If young: Think again before filing for bankruptcy
When people fall behind on their credit card payments to the extent they cannot foresee them ever being able to pay them off (even with debt counseling) they are quite often told to file for bankruptcy.
IMO, this is a great option if you are in your 40’s with a house and you have hundreds of thousands of dollars in credit card debt. But with my own credit nightmare three years ago, looking back at it, rushing to bankruptcy as advised would have been the worse move in hindsight.
My personal nightmare started in Fall 2006 when defaulted on 12 credit card accounts almost simultaneously. Since 2004 when I graduated high school, I had slowly accumulated nearly 16K in credit card debt as a means to pay my way through college- tuition, books, etc- and had no means of paying it off as a broke college student working only work study jobs.
I strongly feel my own success in getting out of this debt nightmare is because my largest account had a balance of only $5,000.Most had small balances of $1000 or so. Don’t get me wrong, this money still went a long way in the day-to-day life of a college student, but in the grand scheme, this is small beans. After just purchasing a new car at a 17.99% interest rate, having it cost over $200 a month to insure it, AND on top of the $400 note, having just moved off campus to an apartment alone, having to pay my own rent and utilities for the first time, I was broke!
Almost overnight I quit paying all my credit cards. Being young and selfish, I really loved the car and didn’t want them to take it away, so I keep up on its payments. Everything else credit wise went down the tubes though. I didn’t talk to (or pay) my creditors at all for almost a year dispute 20 to 30 phone calls a day and threatening letters I received.
While I felt like a criminal at the time, considering the small amount of debt I defaulted on, looking back it may have been a wise choice. Not communicating with my creditors AND most importantly not sending them a single payment, made the accounts charge offs and sent to the collection agencies quickly. In the end ALL of the accounts got sent to collection agencies. A year later I sought advice from attorneys at my campus’ legal services. They suggested I file but if I choose not to the fact that I hadn’t made any payments for a year and having no intention to would pretty much have the same impact as bankruptcy.
My FICO score was dreadfully low. However, that car I bought I was still making on time payments on (and using wuite a lot as well!). More on that in a minute. But after doing some online research I decided to send my collectors cease and desist letters via certified mail. I kept all of the information regarding each account and using the FDCPA (federal law protecting consumers from collection agencies) I demanded collection agencies send me a SIGNED CREDIT CARD AGREEMENT. These agencies had 30 days from receipt of the letter to provide the original signed agreement and not a single one of them did. In the meantime I kept meticulous letters of postmarked certified letter slips, receipts from the post office, and the bogus collection agency statements demanding payment. The calls almost stopped and for the next year every time an account was sold to a new agency who thought they could get some blood out of me, I simply sent them a version of my letter demanding that they follow FDCPA, that they cease and desist, and that the debt was not valid since the agency they purchased the debt from failed to validate.
Fast forward to today. My FICO score is nearing the 600 mark. The reasons for this high score three years after failing to pay all my credit cards is first my on time payments on my car note. Secondly, I was able to piggy back on my wife’s credit cards which we have managed to pay on time and keep balances at zero (until our recent unemployment spell) to which they are now being paid off in earnest. Finally, I have three credit accounts of my own with low limits that are in excellent standing including a secured card from Bank of America one of the companies I defaulted on a nearly 5k balance.
If I would have filed I strongly think that my score would be dramatically lower. It would have also prohibited me from opening up my current accounts and would stop me way in the future from getting much-needed loans even if the past three or five years are of exemplary credit worthiness. In the months after I defaulted I never flinched when the big envelopes came which falsely “verified the debt”. I never budged when they came from big law firms. Many people get scared and send them money in hopes of making it better. But it only starts the cycle over again making them hound you when you don’t stick to your payment plan. It also restarts your statute of limitations.
As I write this, my statute of limitations for all of my cards has come. In most states its three years but this only applies if you remain in the same state AND don’t make any payments of any amount to a collection agency on your debt. I did not and now I cannot be legally pursued for the money by the original creditor or the collection agency. There is this image that people have of them being brought to court. This will happen if you follow what I did and you are carrying a $100,000 credit card balance. But if you are in your 20’s with no property and 10-20k in credit card debt than I strongly suggest you consider this route of “bankruptcy on your own terms”. It will make it possible to get back to normal sooner rather than having dead weight on your credit report. Lenders won’t touch you for 10 years after you file, vs my situation where lenders see a small blemished overcome with credit cards from the same lenders to which I defaulted on and a rising score.
Do not be intimidated and think there is no way out. Yes bankruptcy will end the calls but so will your own actions and research. In these trying times there are millions of people defaulting on their credit cars and ill bet you there are hundreds and thousands with larger balances than you. Creditors are not going to take you to court for an unpaid 3k when they have a Joe in CA with an unpaid balance of 120k.
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