So I made some bad choices, and now my loan from Upstart ended up in collections. It got sent to FMA, and they mailed me about it.
I was planning to pay most of the balance, but now they sent me another letter saying they’ll settle for $630 instead of the full $1,400. If I pay that, they say it’s settled, and I don’t owe anything else.
What happens to the rest of the debt? First time dealing with this, so I’m not sure how it works.
The rest is usually written off, but you might have to pay taxes on it since it can be counted as income.
How old is this debt? When was your last payment? And what state are you in? Check your state’s statute of limitations (SOL) to see where you stand.
@Dane
It’s ridiculous that you can owe taxes on a debt like that.
Charley said:
@Dane
It’s ridiculous that you can owe taxes on a debt like that.
Is it though? If you borrow money and never pay it back, it’s basically free money. I say this as someone dealing with two civil suits over unpaid debt.
@Kenan
Yeah, but what about people who actually made payments for years? You don’t get to write off all the interest you paid. And payday loans? You can end up paying back double what you borrowed.
It’s just another way the system favors businesses over regular people.
@Charley
You’re not wrong. I got caught in a payday loan cycle when I was younger… it was brutal.
Debt collectors buy old debts for pennies on the dollar. Whatever you pay them is mostly profit while the original lender writes off the loss.
If you settle, the account will be marked as paid, but it’ll still show as a collection on your credit report. It won’t help your score much.
The general rule is that if you can settle for 50% or less and it won’t mess up your finances, go for it. Just make sure you’re still within your state’s statute of limitations before paying. Also, if the forgiven amount is over $600, you might get a 1099 form and have to report it on your taxes.
@Logan
I’m thinking of just paying the full balance since I can afford it in a couple of weeks.
One more thing—should I pay FMA or go through Upstart? Their website still lets me make payments.
Brett said:
@Logan
I’m thinking of just paying the full balance since I can afford it in a couple of weeks.
One more thing—should I pay FMA or go through Upstart? Their website still lets me make payments.
If Upstart is still letting you pay through their site, they probably didn’t sell the debt. They just hired the collection agency to get the money.
If that’s the case, you can call Upstart and ask them to recall the debt from collections. If they do, the collection agency has to remove it from your credit report. If they refuse, you can try negotiating a pay-for-delete with the collection agency, meaning they remove the mark from your credit in exchange for payment.
Either way, get any agreement in writing before paying.
@Haru
Just checked my credit report—FMA hasn’t reported anything yet, and it’s been a couple of months. Upstart is listed as ‘charged off,’ but there’s nothing under collections.
If I pay now, will the collection still show up later?
@Brett
If they haven’t reported yet, settling now might prevent it from ever showing up. Once they get their money, they don’t really have a reason to report it.
If Upstart refuses to recall it, just make sure you get the settlement agreement in writing. You don’t want to pay and then have them come after you for the rest later.
Are you still within your state’s statute of limitations?
@Haru
Yeah, I called Upstart when I got the letter from FMA. They said I had to deal with them directly.
I’m in California, and I think the statute of limitations is four years. This debt is only a few months old.
@Brett
If it’s that new, then yeah, you’ll probably have to go through FMA. Just negotiate and pay as little as possible to close it out.
Brett said:
@Logan
I’m thinking of just paying the full balance since I can afford it in a couple of weeks.
One more thing—should I pay FMA or go through Upstart? Their website still lets me make payments.
Ignore Upstart. Once they sent your debt to collections, they washed their hands of it. Just deal with FMA.
@Logan
Got it, thanks.
They’ll probably send you a 1099 next year, so the amount they write off could count as income. Keep that in mind when deciding how much to settle for.
Before you pay, make sure they actually own the debt. A lot of debt collectors can’t prove it and just hope you’ll pay up.
Check this link for your rights: https://www.consumerfinance.gov/ask-cfpb/what-information-does-a-debt-collector-have-to-give-me-about-the-debt-en-331/
I had a $14k loan disappear because the collection agency couldn’t provide proof. No way was I paying some random company without proper paperwork.
If it’s legit, negotiate as low as possible. A lot of these agencies will settle for way less than what they ask for. Just make sure the agreement says the debt is fully settled.
Try negotiating a lower amount. These agencies pay almost nothing for old debts, so they’ll still make a profit even if you settle for way less.
And whatever you do, get it in writing. You don’t want them coming back later saying you still owe money or selling the leftover balance to another collector.