As published in The Star-Ledger, August 19, 2012
Q. My son has not paid his credit cards in about four years and he hasn’t contacted the creditors. He owes about $20,000. He doesn’t have savings or a checking account, he lost his job and is financially below poverty. He finally started working and does not make much. He has other debts he must pay. If he waits seven years, will the debts be off his credit record? If he applies for a new credit card in the future, will they know about his history?
– Broke in New Jersey
A. Your son is facing quite a few credit issues, and hiding his head in the sand really isn’t the answer.
An important issue is whether the credit card companies have been contacting your son, said Ilissa Churgin Hook, a bankruptcy attorney with Hook & Fatovich in Wayne.
“The credit card companies can commence lawsuits against your son for breach of contract based on his failure to pay the outstanding debt,” she said. “The statute of limitations for breach of contract is six years in New Jersey.”
Hook said the credit card agreement(s) may contain a provision that any litigation between the parties is governed by the laws of another state.
Assuming that New Jersey law applies, your son can still be sued by the credit card companies for breach of contract as he has not made payments in four years, Hook said.
If the credit card companies sue and obtain judgments, they would have certain rights to enforce those judgments, Hook said.
Rights of a judgment creditor include but are not limited to a wage garnishment, a levy on a bank account and the filing of a lien against the judgment debtor’s real property, she said.
“If your son has no ability to repay these debts, he may consider consulting a bankruptcy attorney to determine if these debts are dischargeable,” Hook said. “A discharge in bankruptcy would allow him a `fresh start’ and would prevent current creditors from attaching his wages and assets as he gets back to work and attempts to move forward from his prior period of employment.”
As far as the credit reporting goes, charge-offs – when the creditor lists the original account that went unpaid – remain on credit reports for seven years, said Gerri Detweiler of Credit.com. Subsequently making payments doesn’t change that.
“Collection accounts can be reported for 7.5 years from the date the account first became delinquent leading up to the charge-off,” she said. “Again, making a payment doesn’t change that.”
Detweiler said if the statute of limitations has not expired, trying to avoid his creditors is a risky strategy. Sometimes creditors or collectors will sue debtors shortly before the statute of limitations expire as that gives them additional time to collect and may give them additional collection powers, she said.
She recommends your son get his free credit reports at AnnualCreditReport.com so he can find out what’s going on.
“I understand he may not like what he sees, but if he’s going to learn from this, then he needs to confront it head on,” she said. He then can meet with a bankruptcy attorney to clarify his legal responsibilities and talk about whether he needs to file. Detweiler said another option would be to try to settle the debt for less than the balance owed, if you can maybe help your son with some cash.
Still consider talking to an attorney before making any moves.
- A "Biz Brain" column by Karin Price Mueller