Informal Bankruptcy To Eliminate Credit Card Debt?
Informal bankruptcy
Informal bankruptcy, what exactly does that mean? Basically it is stopping the payment of certain debts to strengthen one’s financial position without going through a formal bankruptcy proceeding.
Yes, that means on the surface informal bankruptcy offers no protection from creditors. But, it is important to make the distinction between secured and unsecured creditors. By stopping payments to unsecured credit card banks to eliminate credit card debt, you are strengthening your financial position to pay secured creditors, like mortgage banks and car loan holders. Those holders of secured loans are the ones who have the best legal recourse to reclaim what you owe them.
For credit card banks to reclaim what you owe them, all they really have is the threat of a credit card debt lawsuit and the promise of bad marks on your credit report.. Credit card banks budget a certain percentage for bad debts. They only make half-hearted attempts at, and invest little in, collecting their own debts because they have already assumed that some people will not be able to pay.
When the credit card banks pass their debts onto collection agencies or collection attorneys, those entities increase the pressure on consumer debtors. But collection agencies and collection attorneys are relying on threats and legal firm letterhead to scare debtors into showing weakness or capitulating to their demands, according to the Credit Card Debt Survival Guide. Collection agencies or collection attorneys work on commission. They are paid 30 percent of what they collect by their credit card company clients. From experience, they do not expect to collect from everyone. Instead they focus their energies on the most susceptible debtors, those who choose not to go through informal bankruptcy.
Eventually most defaulted or charged-off credit card debt is sold to junk debt buyers for less than 10 cents on the dollar. Here, collection agencies and collection attorneys are more aggressive because they can earn 50-60 percent of what they collect. But, they are also more opportunistic,. If they collect from just 30 percent of debtors they will be quite profitable.
So the moral of the story is resistance on the part of the consumer is quite productive.
The key is proper written responses to written communications from debt collectors demanding original documentation of the alleged debt, according to the Credit Card Debt Survival Guide Small mistakes on the part of debtors during their response to collection attempts are what tip off the collection professionals to their weakness and vulnerability when considering informal bankruptcy.
Because credit card companies do everything in batch processing and transfer data digitally to debt collectors and collection attorneys, documenting unsecured debts with no collateral behind them on paper becomes difficult for debt collectors.
By educating themselves to these facts consumers can differentiate themselves from the more vulnerable, weaker debtors debt collectors are probing for and eliminate credit card debt if you’re thinking about informal bankruptcy.
Photo courtesy Orange County Archives
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