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Thursday, November 08, 2007

Fix It or Forget It

The biggest mistake a debtor makes is failing to plan a course of action. The majority of debtors I encounter are merely floating through life allowing their circumstances to drive their life choices. They pay the debts owed to my clients because I am actually taking the time and effort to sue them and make their lives miserable while they ignore other debts which are not being as forcefully collected. These same debtors attempt to make low monthly payments thus preserving their debts for inordinate periods of time and ultimately failing to pay off their debt and only managing to accomplish the ruination of their credit. A debtor who is facing significant amounts of debt needs to make a life choice and implement a plan based upon that life choice. That choice is as fundamental as fix it or forget it. In other words, a debtor needs to decide are they going to create and implement a plan which allows them to pay off all of their debt, avoid the creation of new debt, preserve and if necessary repair their credit or is the debtor going to make a conscious decision to not pay any of their debt and allow the passage of time to clear up their debt problem. Both of these courses of action have merit and pros and cons. Both also are extremely difficult. The easier course of action is to simply float down the debt river paying what you can, when you can but in the long run that is both devastating and permanent.

In the first course of action, the debtor should find a program that they can embrace and make their own and totally commit to. I highly recommend the Dave Ramsey Christian based program, but that is simply my opinion. If the debtor makes this life choice they will have to implement a strict budget and pay down the smallest debts first, eliminating debt as they go. The debtor will have to deny themselves the luxury of living like everyone else and will actually have to buckle down and do without. How long it will take to accomplish this program depends on the number of debts and the amount of debt the debtor has incurred. A key to this life choice is a change in life style and pattern of thought. This change is absolutely essential in order to keep the debtor of incurring new debts while you are paying off the old ones. The end result of this life choice will be the end of debt collection harassment and good credit.

The second life choice option available to the debtor is to forget about their debt. This is an extremely dangerous life choice to make. It is not recommended if you have absolutely any assets whatsoever, such as a retirement fund, savings account, luxury automobile or equity in your house. If you are truly flat broke, you can consider ignoring your unsecured debt. By unsecured debt I am specifically referring to credit card debt. Any debt that is secured with collateral such as your car loan which is secured by your car or your house note which is secured by your house must be paid or the institution to which you owe the debt will simply repossess the collateral. A debtor can under the Federal Fair Debt Collection Practices Act inform a collection agency that he or she has no intention of paying the debt and to cease all contact. At that point the debt collection agency must cease all contact, but can proceed with a lawsuit. At some point your creditors will lose interest in pursuing you if you never make any payments and have no assets. Likewise at some point your debts are simply no longer valid based upon the statute of limitations for open accounts in your state. That time period varies from state to state. If a judgment is taken against you that judgment is good for a certain number of years. For example in my state of Tennessee a judgment is good for ten (10) years however, you should understand that at any time during that ten (10) years that judgment can be renewed by court order for an additional ten years. Using this method you are simply banking on the fact that your creditors will lose interest in attempting to get money out of a dry hole. After seven (7) years the derogatory information will age off of your credit report. The downside to this life choice is that you will have to endure credit collection attempts and the fear that whatever asset you do have will be seized or taken to satisfy the debt. At the end of this process, assuming you do not incur additional new debts, you will have decent credit as all of the derogatory information will have aged off.

I cannot recommend to you either of these life choices nor can I advise you on which would be the best for your circumstances. There are other obvious life choices, such as filing either Chapter 7 or Chapter 13 bankruptcy, which I have not discussed. However I can strongly advise you to avoid simply floating down the river of debt making minimum payments when and where you can.


Anonymous said...

Well said and I agree that you have a moral obligation to repay your debt. Even if it takes several years, so be it. I'm currently in the process of doing just that. I followed the method that you outlined, although I did so without knowing of the author you mentioned. It was a matter of common sense for me. I've paid off over $11K this year alone.

Anonymous said...

This post does not take into consideration those of us who have lost jobs, got into debt when we were young and in college and didn't know about collecton agencies or even the credit process.

Those of us who have been laid off and couldn't pay, experiencing things from repossesions of automobiles to simple collection agency harassment aren't idiots who don't think about the future. In fact, in most cases, we think about it all the time.

When a person is bouncing back from being broke and jobless for a long time (in my case 3 years), has sought help to deal with their debt by hiring a law firm such as Lexington Law Firm...then gets sued by a collection agency for a debt that they didn't mean to auto repossession that occured during a layoff...then it's not about us looking at our life. It's about how life circumstances happen.

I, personally, think a person needs to keep living. As long as unscrupulous car salesman sell cars with loans that are way above the interest rate of those with good credit, and creditors have no compassion when a debtor has a layoff...I feel a person should still live.

As you state many times, collection agency attorneys are bottom feeders. The only reason why they don't deal with this crap in their own lives is because they know how to lie their way out of it.

And it's those people, the attorneys, who make it harder for all of us.

But alas, in America, you're going to need an attorney sometime. The country wouldn't let you go without having to deal with the lying bastards.

I've never trusted lawyers. They've perverted a system that was already flawed in the first place. And collection agencies suing you over debt is foul...all this over money.

But alas, someone can get shot in the street or raped and it's takes an act of congress for someone to care.

I say, keep on living. I don't think anyone should refrain from living because they had a hard time in the past. Creditors need to learn to be more flexible.

The law should be on the DEBTORS side. But that's not where the money is. It's on the creditor company's side.

Even if I become a creditor...I'd be flexible. I have a business and know that folks sometimes have things happen to them.

Btw, none of your articles gives any solid, concrete advice. Only conjecture. So all the disclaimers about not being our lawyer are moot.

Why would we pay you when you give it up for free? Lawyers are whores. Collection Agency lawyers are whores with sexually transmitted diseases.

outwest said...

It makes no sense once the SOL gets rolling to pay off a credit card debt. Especially a large one. I do not think this course of action necessarily entails violating any moral obligation. Collection agencies are bottom feeders and so are their legal representatives. By the way the blog writer claims it's better to pay off your debts completely or forgot about them completely, but avoid the "river of debt" approach. Why is the "river of debt" approach worse, because assets are at risk? This is not clearly explained.