FHA Loans With Collections And Charge Off Accounts


This ARTICLE On FHA Loans With Collections And Charge Off Accounts Was UPDATED On June 14th, 2019

Many folks who had a job loss or lost their business due to the tough economic times we are currently going through are pressured with mounting debts.

  • Collection agencies and bill collectors are relentless and do not care about excuses. 
  • Consumers who are behind on bills, they will constantly get collection calls by collection agencies.
  • Collection demand letters are mailed by collection agencies using law firm letterheads. 
  • Credit scores will probably fall in the low 500 with recent collections being reported on credit report.
  • Getting new credit will be challenging, however, consumers can re-establish credit with secured credit cards.
  • Recent collections are not viewed favorable and will plummet credit scores.
  • These credit collection agencies and bill collectors are on commission so phones will be constantly ringing. 
  • Collection agencies and bill collectors want to collect their commissions by collecting the outstanding balance of past due debts. 

Collection Agencies And Consumer Rights

Nobody wants to stiff a creditor but there are times in people’s lives that they run into financial hardships.

  • I know of hundreds of families who have become victims of the financial and real estate collapse of 2008
  • Most folks that lost their jobs or had to close their businesses are trying to recover and put food on the table
  • Many have settled for jobs that only offer a fraction of what they used to make
  • How can they pay their previous large credit card bills, repossessed auto loan deficient balances, or previous installment loans when they can barely pay their utility payments
  • Trying to recover is extremely difficult and stressful and having these aggressive non-relenting collection agencies or bill collectors do not help matters

Do Not Take To Threats

Some collection agencies and bill collectors are so relentless and many will make threats.

  • Collection agencies can take matters further by filing suit 
  • If consumers get sued, they need to get served
  • If consumers do not appear in court, the judge will issue a judgment
  • Not too many creditors will take a consumer to court for a judgment
  • Many folks who are going through a financial crisis most likely will have several judgments along with outstanding collections
  • If the collection agencies and bill collectors really want to pursue in collecting the debt, they can even try to garnish bank account and/or wages
  • Most collection agencies and bill collectors will not go to this extreme but if they do, it could make life very inconvenient
  • There are many options for consumers in dealing with collection agencies and bill collectors
  • As the old debt ages, collection agencies will eventually give up

Wage Garnishment

Depending on the severity and aggressiveness of the collection agencies and bill collectors, they do have several options.

  • If they are so relentless where they have gone as far as trying to garnish wages and bank account, consumers may consider filing for bankruptcy and consult with a bankruptcy attorney
  • The day consumer file bankruptcy, it halts all collection activities from collection agencies and bill collectors
  • There are Chapter 7 bankruptcy protection and Chapter 13 bankruptcy protection. 
  • Consult an attorney for which bankruptcy program
  • Bankruptcy protection is collection agencies and bill collectors biggest fear and enemy
  • By filing bankruptcy, creditors need to cease and desist all collection activities

FHA Loans With Collections And Charge Off Accounts Versus Debt Settlement With Collection Agencies

There are alternative to filing bankruptcy. Consumers can explore the idea of debt settlement. Debt Settlement is when consumers can settle the debt for a fraction of what they owe them and enter into a payment plan.

  • For example, consumers who owe a creditor $1,000, can see if the creditor will settle the debt for $ 500
  • Consumers can see if creditors will take $50 per month for ten months with no additional interest. 

FHA Loans With Collections And Charge Off Accounts And Statute Of Limitations

  • The final option does not make any payments and ignore them
  • Eventually, all of the debts will not be collectible because of the statute of limitations
  • Statute of limitations varies from state to state
  • In most states, the statute of limitations is 5 years for most debts like credit cards
  • Consumers who decide to ride out debts until the statute of limitations kicks in, do make partial payments on any debts
  • Making partial payments on debts reactivates the date of last activity and renews the statute of limitations
  • Derogatory credit remains on credit report for 7 years from the date of last activity
  • After 2 years, it normally does not have any impact on credit scores, especially if rebuilding credit with secured credit cards or other credit

Qualifying For FHA Loans With Collections And Charge Off Accounts

  • Home buyers can qualify for FHA Loans With Collections And Charge Off Accounts
  • Although some mortgage lenders might require borrowers to pay an old bad collection account off, this is not HUD Guidelines but rather FHA Lender Overlays

Home Buyers with open collection accounts and charge offs needing to qualify for FHA Loan with a lender with no overlays, please contact me us at Gustan Cho Associates at 1-800-900-8569 or email us at gcho@gustancho.com .

Related> Unpaid Collection Accounts

Related> Collection Accounts Lending Guidelines

Related> Debt Collectors: How to deal with them

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