You’ve got an old bill, way more than 180 days late. It may even be reduced to a judgment. There seems to be a new collection agency every 6 months; you are adept at screening phone calls and ignoring letters. But should you take action and work out a deal? The answer is: it depends. Firstly, you need to be aware of certain time limitations in California.
The statute of limitations to file a lawsuit in California, generally, is 4 years on a written contract. This means that if it has been more than 4 years since the debt 1st came due or since you made your last payment, the creditor’s lawsuit against you may be time barred. If you are close to the 4 year mark, you may not want to make a payment on the debt, because that will renew the statute of limitations for the creditor, who now will have an additional 4 years to sue since the date of the last payment. The same rule applies if you make a payment outside of the 4 year statute of limitations; the creditor will have an additional 4 years from your payment date.
The next time frame to be aware of is the 7 year rule for delinquent accounts. Generally, pursuant to local and national credit reporting deadlines, once a debt has been delinquent for more than 7 years, it must no longer be reported to the credit bureaus (Equifax, Transunion and Experian are the 3 main bureaus). Once a delinquent account drops off your credit reports, it will no longer drag down your credit score. The takeaway is generally, you should only settle debts within the 7 year period, and as you draw nearer to the 7 year deadline, you may want to forego trying to settle.
The last time period is the 10 year time period for validity of judgments in California. Judgments are only valid for 10 years, but they can be renewed for an additional 10 years by simple application by the creditor. The maximum a judgment can be valid is 20 years total. You want to avoid settling debts when you are near the 10 or 20 year marks with this rule in mind.
Additional considerations in determining whether to settle involve your income, assets, family and your future financial outlook. If you have assets and income, you may want to settle. Judgment creditors can garnish wages, levy bank accounts and lien real estate. If you are older with modest assets and income, there may be little reason to settle, especially if you have no real estate and you are living on social security or pension income, which assets are generally protected or exempt from the judgment seizure process. Also, keep in mind if a creditor does not yet have a judgment and has not yet sued you, they may not have the resources or inclination to take the time and trouble to actually sue you and obtain a judgment. Litigation is time consuming and expensive, and not cost effective for the creditor unless there is a reasonable possibility of recovery.
Ultimately, whether or not to settle is a personal decision, and careful consideration should be made to the foregoing factors. You should seek out a consultation with a qualified professional to help you decide. Often, it helps to have an evaluation from a professional who is not emotionally invested in your life and who can give you a neutral evaluation.
The best settlements of all can be reached where you can afford a lump sum settlement. You get out of your fix quickly, often for a deep discount. If you cannot afford a lump sum, the creditor may be open to installment payments, but don’t expect any sizeable discount of the amount owed (but do expect a freezing of the interest rate).
Chekian Law Office is a full service law firm, which can help you with your debt settlement issues. Michael Chekian is a Certified Specialist in Bankruptcy Law through the California State Bar Board of Legal Specialization, with meeting room locations throughout Southern California. Call Mike and his staff today for a free, confidential and friendly evaluation of your situation. 310 390 5529; mike@cheklaw.com.