Roadmap Roadmap

The 5 Mile Markers

Mile Marker 2: Pre Charge-Off

Step One: Determine Your Debt Relief Start Date

The statute of limitations clock starts ticking beginning on the day of your last payment, or the date your account is charged off. Check with your state's Attorney General's Office on the exact method for calculating your statute of limitations, then go to your calendar and put a big red X on that date. After this date, your debt is considered a time-barred debt and creditors can no longer sue you to collect, but the clock doesn't start ticking until you stop making payments.

Regardless of your state's statute of limitations, we see the majority of lawsuits happening in the first couple years (though you can technically be sued up until the statue of limitations expires).

Action Steps:
  1. Determine when you made your last payment to each of your accounts.
  2. Mark your calendar for 180 days from the due date of your last payment(s); that is when the original creditor will charge off your account.
  3. Check the statute of limitations in your state and how to calculate it.
  4. Mark your calendar on the date your debt(s) will become time-barred.
  5. Do not make any more payments unless you choose to settle the account; doing so will reset the statute of limitations clock.
Step Two: Start Saving as Much Money as You Can

Save as much money as you can. You'll set aside these funds for two main purposes. One, you can use that money for settlements in case you are sued and are not able to have the case dismissed (or you reach an acceptable settlement prior to being sued). Two, since the likelihood of being sued is relatively low, once the statute of limitations runs out on your debt you can use your savings to invest in your financial future.

So no matter what, don't spend your excess cash—save it!

Let's take a quick step back. I have three reasons for helping you get out of debt:

  1. I want to help you get as much debt relief as possible.
  2. We don't like repeat customers! I want to educate you about the cycle of debt and interest that got you into this situation in the first place, and teach you better habits.
  3. I want you to use the power of compound interest in your favor to help you build financial security.

So stop making payments and start saving today, preferably in an interest-bearing account.

Action Steps:
  1. Start saving as much money as you can.
  2. Keep those savings in a bank account out-of-state.
  3. Don't commingle funds from protected income like pensions and Social Security.
Step Three: Protect Your Assets

Remember when I mentioned how difficult it is for a creditor to enforce a judgment? There are things you can and should do right now to make it even more difficult.

Take a quick drive to the next state, or better yet open a savings or brokerage account online (just make sure there are no in-state offices). Remember, a judgment is limited in jurisdiction—it is only good for the state in which it was awarded. Maintain your current local accounts, but keep most of your actual money out of state.

Next, see if your state allows for a Homestead Declaration and if you are required to file a declaration (some states offer defacto protection). In practical terms, this means a certain dollar value of your home is protected from your creditors.

Lastly, to garnish wages a judgment creditor needs to know where you work. Don't make this any easier by displaying this information on your credit report.

Action Steps:
  1. Create an out-of-state savings account.
  2. Make sure you and your spouse have separate accounts, regardless of whether you live in a community property state.
  3. Check to see if your state allows for a Homestead Declaration; if it does, file the form immediately.
  4. While you're at it, see if your state allows a Homestead Exemption that reduces the amount of real estate property tax you are required to pay.
  5. If you are a W2 employee, consider becoming self-employed and removing any employment information from your credit report.
Step Four: Give Thought to Settling with the Original Creditor

If your account(s) are still with the original creditor, you may choose to settle the account after 4-5 months of non-payment, just before the original creditor charges-off your account. In many cases, the original creditor will initiate a settlement offer—you won't even have to raise the subject yourself.

Either way, for most people the biggest problem with settling is that you will need enough cash to make a lump sum payment in order to settle your debt. Make sure you thoroughly review the pros and cons of debt settlement in the Settlement section so you make an informed decision.

In the end, do what is right for you, but don't wait until the original creditor calls to give the issue some thought. Start thinking about it today.

> Mile Marker 3: Debt Collectors