Charge Offs, Judgments and Liens on Your Credit Report

Judgment!

Judgment! (Photo credit: Wikipedia)

Charge Offs, Judgments, Liens

Charge Offs, Judgments, Liens are among the most difficult problems facing the consumer who is trying to turn his credit score around.  Many people do not really understand just what  “charge offs” are and what can be done about them.

What are Charge Offs of a debt?

A creditor charges off a debt when that creditor has determined that the debt is not collectible.  A charge off is basically an accounting move that takes place usually after 180 days have passed without a payment.  When a debt is charged off that doesn’t mean that you don’t owe the debt anymore.  Many times the credit report will continue to run the debt as delinquent along with the notation that it has been charged off.  This is not fair because you get punished twice for the same negative event in credit scoring. What is also unfair is that the IRS can treat the charge offs as income to you at the same time the debtor is  claiming that you still owe it!  At the very least you can file a letter of objection with the Credit Bureau carrying charge offs insisting that the duplicate running of negative entries be removed.  That is if you are unable to otherwise settle the charge offs.

Charge offs can frequently be settled at a fraction of their face value.  The creditor has given up on the debt and received a tax benefit in the form of a write off.  Anything they get now is found money.  Beware that your credit report will probably be updated with the notation “settled for less than the full amount”.  This is better than owing the money but still represents a negative value to the credit scoring computers until it ages off.

The IRS can treat Charge Offs as Income to You

The IRS does not find it worthwhile to go after smaller charge offs even though the charge offs are technically income to the debtor. Charge offs involving larger amounts of money or people targeted with other problems are at risk. The debt they are ignoring becomes taxable income to them.  Realistically this is probably not a concern to many.  What is a concern is how to go about minimizing the damage the charge offs are causing to your credit score.

Can a Charge Off be Expunged From My Credit Reports?

A charge off can be deleted in exchange for payment just like any other debt.  It frequently happens that debt collectors insist that their contract with the Credit Reporting Agency forbids the practice of deleting charge offs for payment.  They are wrong.  If you are negotiating payment for less than the full amount of the debt and they won’t delete you should beware of the use of the term “settled” or “Settled for less than the full amount.”  These dispositions are entered with a different code and exert more negative influence on the credit scoring algorithm than does the entry “paid in full” or “Paid as agreed.”  Another favorable entry for closing out an account you can negotiate for is “Closed at the request of the borrower” or even simply “closed.”  You don’t want “closed at the request of the creditor.”  Negotiate with the money at hand ready to pay.  Insist on first receiving an email promising that the report to the Credit Reporting Agency will read the way you want it.  It is imperative that all evidence of  charge offs be removed.  Creditors usually don’t respond to objections filed with the credit reporting agency if they have been paid.  If they don’t respond within 30 days it will be deleted by default.

What About Judgments Appearing on My Credit Report?

Judgments on credit reports are now infrequently reported.  Legal judgments are difficult to verify.  Their status frequently changes without notice.  Credit reporting agencies are now being held to higher standards of verification of debts.  They have become less inclined to report most judgments.

Judgments are documents issued by a competent court with jurisdiction declaring that you owe a certain amount of money to a certain person or company.  Not all entries of judgments on credit reports are really judgments.  Go to the Court clerk’s office and pull the file to see for yourself.  The last time I did this I found that the actual entry closing out the case was a stipulation reading “Case is hereby dismissed with prejudice.”  That is not a judgment.  The negative entry had to be removed from the credit report. If it is a judgment that has not been paid you can be confident that you can require the creditor to agree that the judgment can be vacated in exchange for payment.  This can be done by agreement of the parties but it must be approved by a judge.  If both parties have agreed to vacate the judgment the Judge will have no reason not to go along with vacating/setting aside the Judgment. The Court’s file can then be closed out with a dismissal stipulation that does not admit fault or payment.

A paid Judgment presents a much more difficult situation regarding getting it purged from your credit report.  The party who has been paid has little incentive to care about this or to be bothered with cooperating.  It doesn’t hurt to ask though and sometimes a little diplomacy will go a long way.  A paid judgment hurts your credit score much less than an unpaid judgment.  Like everything else the power of a paid or unpaid judgment to hurt you fades as it ages and gets close to the 7 year point where it drops off anyway.

Why Should I Worry About a Lien?

A lien is a priority legal claim putting third parties on notice that a certain amount of money is claimed.  Tax liens are particularly devastating to credit reports.  The good news with the IRS however is that they will now remove liens if back taxes are either paid in full or settled with automatic withdrawals from your bank account.  All you have to do is ask.  Hopefully most state tax liens can be removed the same way.  Liens, like judgments are now reported less frequently because of verification difficulties.  Any other type of legal lien can be removed as a condition of settlement. Mechanic’s liens protecting claims of contractors are another common form of lien. You can forward a certified copy of the settlement agreement to the Credit Reporting Agency yourself.  Make sure it is removed at the City or Town Hall or wherever else it may be recorded.

 

 

 

 

 

 

 

 

 

 

 

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After practicing law for 37 years Edward F. St. Onge, Sr. now devotes all his time to helping consumers achieve a high credit score with amazing speed. Learn the counter-intuitive secrets to credit scoring through his down to earth instructions backed by extensive knowledge of the laws and trends. All of the latest tricks and techniques that they don't want you to know now at your disposal. At last a level playing field for the consumer!

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