Bankruptcy

4 Collection Steps After You Stop Paying Credit Card Debt

By K. Hunter Goff

As a bankruptcy lawyer, one of the first things I advise my clients to do when they decide they are filing bankruptcy and hire me is to stop paying on their credit cards. More on this later in the post. Recently, though, before I could offer that advice, a client asked me: “What happens when I stop paying my credit cards?”

The short answer is, the collection process will begin. It usually goes something like this:

1. The original creditor will call you, your family, your place of employment, non-stop, for about 60-90 days trying to get you to pay something over the phone making all kinds of threats about how they are going to ruin you financially unless you pay them.
2. After 90 days or so, the account will be sold to a third party debt collector who will repeat the actions listed directly above.
3. After about 180 days since you stopped paying, you may get a call from a lawyer trying to collect on the debt who will repeat the actions listed in 1 and 2 above.
4. Finally, the lawyer may file a lawsuit against you seeking a judgment that would allow the creditor to attempt to collect on the judgment. By the way, then, and only then, can your wages be garnished.

Kind of a long process until a judgment is obtained, right? Over 6 months from the time payments stopped being made if I added correctly. So why, as a bankruptcy lawyer, do I advise my clients to stop paying on credit cards when they hire me?

Because the idea is for my client to be file bankruptcy sometime well before the judgment is entered. This way, garnishment is taken out of the equation. My client can use the payments she would have made to an abusive debt collector for a credit card debt to catch up on a car payment or a house payment she may want to keep through filing bankruptcy, or to start saving up money to create an emergency fund for the future.

And what about those abusive debt collectors? Some States, Florida being one, have tough laws against the type of abuse described above that some creditors engage in on a daily basis when collecting a credit card debt against my clients. There is also a Federal Law that prohibits those abusive acts by third party debt collectors in the collection of a debt. You can sue your creditors to enforce your rights, and you should.

The debt collection process can be an intimidating experience, or an empowering one. If you know how it works and you know your rights, the empty threats the debt collectors hurl at you in a typical phone call from them will seem laughable, and more often than not, actionable.

Full post as published by Bankruptcy Law Network on September 07, 2010 (boomark / email).