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Charged off debts do not go away

by Dorota Trzeciecka on August 28th, 2010

Do you ever wonder what happened to the debt that you could not pay?   The bank, or another creditor, after trying to collect it,  wrote it off as a loss on their books.  The non-payment of debt was reported to the credit bureau, and it now appears as a charge off on your credit report.  You, as most people, believe that this is the end of your problem, and you come to terms with having the negative mark on your credit report.  You had moved several times since that time, and forgot about that pesky creditor from the past.  

Years had gone by.    You now have a well-paying job.   You are even able to put awaymoney every month for a down payment on your dream house.  Then, one day, you go to the ATM to withdraw money from your bank account and you discover that you have no money – you learn that your money has been garnished by a collection agency.   There is no use yelling at the bank personnel.  They can’t give you your money back without a court order.  So, you go and see a collection attorney, and spend the money you do not now have, to fix the old problem.   

So, what did happen after a debt that you did not pay was charged off by your bank?  Unfortunately, the debt did not go away.   Many of my clients are genuinely surprised when they hear this.  What happens is that banks sell the charged off accounts to a collection agency, in bulk, for a discounted price.   The collection agency then initiates new collection efforts.   If they are unsuccessful in their collection efforts,  they will file a court action for unpaid debt and will obtian a judgment against you.  Many times it will be a so called default judgment.  The default judgment is entered by the court when you do not file a response to and defend the lawsuit against you.  The collection agency then waits for four or five years, or even longer, until, when you least expected, it discovers assets that it can attach through the legal process like garnishment.   It can do that because once the debt is turned into a judgment, the judgment is good for ten years, and after that, it can be extended for additional ten years.   Remember, collection agencies are very persistent and very skillful in discovering assets, including information about bank accounts, even when such information is confidential.   So, what should you to do to avoid putting yourself in such a predicament in the first place?  Negotiate with the bank as soon as you know you can’t make the payments.  Do not ignore letters from collection agencies or legal service of process (by legal service of process, I mean a complaint and summons that you receive from a process server).   You stand a better chance to negotiate early on in the process.  Once the collection agency garnishes your bank account, it is not as willing to negotiate a lower payment — it has no incentive to do it.  For the most part, you need to be prepared to part with some of your money, unless you can claim your money as exempt from garnishment pursuant to Florida exemption statutes..    


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