People we talk with often think that if a default is removed from their credit file they won’t need to pay an amount owed. I can understand why people think this way however in most cases the payment or settlement of an account is an important part of the overall solution for the client.
It is important to understand that the payment of an account and a default being removed from a credit file are not necessary related. If a default is removed from a credit file on the basis of fault in the process followed by the credit provider this does not mean the debt is automatically extinguished, in fact it will almost certainly not be. This means that a person can find themselves in a position were the default is no longer recorded on their credit file but the debt remains due and payable.
In this scenario a credit provider is likely to:
1) Relist the default
The credit provider will have begin the process again and issue a demand notice and wait the necessary time before listing however this option is available to them.
2) They may pass the debt on to a collection company
This is the most likely direction a credit provider will take. Once the debt is passed on to a collection company the debt collector has the option of listing a new default or even obtaining a Court Judgment.
Given there is often a great deal of work required to have a default removed from a credit file the prospect of a new negative credit listing being recorded is counter productive and definitely not in the interests of the consumer.
The Statute of Limitations is also relevant. The recording term of a payment default is five years, regardless of if the account is paid or not. A lot of people think that if their default is unpaid and it is almost five years old and about to fall off their credit file they will not have to worry about the debt, unfortunately this is seldom the case. For matters other than a Court Action the term of the Statute of Limitations is six years, this means that even after a default has fallen off a credit file organically a credit provider still has a further twelve months to try and recover the funds. It’s often in this twelve month period that a credit provider will obtain a Court Judgment or pass the account onto a debt collection company
For this reason we always talk with our clients about paying or settling the account as a part of the credit repair process. Regardless of if the default can be removed from their credit file we believe there is significant benefit in resolving the account as this will stop any chance of the matter coursing problems at a latter date.
It is also worth mentioning that there is often a very good opportunity to negotiate debts in this position and often settle for a reduced about, our company Just Budget is an active debt mediation company and is often able to assist people wishing to reduce and settle their debts.