Tuesday, May 13, 2014

Q & A: Should I File Bankruptcy Over Credit Card Debt?

QUESTION... I am delinquent on quite a few credit card accounts... I've been trying to keep up with the payments, but it has just gotten out of control. To the extent of over $50,000. I have one card that has contacted my mom, dad, sister and close friend. This is a jewelry store credit card that I made purchases on and never made a payment. I'm thinking of filing for bankruptcy... seeing as my only income right now is Social Security Disability. I have tried to keep current, but I just can't stay afloat any longer.


I'm not sure if your question is whether or not collectors can contact your family members, what rights you have if they do so or whether you should go ahead and file bankruptcy over this credit card debt, so I'll try to address all three. 

Debt Collectors Calling Family Members 

For starters, third party debt collector can only call your family members in an effort to track you down. They do not have the right to inform your loved ones about your debt or disclose any other sensitive information about your debt to a third party such as a family member, neighbor or employer. This excerpt from Section 804 of the Fair Debt Collection Practices Act which governs third-party collection agencies makes that abundantly clear: 
Any debt collector communicating with any person other than the consumer for the purpose of acquiring location information about the consumer shall -- 
(1) identify himself, state that he is confirming or correcting location information concerning the consumer, and, only if expressly requested, identify his employer;
(2) not state that such consumer owes any debt;
(3) not communicate with any such person more than once unless requested to do so by such person or unless the debt collector reasonably believes that the earlier response of such person is erroneous or incomplete and that such person now has correct or complete location information;
(4) not communicate by post card;
(5) not use any language or symbol on any envelope or in the contents of any communication effected by the mails or telegram that indicates that the debt collector is in the debt collection business or that the communication relates to the collection of a debt

However, if the credit card companies you owe have not charged off the debt yet or have turned the debt over to an in-house collection agency (one owned by the creditor) the FDCPA does not apply. That doesn't mean that the behavior isn't illegal in your state--it very well may be--but it doesn't violate federal collection regulations. 

Potential for a Debt Collection Lawsuit

If a collector can't coerce you into making payments on your debt or--God forbid--turn over your banking information, it may file a debt collection lawsuit. If the company wins, the court grants it the right to forcibly make you pay by doing things like garnishing your paycheck, levying your bank accounts and putting liens on property you own. Not all debt collectors sue but, the more you owe, the higher your odds are of being at the receiving end of a lawsuit. Although your $50,000 debt is distributed among several credit cards, the amount is still high enough to put anyone at risk of a lawsuit. 

I do, however, have some good news. Because your sole income is Social Security disability you're safe from either garnishment or a bank levy. Social Security disability payments are one of the many government income sources that are protected from seizure by commercial creditors. If they threaten to sue you, letting them know that your sole income comes from Social Security and that you don't own any property (or do you?}may just be enough to make them back down. If a debtor is "judgment-proof," the collection agency is doing nothing but wasting time and money to pursue a debt they cannot collect. 

Don't be surprised if they sue anyway. Like I said before, $50,000 is nothing to scoff at. There is a statute of limitations for lawsuits and, as long as they win a court judgment before that statute of limitations expires, they can renew the judgment (you don't mention your state of residence, but judgments are often valid for about a decade) and wait for you to either get a job with actual wages they can garnish or start depositing non-exempt funds, such as monetary gifts, the proceeds from a small loan, tax refunds, etc, into your bank account for them to seize. So if you plan to come off Social Security disability at some point in the future, an old debt collector's judgment could come back to haunt you. 

Filing for Bankruptcy Over Credit Card Debt 

Anyone whose read this blog for any length of time can tell you how opposed I am to people in most situations to file for bankruptcy--especially people who are essentially judgment proof. Let me state for the record that I am no a bankruptcy attorney. Laws can and do change all the time, so if you decide bankruptcy is the best course of action you need to schedule a consultation with a licensed bankruptcy attorney in your area. 

That being said, if you meet your state's income requirements for filing Chapter 7, the whole process could be over in as little as three months and you could breathe easy without $50,000 in credit card debt hanging over your head every day. Although bankruptcy trashes your credit report for up to ten years, so does a judgment--and the judgment doesn't bar debt collectors from pursuing the debt any further like bankruptcy does. 

Bankruptcy has its drawbacks too. Depending on your state's exemptions, you may have to turn over some of your assets to the court when you file Chapter 7 bankruptcy. Although Chapter 13 lets debtors keep their assets provided they follow a strict repayment plan, individuals on Social Security often don't have enough disposable income to propose an acceptable repayment plan--making Chapter 7 their only bankruptcy option. 

A licensed bankruptcy attorney in your area can evaluate your situation and help you come up with the best possible course of action. You may even want to talk to a consumer law attorney in your state first. Not only is a consumer law attorney more likely to be unbiased about bankruptcy and help you explore your options objectively, he or she can also help you file a lawsuit if the collection agency that simply couldn't stop calling your family was violating the FDCPA by doing so. 

Best of Luck,


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