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When Delinquent Debts Sneak Up on Consumers, Bankruptcy Comes to the Rescue

More than one third of Americans have delinquent debts, according to a new study – and the only thing scarier than that statistic might be the fact that many don’t even realize they have debts in collections.

A recent Urban Institute survey found that 77 million people, or about 35 percent of U.S. adults with a credit file, have non-mortgage delinquent debts on their credit report – including credit card, medical and utility debts. On average, these outstanding debts total more than $5,000. Yet many respondents didn’t realize they held delinquent debts until they were shown copies of their credit reports.

How is it possible that someone could be in the dark about a $5K debt? Turns out it’s easier than you might think.

It’s often assumed that when you stop making payments on a debt, collection agents immediately come calling. In fact, many of us have experienced creditor harassment for unpaid bills. However, there’s a period of time when a debt is considered delinquent – but before creditors actively seek repayment. This is the danger zone.

Just because creditors aren’t knocking on your door doesn’t mean you’ll escape the effects of having delinquent debt. Having a debt in collections status damages credit and, along with it, your prospects of getting a loan or landing a job. Eventually, a debt collection agency can petition the court to garnish your wages, seize bank accounts or repossess assets such as your car.

Most folks don’t realize that credit card accounts and other debts can go into collections as early as a month past the due date, and credit bureaus could be notified shortly thereafter.

If you don’t often use an account, you may not even realize the creditor has shut it down. In the meantime, late fees and interest rates continue to add to your balance. It’s only once a creditor writes an account off as uncollectable that the debt is sold to a third-party debt collector, who then proceeds to hound you with phone calls, emails and letters.

The best solution for delinquent debt is simply to pay your bills on time. Of course, we all know that isn’t always possible. Your financial situation may not allow you to keep up with payments. Or perhaps there has been a mistake: Credit bureaus have been known to erroneously report debts as delinquent. Occasionally, you may be accidentally held accountable for a debt that doesn’t even belong to you.

The surest way to stay on top of debt is to keep an eye on your credit. Getting a copy of your credit report from government-approved service AnnualCreditReport.com will let you know whether you have a debt in collections and how to get in touch with creditors about it. If the debt is in error, you can contact the credit bureau to correct it. If you do owe money, some collection companies will accept partial payments or installment plans to help you get current.

When you’re drowning in delinquent debt, however, you need a more powerful solution. Bankruptcy may be your best chance at overcoming debt and rebuilding your credit.

Having delinquent debts - especially ones you’ve been ignoring for months - dramatically lowers your credit score. Filing for bankruptcy can quickly put a stop the bleeding. Depending on whether you file for Chapter 13 or Chapter 7 bankruptcy, you can lower debt or eliminate it entirely. In many cases, wiping out debt will free up money you can use to pay off other obligations such as your mortgage, catch up on bills, and even start contributing to your savings.

Don’t let delinquent debts drag you down. By staying aware of what’s on your credit report – and taking action when necessary – you can keep debt from spiraling out of control. Bankruptcy may be able to help.

To find out if bankruptcy is right for your financial situation, contact DebtStoppers today to schedule your free one-on-one debt consultation with one of our experienced bankruptcy attorneys.

Resources:

3 Scary Facts About Delinquent Debt and What You Should Do, by Dan Caplinger, DailyFinance

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