What Does Settling A Debt Buyer Suit Do For My Credit Report?

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I received a question from a gentleman in New York who requested and read our report “Five Secrets Debt Buyers Who Sue You Don’t Want You To Know” – the report is based upon our experience with well over a hundred debt buyer lawsuits in Alabama but it can also be of some help to consumers outside of Alabama as it discusses general principles of the law.

The question – and its a good one – is:

Could a settlement with a debt buyer (before any judgment) look better on my credit reports than a win against them in court (because they couldn’t prove the debt)?

More specifically:

Your “Five Secrets” report explains that a debt buyer who loses in court is required by law to remove the debt from my credit reports. Must they remove the entire collection account? Does the original lender’s account show any change?

Alternatively, if I insist as part of a settlement agreement, can they remove their entire collection account and show the original lender’s account as paid?

Let’s take these one at a time….

Could a settlement with a debt buyer (before any judgment) look better on my credit reports than a win against them in court (because they couldn’t prove the debt)?

Not really. It might be just as good but it won’t be better in this sense. When you win your debt buyer lawsuit (at least in Alabama) this means you don’t owe that debt buyer. So that debt buyer must remove the account that it put on your report.

Now in a settlement you can accomplish the same thing but if you don’t insist upon it then the debt buyer will report your account as paid via settlement or “settlement for less than full balance” which generally is a negative. Better to have the whole account removed than to have any collection account – even if paid.

Your “Five Secrets” report explains that a debt buyer who loses in court is required by law to remove the debt from my credit reports. Must they remove the entire collection account? Does the original lender’s account show any change?

Yes the entire collection account must be removed in Alabama. If it is not after you dispute it with the credit reporting agencies, then you have the option to sue the credit reporting agencies and the debt buyer.

The original lender’s account is not affected by the victory over the debt buyer. The original creditor was not a part of the lawsuit so the judgment has no affect on the original creditor.

Now, if the debt buyer was reporting the account then the original creditor must show the account as having a zero balance and “sold/transferred” on the notes.

Alternatively, if I insist as part of a settlement agreement, can they remove their entire collection account and show the original lender’s account as paid?

Yes if you can get the debt buyer and original creditor to agree. I’ll tell you this – most debt buyers will agree if you push them on this. But generally they don’t control the original creditor and so it may be difficult to get the original creditor’s account to be deleted or paid.

But the beauty of a settlement is that it is a voluntary agreement where the parties make up the terms so you can ask for it….

I hope this has been helpful to you – I’m including the section of our Five Secrets report that prompted these questions:

SECRET NUMBER FIVE – WHEN DEBT BUYERS LOSE, THEY MUST CORRECT YOUR CREDIT REPORTS
When you win your debt buyer lawsuit it normally means that you do NOT owe the debt buyer any money. A judge has ruled that there is no obligation for you to pay the debt buyer. If you don’t owe the debt buyer any money, then the debt buyer must take this off of your credit reports. They hate doing this!

The reason they hate doing this is because leaving false information on your credit reports is one of the best ways to force you to pay something you don’t owe. We call this “parking an account” which gives you a sense of what and why they are doing. They leave or “park” this false information on your credit reports in the hopes that one day when you go to refinance a house or buy a car or apply for a bank job or military job that this will prevent you from getting the loan or the job. Your only quick solution, they believe, is for you to pay this false debt. It’s as if they parked a broken down car in your front yard. Eventually a time will come when you will pay to get rid of this even though it is not yours.

But now you know their dirty secret that they cannot keep this on your reports. So, what should you do? You have several choices:

1. Do nothing and hope that the debt buyer does the right thing;
2. Contact the debt buyer directly and ask the debt buyer to do the right thing; or 3. Dispute this false account with the consumer reporting agencies (Equifax, Experian, Innovis, and Trans Union) using a Fair Credit Reporting Act dispute.

The words that come to mind on the first option are “Good luck.” We have seen clients who handled (and won!) the debt buyer case on their own and who come to us six or nine months later and the false information is still on their credit reports.

The second option has some appeal as the debt buyer might realize you know about the obligation for the debt buyer to correct your credit reports but here is the problem. Under the Fair Credit Reporting Act (FCRA) you can’t sue the debt buyer for putting false information on your credit report unless you have first disputed with the credit reporting agencies. You can sue under the Fair Debt Collection Practices Act (FDCPA) but we have seen debt buyers taking the bizarre position that the FDCPA does not apply to them when it comes to credit reporting. Bottom line, some debt buyers believe they can intentionally put false information on your credit reports and you can’t touch them until you do a proper dispute under the FCRA. This is a bogus position they take but some do take it which means the false information on your credit reports will stay. This leads us to the third option.

The third option, doing a dispute under the FCRA, is the safest approach. Sometimes the credit reporting agencies actually remove false information. It’s rare but it does happen occasionally. Sometimes a debt buyer will realize that you know this fifth secret and will remove the false information. But if the credit bureaus and the debt buyers don’t follow the law, then you can sue them. That’s why we like this approach the best – it gives the debt buyers a chance to do the right thing. If they do, then great. If they don’t, that’s ok also as we can sue them to encourage them to follow the law.

If you would like more information, and in particular our free report on the Five Secrets Debt Buyer’s Don’t Want You To Know About, contact us at 205-879-2447, through our website. We wish you the best!

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