Keeping Your Checks
I recently spoke to an accountant about tax problems. He pointed out that there are certain statutes of limitations as to tax disputes with the IRS, and that due to these statutes of limitations many accountants advise people to keep their financial records for at least seven years.
Makes sense. But what’s the preferred time to keep financial records? Is it five years? Seven years? Something more? Something less?
Well, it all depends on why the records are being kept. If you want to feel a bit more snug in your home, then of course it’s possible to fill closets and file drawers with old financial records. At least then you know what you’ve bought, saved, and spent. I remember my mother showing me her account ledgers from the 1940’s. It was delightful to see what she paid for a quart of milk in, say, 1942. And her household expenses were far less when my dad was teaching typing for 25 cents an hour. It can be a great nostalgia trip to look back and remember those days when bread cost 10 cents a loaf, an ice cream cone was 10 cents, a candy bar was 5 cents and a gallon of gas was 19 cents (I don’t think of myself as being old, but even I can remember those prices).
So nostalgia aside, why is it a good idea to keep old financial records for a period of time, or is it even necessary at all?
If you never have a future dispute or misunderstanding with the IRS, or your lender, or anybody else, then you may never have a need to keep any records. But the several statutes of limitations are written, in part, because old records tends to get discarded after a period of time. The thinking is that it’s unfair to allow old, stale claims to be made against people after they’ve tossed all their old records and can’t prove much through their documents.
But the follow on to that line of thinking is that people do tend to keep their written financial and other records for some period of time. And there is good cause for this. If there’s a financial dispute or a claim of any kind, then much of the evidence may well be centered on financial records. For example, an accountant might say that the IRS has a period of several years in which they can come back and challenge a tax return. Just because the IRS doesn’t say something now doesn’t mean they can’t in the future. If a taxpayer can’t produce records to verify the deductions claimed, then that taxpayer could find themselves in a very difficult (and potentially expensive) situation. If a borrower claims to have made payments that can’t be proven later, then it can be both difficult and expensive to resolve a dispute that might have easily been settled if the proper documents were available.
How long does a bank keep copies of checks? Some banks will tell you that they only keep them for a period of a few years. So what happens if there’s a dispute?
Over the past few years, there have been a number of reports about banks not being able to find an original loan agreement, or an original promissory note. What happens if the bank modifies a loan agreement – but if nobody can find that modification agreement? Loans get paid back over a period of 30 years or more. There can be a lot of water going under the bridge in 30 years. If at the end of the day the Bank says that one amount is still due to pay off a loan, but the borrower says it’s something less, then how can such a dispute be resolved?
The best way to resolve such a dispute is through producing a copy of the signed loan agreement, a copy of the signed loan modification agreement, and by producing copies, front and back, of each and every check submitted in payment. That’s a bit of an administrative feat – but it sure makes things easier if there’s a dispute about how much has been paid. Borrowers should also review their statement each month to ensure that their loan payments are being properly credited, and should immediately raise a protest if the numbers aren’t correct. And copies of these statements should also be saved, front and back.
And what if a borrower wants to start making extra payments each month to pay off their loan early? In such a case it’s certainly a good idea to keep a copy of the canceled checks – just in case the extra payments aren’t properly credited to the account. Early payments can have a profound effect on the interest charged on a loan – but only if the extra payments can be documented, or proven, in the event of a dispute. Some loans provide for a fee or a penalty to be paid for the privilege of making early payments.
Proper calculation and application of interest can be complex. Persons with any question about their loan, whether about the interest or otherwise, should contact a trained professional.