As an Asheville bankruptcy attorney, I speak with potential clients about their financial problems, solutions to those problems, and the best path forward for their family.
Many potential clients are rightfully concerned about their credit scores. A bad credit score means paying more for cars, houses, and can count against someone on job applications.
Almost everyone I meet would like to avoid a bankruptcy case if possible. So we discuss their bankruptcy alternatives, frequently the pros and cons of settling debts for a reduced payout on an old credit card or medical account. Sometimes, however, debt settlement can have a distinctly negative effect on credit scores and the opposite effect of what my potential client is looking for.
For example, suppose you have a debt which has been in collections for over 4 years since you last made a payment. Your credit score has likely been damaged from the repetitive, monthly negative reports filed by the debt collector to the credit bureaus. It may be tempting to use a bonus at work or gift from family members to settle that debt permanently, and get your credit score headed in the right direction.
However, settling for an amount less than what is owed can become another negative mark which can remain on your credit report for an additional 7 years. If, in the same situation, a potential client ignored the debt collector, the negative from the past due account would likely be removed in 3 years. By trying to do the “right thing” and paying a lump sum settlement, it is possible to do additional damage to a credit score.
In this example, if the debt collector sued on the debt, the consumer would likely have a valid statute of limitations defense to the lawsuit in North Carolina since it had been more than 4 years since the last payment was made. However, many times a bankruptcy case will end liability if the last payment was made more recently. It all depends on the facts of your case.
This is just one example of how difficult it is to manage financial stress. If you would like to learn more options specific to your financial situation, I would be pleased to speak with you in a free, initial bankruptcy consultation.