Can I just pay off my delinquent balance and ignore the creditor’s fees?

Collection and legal fees may not factor into your credit score, but you still have to pay them


If you have a car loan in default, don’t just pay off on the amount shown on your credit report. Chances are your credit report is only listing the actual amount of the default, not the additional lawyer and collecting fees. Those interest charges and fees will continue until the debt is paid in full.

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Dear Keeping Score,

For the past three years my wages have been garnished for a previous auto loan, and every month I see my balance decreasing on my credit report. I thought I had finally gotten my balance low enough to pay it off, but after calling the creditor they are giving me a balance of nearly $6,000 more than what is listed on my credit report due to their monthly lawyer fees and collecting fees.

My question is, is it possible to pay off the remaining balance listed on my credit report instead of the balance the creditor is telling me and avoiding all of the extra fees? – Andrea

Check out all the answers from our credit card experts.

Ask Steve a question.

Dear Andrea,

Three years? Really? Andrea, you are long overdue for getting on top of this endless debt. These guys have a retirement plan being funded by your garnishment and they are happy to let it keep accumulating unless you take action. Here are a couple of suggestions to consider:

Settle the debt

If you are within striking distance of paying off the face amount of the debt you must have some money set aside. Contact the creditor and offer to settle the debt for what you can afford. They will have the incentive of getting a chunk of cash up front and not having to risk you discharging the debt in a future bankruptcy.

You should know that settling a debt for less than what you initially agreed to pay damages your credit score. However, your score is probably low due to the delinquency and the wage garnishment, and declaring bankruptcy would have an even worse effect.

If you are uncomfortable dealing with them directly, I recommend you engage a local attorney to negotiate for you. This may reduce the amount of money you have for a settlement, but it may also increase the likelihood of successfully getting rid of the debt.

You might contact the attorney that represented you in the original garnishment hearing to see if they can help.  If you didn’t have counsel or can’t afford it, your local legal aid should be able to help you find free or reduced cost representation.

Borrow the money

Normally, paying off a debt with borrowed money is a bad idea. However, if you are able to stop the fees and charges that are accumulating on your account, you may be better off using loan proceeds.

From a credit scoring perspective, after three years the effect of the delinquency should be reduced, so it shouldn’t be a big problem for getting a loan.

The judgment should be listed on your credit report. If it were a civil or non-debt related judgment it would not be, thanks to the National Consumers Assistance Plan launched in 2015 and fully implemented in March 2018.

This plan removes civil judgments from credit reports so that they do not affect your credit score. Prior to this plan, all judgments were listed on credit reports and had a direct negative effect on a credit score.

I’d try either a lender with whom you have a relationship (like a checking, savings or mortgage account) or a credit union.

See related:  How can I rebuild my credit after a car repossession?

How does missing payments lead to wage garnishment?

For my readers who may not understand how missing one or more car payments can land a person with a wage garnishment, here is how it can work:

Car loans are not like credit card loans. When you miss a payment, it is serious. Because car loans are secured by the car itself, a lender doesn’t want to have play hide-and-seek in the case of a serious default. The result is that depending on the lender, it may take only a month or two before they come and take your car. Credit card lenders will generally give you at least 90 days and sometimes six months before they shut down your card and turn you over to a collector.

Once a car is repossessed it is then sold at auction at wholesale pricing. This is often for less than you owed on it at the time of the repossession. This is a fairly common occurrence in auto repossession cases. At that point, you become responsible for the amount that was left on the loan after the car was sold (called a deficiency balance) plus the costs of repossession and auctioning in addition to interest.

Next, they send a notice that you owe whatever that amount is and demand immediate payment, which most people do not have (or they would have never have defaulted in the first place). The result is that you may end up in court. This is your last chance to arrive at a repayment plan you can afford. Failing that, the creditor is awarded a judgment for the amount due.

The last phase is aptly called judgment “execution.” Armed with an unpaid judgment, the lender goes back to court and gets approval to put an attachment (garnishment) on your paycheck based on a formula in place in your state.

See related:  Are two debt settlements worse for your credit score than one?

Pay it all, not just what’s on your credit report

Finally, don’t rely on the amount shown on your credit report. Chances are your credit report is only listing the actual amount of the default, not the additional lawyer and collecting fees. These are ongoing expenses – not really credit issues – and do not figure into the credit scoring matrix. Those interest charges and fees will continue until the debt is paid in full.

Whatever you decide, do something!  This debt will not go away and it will continue to eat into your ability to save for emergencies and goals. Plus, who needs to be reminded of a past failure every month for years to come?

I wish you good luck.

Remember to keep track of your score!

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