Are You One of Three Americans Delinquent on Debt?

Recently, there was a flurry of headlines noting a disturbing trend in the U.S.—more than 30 percent of Americans have debt in collections, according to a study released by the Urban Institute. “Debt in collections” refers to money that’s owed well past an account’s due date (usually 180 days) and which has been turned over to debt collection agencies. The study looked at debts incurred through credit card bills, car loans, medical bills and child support payments, ranging from just $25 to $125,000 (average amount owed was $5,200).

When one in three Americans are delinquent on debt, you don’t have to be a financial expert to know we’ve got a real problem on our hands.

The sad truth is, as a society, we’re generally irresponsible when it comes to managing our finances. I think the main problem is our insatiable appetite for the American Dream—that is, to acquire more and more stuff. But most of the products and services we purchase on credit come and go …and at the end of the day, what do we have to show for it?

On the other hand, a contributing factor to this problem, I believe, are the predatory practices of creditors, many of whom impose outrageous interest rates on credit cards, loans and other opportunities for credit. Many times, people sign up for loans and credit cards in awe of their ability to have access to such high credit limits, without thoroughly reading the fine print, where these dangerously high interest rates are noted.

What you can do

The way most people get into debt—excluding emergency and medical situations where bills can pile up quickly on the spur of a moment—is through a failure to budget and save money for the future. Therefore, in order to avoid getting buried under a mountain of unmanageable debt without the means to get out, I think it’s necessary for us to get back to these basic but valuable concepts. By budgeting wisely and putting aside some money for a rainy day, we’re better prepared to maintain our credit, obtain much of the stuff we crave, and be able to weather a sudden, unexpected financial hardship.

Of course, some people just aren’t capable of handling their own budgets. I don’t mean this in a negative way; we’re not all equally adept at balancing numbers and making sure payments are made on time. The good news is, there are resources out there to help you get things under control. Even if you are not in financial distress at this time, it may be a good idea to talk to a financial advisor or debt relief professional as a preventative measure.

Three choices

If, however, you’re one of those three unfortunate Americans already seriously delinquent on debt, you will find generally three options to choose from to handle your situation:

Ignore the debt. Under California law, there’s typically a four-year statute of limitations for debts except those made with an oral contract (these have a two-year state of limitations). After this period of time (running from the date you last used the account and/or made a payment, whichever is more recent), creditors generally find themselves barred from trying to collect on your debt.

But ignoring your debt, wishing and hoping that your account will be the one that falls through the cracks long enough for the statute of limitations to run, is not a solution. Once you’ve stopped making payments on your credit card bills or outstanding loans, you will hear from collections agencies on a fairly consistent basis. Also, interest continues to accrue on each debt you have, compounded by late fees and other penalties for non-payment.

In other words, ignoring your debt won’t make it go away. It only gets bigger and bigger and more unmanageable over time.

Negotiate to settle the debt. Creditors are often willing to negotiate a settlement to a debt, on the principle that getting a reduced payment is better than no payment. The problem is, they will generally require a lump sum payment in order to make the rest of the debt go away. If you’re unable to do that, this option won’t work.

File for bankruptcy relief. If creditors consistently hassle you, threatening to attach your wages and/or property, and you don’t have the funds to make payments or settle the debt, the last-ditch option is applying for bankruptcy relief. But be forewarned: You can only attempt to completely wipe out your debts through Chapter 7 bankruptcy once every eight (8) years and it will always have a huge negative impact on your credit standing. Additionally, a person who seeks bankruptcy relief will also find it harder to rent an apartment, open a bank/credit union account or obtain credit in the future (though generally not impossible).

Getting out of debt isn’t easy but with the right strategy and guidance, it can be done. What’s the best way to start? Explore your options through a conversation with a skilled debt relief/ bankruptcy attorney.

Are you in need of legal counseling for bankruptcy or debt issues or have any questions regarding the above? The Law Offices of Ian S. Topf offer free consultation in a variety of issues, ranging from bankruptcy, family law and estate planning to traffic violations and landlord/tenant disputes.