Debt Validation does not apply to Original Creditors

car repossession after bankruptcy reaffirmation

car repossession after bankruptcy reaffirmationQuestion: In 2006, I lost my job and filed bankruptcy.  I reaffirmed my car so I could continue to look for work.  The car ended up being repossessed by Citi-auto finance.  The loan was transferred to Santander Consumer USA.

It was showing on my credit report as an outstanding loan.  Santander has never tried to sue or pursue me for the outstanding balance.  Would it be worth it for me to attempt to have this debt validated since it is now showing on my credit report with a date of last activity of 11/2011 and is showing a balance of $17, 932 even though it is supposedly charged off now? The last payment on the acct is 6/07.

Answer: An unpaid, charged-off debt can legally be reported on your credit history. What’s more, if that debt is transferred or sold to a collection agency, that amount will appear under the collection entry as well — Boom! Now you have a double whammy.

Unfortunately you failed to make payments after you reaffirmed your car loan in bankruptcy. That’s why some bankruptcy trustees refuse to sign off and approve reaffirmation agreements for car loans because it can be a bad deal for the debtor.

While it is certainly understandable you needed a car for work purposes and you were in a dilemma, reaffirmation of a car loan defeats the purpose of Chapter 7 Bankruptcy which is meant to give debtors a fresh start.

The reaffirmation agreement basically asserts that you agree to pay your creditor for the car in exchange for keeping the car. Once you could no longer make payments, the car was repossessed. Even though the car may have been sold at auction you now have what is known as a “deficiency balance” which is the charged-off amount on your credit report.

A deficiency balance occurs when the sale proceeds of a foreclosed or in your case a repossessed property are insufficient to pay the entire balance owed on a secured loan.

Debt validation will not help you in this situation as you are dealing with an original creditor, not a debt collector. Original creditors are not required to validate a debt.

In 2010, Santander Consumer USA purchased $3.2 billion of Citi-Financial Auto’s auto loan portfolio according to a June 24, 2010 press release by Citigroup Inc. Your contract, its terms and the reaffirmation agreement remain the same under your new lender, Santander Consumer USA. They are now the servicers of your auto loan which means they can report to the credit bureaus; send your account to a debt collector; or file a lawsuit against you; and if they win, garnish your wages. When and if the lender gets ready to pursue you, they will.

In your situation it may be best to let sleeping dogs lie. You may not be prepared to deal with the consequences of awakening this creditor. But it is up to you. I believe your choices in dealing with this creditor are limited to:

(1) Disputing the charge-off listing. But keep in mind even if you were to get the listing deleted, they can always put it back on your credit report for the time period from when the account was charged-off up to 7 years only.

(2) Negotiate a payment plan and request they delete the listing once it is paid or at the very least change the charge-off notation to “settled.” Read a question regarding a Chase credit card charge-off, it will give you an idea on how to negotiate with a creditor to settle a charge-off.

Other than the above two options I really do not see what else you can do to get rid of the charge-off listing. The best of luck to you.


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