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Debt Management Law News

March 24, 2010

Informal Bankruptcy Can Be the Key to Eliminate Credit Card Debt

nformal bankruptcy, what is that? Essentially it is stopping the payment of certain debts to strengthen one’s financial position without going through a formal bankruptcy proceeding.

Informal bankruptcy takes advantage of the difference between secured and unsecured debts. Auto and home loans are secured debts, while credit card balances are unsecured debts. If you are having financial difficulty and stop paying unsecured debts to eliminate credit card debt, you are strengthening your position to pay your more important secured debts.

For credit card banks to collect what you owe them, all they really have is the threat of a credit card debt lawsuit, which rarely happens, 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 many people will not be able to pay.

After a debt charges off the credit card bank passes it on to a debt collection firm or collection attorney. They work on commission, about 30 percent of the owed balance, according to the Credit Card Debt Survival Guide. They do not expect to collect from every account. They use threats, lies and legal firm letterhead to find predisposed consumers willing to pay.

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.

Becoming educated about consumer rights and knowing how to put together the proper written response to a debt collector’s collection effort is the key to successful informal bankruptcy and the way to eliminate credit card debt. Consumers should demand original documentation of the debt, as is their legal right, according to the Credit Card Debt Survival Guide.

Sometimes, debt can be overwhelming, and bankruptcy becomes necessary.
Bankruptcy can sometimes be difficult. If you are considering bankruptcy, contact the Houston bankruptcy lawyers of Weston & Associates, PLLC at 713-623-4242

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