Question:
Dear Steve,
I live in Georgia and I have a T-Mobile bill in collections account that has been on my credit since 2015. It was an account that a family member opened in my name and I didn’t want to file a police report (I know crazy).
While the collection appeared to be dormant, it was recently purchased by Sothwest Credit Systems (January 2020). They began reporting monthly delinquencies on my credit which started even before sending me a letter in the mail in (April 2020) giving me 30 days to request more details, which I did via certified mail without accepting any responsibility for the debt. My credit score immediately dropped a shocking 87 points as a result of this.
What is the best way to tackle this issue with the least negative impact on my credit score? I was told that if I settle, the clock starts over and this could be on my credit for 7 additional years. Should I seek professional assistance? If so, from what type of organization?
Kimberly
Answer:
Dear Kimberly,
I think you have competing clocks confused. There is the Statute of Limitations (SOL) clock and the credit reporting clock.
On the credit report a negative account may be listed for up to seven years and 180 days from the time it went delinquent.
The SOL clock has to do with if you can make a claim if sued, that the debt is outside of the time to sue as determined by your state law.
The fact the new debt owner or collection agency just started reporting the account is not material. There is no requirement that any debt is reported on a credit report. There is also no requirement that you be notified before any account is reported to your credit report. It is up to the consumer to monitor all three of their credit reports, which can report different accounts and have different credit scores.
The best way to deal with this old but valid debt, which you acknowledge, is to pay the balance in full. You can also elect to settle the debt and that part of the debt forgiven will be shown as a bad debt and if the amount forgiven is more than $600 you should receive an IRS 1099-C form from the creditor and you may have to pay income tax on that amount is you are not insolvent.
A settlement won’t restart the SOL clock unless you make settlement payments over time instead of one lump sum payment. The SOL clock can restart when partial payments are made. But neither settlement option will restart the credit reporting clock.
And now you know why it is always better to report the account opened by identity theft, even though it was done by someone you know. I get it. It’s tough to do. But as you can see, you pay for the fraudulent activity for years and years.
If you have any more questions on this, please post them in the comments below.
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Asked question about old phone bill.
Answered.