may have valid debts that don't show up on the report, and you may not legally be liable for everything on the report.

If the credit report says that your Nordstrom credit card debt has been written off, that could mean you don't need to worry about it anymore. It's certainly no guarantee, however. You were making payments as recently as last year, so the statute of limitations (which prevents a creditor from suing you for the debt) won't help you.

As long as this debt is unresolved, it's causing you stress and worry. It can certainly come back to haunt you, as the bank or a collection agency could take legal action to try to collect from you. You need to be proactive to resolve the debt so you can stop worrying about it.

The usual options for dealing with a debt you absolutely cannot pay are debt settlement (paying less than you owe), notification of inability to pay, and bankruptcy.

If you have no money to offer as a partial payment, debt settlement isn't really an option at this time. If you could come up with a lump sum, you could try offering it to the bank or collection agency and see if it will be accepted. Debt negotiation will hurt your credit score.

You may be "judgment proof" if you have no wages or assets, such as bank accounts, that a creditor can attach with a judgment. If that's the case, you should notify the bank that you cannot pay and why. This isn't a perfect solution. For one thing, if you are doing much better in a few years, as I hope you will be, the debt can resurface and a collector can come after you again.

It's difficult to say if you should file for bankruptcy. It depends on your age, earning potential, debt level, and other factors. If your debt is larger than one year's income, you may need to file for Chapter 7 bankruptcy to fully resolve this debt.

The disadvantages of bankruptcy are that it costs money and time, and drastically lowers your credit score. You also surrender a great deal of control over your own finances, and bankruptcy filers often say the process is demoralizing. 

The advantages of bankruptcy in a situation such as yours are that you gain relief from collection efforts, and you no longer have to worry about the "grim reaper" of debt collection coming back to haunt you.

Whatever you decide, don't take a notation on your credit report as assurance that a debt has been permanently written off. The sooner you actually deal with debt, the sooner you can concentrate on taking care of yourself, improving your health and planning a better future for yourself. 

See related: The scariest things on your credit report , Business and personal expenses better on separate cards, Need a small-business loan? Beat the big-bank brush-off 

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Updated: 01-23-2018