Home News Debthunch vs Being Charged Off As Bad Debt

Debthunch vs Being Charged Off As Bad Debt

Debthunch
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Who is Debthunch?

Who is DebtHunch? They aren’t a lender. They appear to be a lead generator selling to companies like Gold West Financial. They are primarily selling to debt settlement companies.

You probably received a mailer with a personalized debt consolidation analysis offering savings of $167 per month with a 0% interest rate and promising to save you $17,887. They are claiming your monthly payment can be reduced from $400 to $233 per month.

Finance and its complicated lingo is not everyone’s cup of tea. This is especially the case if you have found yourself stuck in a spiral of confusing words. Bad debt is one of them that may have left you stressed out. Here’s a breakdown of what bad debt is and what all it entails.

What Is Bad Debt?

Bad debt, as the name suggests is the inability for a financial obligation to be paid. This can be on your credit card, a personal loan taken from a bank, or even your medical bills. It comes as a charge off on your credit card report which indicates that your creditor i.e. the entity you have borrowed from is assuming you have no plans to pay back the money that you have borrowed.

This can be damaging for your credit card score – it can pull it down and weaken your financial credibility. What’s worse is if your creditor decides to sue you for the payment.

Charge Off – What It Is

A charged-off account is a debt that has been removed from the creditor’s balance sheet because it has become delinquent. The creditor has signed it off and assigned it as a status entitled ‘bad debt’ – just like bad apples that you remove from your fruit basket.  It is a financial loss for the creditor and is often transferred to a debt buyer or collection agency that then seeks to pursue it for the creditor.

This however doesn’t erase off or delete the entire debt, it just changes its form. You still are legally liable to pay it as a debtor and may potentially have to owe a debt to the collection agency at hand.

When Can Debts Be Written Off?

Missing a payment on your credit card or loan for an extended period i.e. between 120 to 180 days of nonpayment can lead to your account being written off. Missing a payment once or twice won’t lead to your debt being written off though. Thus, if you do nothing and let the debt pile up for days, the creditor can then charge it off to cut their losses.

Your creditor may however request you for payment by calling or sending in a letter of notice before going ahead with the write-off.

This can hurt your FICO credit score by up to 35% and the write-off can stay on your credit reports for up to 7 years. The good news however is that there are chances of having it removed from your credit card report by paying it off.

The Consequences – Getting Sued?

The question on your mind may be whether you can be sued for being charged off bad debts? The answer to this is a yes. But, the time period for which you can be sued by your creditor for a bad debt depends on the state law.

The limitations on debt vary from state to state. Thus, the time period for creditors to collect unpaid debts after the first payment is missed differs. This is known as the statute of limitations and varies according to the type of debt as well. For instance, if you are unable to pay back on your credit card, the creditor may have 3 years to collect the payment. For medical bills and car loans, the time period may extend to 4 or 5 years.

Here is something to remember – Discussing your options with your creditor and agreeing to partial payment or a new payment plan can restart the debt. Thus, you want to be careful when speaking to them on the phone, in person, or even via email.

The Options On The Table If You Are Charged Off

If it’s way past the terms in your statute of limitations, then you can request debt validation from your creditor.

This essentially implies that the creditor has to verify and validate the debt that you owe is yours, to begin with. You can do this by sending a letter to the debt collection agency. After this, the debt collection agency will temporarily stop making an effort to get the payment from you till the debt has been validated as belonging to you.

On the other hand, if it is proven that the debt does belong to you, then you might want to explore your options. Some of them are as follows.

  • You can negotiate a debt settlement with your creditor
  • Get in touch with a credit counseling agency to help you with debt management. This can help you stay updated and take a proactive approach towards making timely payments.

What To Do If You Are Sued?

If you are sued for bad debt, there are several options on the table that you can choose from. Once you have been served proper notice, here are some of the things you can do.

  • Get in touch with your creditor and agree to a new repayment schedule. This can help avoid a lawsuit and further damage to your credit score.
  • Negotiate the debt settlement with your creditor. Here the creditor may agree to settle for less but it can hurt your credit card score and is often the last option.
  • Go to court and challenge the lawsuit – this is a wise option given that the debt does not belong to you.
  • Do nothing – the creditor is sure to win the lawsuit here as the court may rule in their favor. In most cases, if your state allows, the creditor may also place liens against your property and garnish your wages. You definitely don’t want this.

Debthunch – The Bottom Line

Bad debts can hurt your credit score in ways you would not have even imagined. To stay clear of this, it is best to stay up to date with payments and negotiate payment plans in case you miss a payment. Doing this right away can benefit you in the long run and prevent the bad debt from showing up on your credit report.

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