By: Robert J. Nahoum
You lost your job or got cut back on hours.Â You got sick or injured an can no longer work.Â Whatever the case, falling on hard economic times is an all too common reality for so many Americans.Â Disability and unemployment pay just enough to keep the lights on.Â You are not lft with enough money at the end of the month to pay your credit card and are not asking yourself, what will happen if I donâ€™t make my monthly payments?
WHAT TO EXPECT
Default -Original Creditor
A debt is created at the moment the consumer misses a payment to his or her credit card company. The credit card company will usually report the late payment to the credit bureaus, assess late fees and raise the interest rates.
In-House Debt Collector
If the consumer continues to miss payments, the creditor will usually send the account to the inÂ house collections department. In-house collectors will send letters and make telephone calls to the consumer in an effort to collect the debt.
If 180 days go by without a payment, the creditor will usually â€œcharge offâ€ the debt, or write it off as a bad debt. Many consumers are confused about what â€œcharge offâ€ means and may even believe they no longer owe a charged-off debt. In fact, however, that is not the case. The charge-off is an accounting practice internal to the creditor; the consumer does continue to owe the charged-off debt.
Outside Debt Collector
At some point, the creditor will likely send the debt to an outside collection agency. Outside collection agencies vary widely in terms of the tactics they use. Some collection agencies treat consumers nicely, while others are more aggressive. All collection agencies will send the account back to the original creditor if they do not successfully collect the debt within a specified period of time. It is common for a creditor to send a debt to several different collection agencies.
If the debt is charged-off and the creditor does not obtain payment through its in-house or third-party debt collectors, many creditors will sell the debt to a junk debt buyer. Junk debt buyers are companies that buy portfolios of charged-off debts from original creditors pennies on the dollar, and then attempt to collect the full balance for themselves. They may try to collect it in-house or they may send it out outside collection agencies and law-firms. If they do not succeed in collecting the debt, they may sell the debt to another debt buyer. It is not uncommon for a debt to be bought and sold more than once.
Debt Collection Law Firm
Eventually, depending in part on the account balance, if the consumer does not make a payment, the debt will most likely be sent to a debt collection law firm. Both original creditors and debt buyers use the services of debt collection law firms. Local debt collection law firms typically send a letter and make phone calls to attempt to negotiate a settlement prior to filing a lawsuit and even during debt collection litigation.
By some estimates, 95% of debt collection lawsuits are won by default.Â Often, the consumer failed to answer because he or she had no idea the suit had even been filed.Â But the remaining consumers default for other reasons.Â The result is the same, a default judgment.
To avoid a default judgment in a debt collection lawsuit, the consumer must file an answer with the court and defend the case. Â If a debt collector does successfully obtain a judgment against the consumer, it can Â freeze bank accounts and garnishee wages in its efforts to satisfy the judgment.
WHAT YOU SHOULD DO
Mounting debt does not get better we age.Â Accumulating interest and penalties make the debts hard and harder to dig out from under. Â Debts can be dealt with one at a time.Â However, if you have multiple creditors and mounting debt, a piecemeal approach is unlikely to get your head above water.Â For this reason, you should consider whether bankruptcy is the right choice for you.
The Bankruptcy Alternative
Chapter 7 bankruptcy is a legal process under which a person whose bills and debts are greater than his or her income surrenders non-exempt property in exchange for eliminating the obligation to pay his or her debts.
In a chapter 7 bankruptcy, the consumer files a petition asking the court to wipe out (discharge is the technical term) his or her debts.Â In addition to the petition, the consumer also files (i) schedules of assets and liabilities; (ii) a schedule of current income and expenditures; (iii) a statement of financial affairs; and (iv) a schedule of executory contracts and unexpired leases.
If you need help settling or defending a debt collection law suit, stopping harassing debt collectors or suing a debt collector, contact us today to see what we can do for you.Â With office located in the Bronx, Brooklyn and Rockland County, the Law Offices of Robert J. Nahoum defends consumers in debt collection cases throughout the Tristate area including New Jersey.
The Law Offices of Robert J. Nahoum, P.C