Debt in collections without notice to account holder

[qurice]

What is the name of your state? Texas

About 3 years ago my mother-in-law and her sister both opened accounts at a local furniture store for her sister to purchase furniture. Her sister (and her husband) opened an account, but the credit extended did not cover the entire purchase, so that's when they asked MIL to open account to cover the rest. MIL has a history of financing/co-signing for family members for MANY years, and this is the first time it's become an issue.

My MIL rather than co-sign, opened an account of her own, entirely in her name and made the remaining furniture purchase. Her sister and husband were to make the payments, and for a while they did. MIL would sometimes get a notice that the payment was late, and confirm with sister that it was paid.

Last week, MIL gets a call from a collection agency stating this bill hasn't been paid in 6 months. She did not get any notification about the account not being paid, or to collections. It seems that sister and her husband were able to have the mailings directed to their home, so MIL had no idea there was a problem.

Also her one major credit card limit reduced from a $25k limit to $13k (with about a 10k balance on it) due to the delinquency/collections

This comes at a bad time because she was starting to do some needed home rennovations and planning on buying one more car (her current is 16 yrs old) before
retiring in a few years and is lost on how to proceed. She is reluctant to discuss it with her sister to find out what is really going on and why they didn't pay, and is hurt because she would have made the payments for them had she known they couldn't.

Sorry so long, but trying to be thorough...

So the questions are:

1) Does she have any recourse because the notifications were redirected without her knowledge? I would think the bank handling the stores financing would verify who they were talking to.

2) If she pays off the entire amount owed, about $6800, does the collection agency have the ability to clear it from her credit like it never happened? She has the $$ to pay, but it will pretty much wipe out her savings.

3) What can she do about the CC company who cut her credit limit for a trouble on an unrelated debt?

Thank you for any advice.

[Ladynred]

1) Does she have any recourse because the notifications were redirected without her knowledge?

Not really. Your MIL should have realized that she was no longer getting statements on HER account.

I would think the bank handling the stores financing would verify who they were talking to.

You think wrong, they don't give a rat's patoot, they only care that they're getting PAID.

2) If she pays off the entire amount owed, about $6800, does the collection agency have the ability to clear it from her credit like it never happened?

Unfortunately, no. The collection agency will take her money and leave the collection on her reports as a paid collection - which is still a derogatory notation only marginally better than an UNpaid collection in the eyes of creditors, it will NOT up her scores.

3) What can she do about the CC company who cut her credit limit for a trouble on an unrelated debt?

Again, unfortunately.. nothing. If she looks at her credit card agreement there is likely a clause on Default and Universal default - which means if you don't pay some other account, they can, and will, jack her interest rate and cut her limits. She can TRY a 'good will ' letter, but don't expect much.

You MIL needs to get some gumption and confront her sister about what they have done to HER credit ! She could even sue them to get the money back, not that it would do any good.

[Skapare]

Originally Posted by qurice

Last week, MIL gets a call from a collection agency stating this bill hasn't been paid in 6 months. She did not get any notification about the account not being paid, or to collections. It seems that sister and her husband were able to have the mailings directed to their home, so MIL had no idea there was a problem.

Was she paying on the account? If a statement was missed in month 1, why didn't she contact them at least in month 2 about it? How can you suddenly stop paying on a monthly account, for 6 months in a row, and not know it, whether statements are coming or not? Is she suffering from a documentable memory problem where she would not know of a debt unless she gets a statement for it?

Originally Posted by qurice

Also her one major credit card limit reduced from a $25k limit to $13k (with about a 10k balance on it) due to the delinquency/collections

That is a common practice. CC companies routinely check the credit worthiness of their account holders and adjust things like credit limit, interest rate, and/or minimum payments, according to the new credit worthiness. If your MIL's credit worthiness dropped (which it would with a deliquincy on her credit report), then this is expected.

Originally Posted by qurice

1) Does she have any recourse because the notifications were redirected without her knowledge? I would think the bank handling the stores financing would verify who they were talking to.

You need to find out where the statements or notices went. You also need to find out what she did about not getting statements regularly.

I have many times failed to receive a monthly billing statement for some reason (and in only a few found out why). I call the company the account is with and ask for them to send another and verify that they have the correct address.

Originally Posted by qurice

2) If she pays off the entire amount owed, about $6800, does the collection agency have the ability to clear it from her credit like it never happened? She has the $$ to pay, but it will pretty much wipe out her savings.

That's money she would not have today if she had been paying regularly (whether getting a statement or not)?

Whoever put the entry on the credit report is the one who can update it. But updating it to say that she had always been paying on time would not be a correct statement. If she pays in full, they should update it to say paid in full.

Originally Posted by qurice

3) What can she do about the CC company who cut her credit limit for a trouble on an unrelated debt?

First get the other matter cleared up and verify that a "paid in full" shows on the credit report. Then call the CC company and tell them there was a problem with that debt and that it has now been paid and was paid in full. They may increase the credit limit partially. They may wait a year or two to increase it.

[Ladynred]

You need to find out where the statements or notices went.

She KNOWS where the statements went, she said so !

If she pays in full, they should update it to say paid in full.

NO, it's in collections, it will simply show as a 'paid collection' - still a negative and will NOT repair her credit.