Finding Direction for Your Debt Collection Issues

The Following is a guest post. There are times when for one reason or another, planning and budgeting may not be adequate enough to solve debt problems. I feel it is important that people know they are not alone, and that there are options available to them. 

If you’re a regular reader of Michael Dinich’s blog, it’s a safe assumption that you’re serious about cutting out debt and living below your means. But, financial independence doesn’t happen overnight. In fact, debt problems can provide a powerful incentive to find a new financial model.

Unfortunately, debt problems can also be overwhelming, especially when aggressive debt collectors confuse the issue and make you feel pulled in different directions. That pressure and uncertainty can lead to serious mistakes—mistakes that can actually interfere with your ability to gain control of your finances.

Common “Get out of Debt” Mistakes

Some of the most common mistakes people make in trying to resolve outstanding debt include:

  • Transforming unsecured debt to secured debt (for instance, by refinancing a home to pay off credit card debt)
  • Increasing the long-term cost of debt (for example, by lowering payments through a refinancing agreement that extends the repayment period and so increases the amount of interest paid)
  • Working with shady debt consolidation companies
  • Gutting assets in an attempt to stay above water (such as cashing in retirement accounts to service unsecured debts)

While paying off debt is an admirable goal, it isn’t always realistic. And, your good faith efforts may sometimes result in dishonest debt collectors taking more than you owe, or putting you back on the hook for debts that are legally uncollectible.

Making Good Decisions about Debt

The best first step for most people who have fallen behind on their bills is to reach out to creditors. Anxiety and uncertainty prevents many people from making those calls, but original creditors have an incentive to keep accounts alive and keep you making some payment. Never assume that the news will be bad if you pick up the phone.

When problems have escalated beyond the point of temporarily reducing payments or eliminating some late fees, most debtors still have options. Two key possibilities are consumer financial protection claims and bankruptcy.

Consumer Financial Protection Claims

Claims under consumer financial protection statutes such as the Fair Debt Collection Practices Act (FDCPA) and the Fair Credit Reporting Act (FCRA) are underutilized. Many people don’t recognize debt collector misconduct or don’t realize that they may be entitled to damages when debt collectors break the law—something that happens far more often than you may think. Often, this type of litigation also helps to resolve the underlying debt.

Chapter 7 and Chapter 13 Bankruptcy

Chapter 7 bankruptcy provides a means for people with a lot of unsecured debt and few assets to wipe out balances and start fresh. Of course, filing for bankruptcy creates a negative entry on your credit report. Further, Chapter 7 bankruptcy is only available once every eight years, so filing for bankruptcy lightly can backfire if financial circumstances don’t improve.

Every situation is different, but a general rule of thumb is that you may want to consider Chapter 7 if you calculate that you’ll be unable to pay your outstanding unsecured debts in three years. Chapter 13 bankruptcy is an entirely different solution, which allows those with regular income to pay off past-due debts—both secured and unsecured—over time.

Determining Your Next Steps

We know that, when you’re struggling with debt, it can be difficult to know where to start, what your next move should be, or how to find the help you need. That’s why we created this tool, which will help you figure out where in the process you are, which options you may want to explore, and where to get more information.

It’s not legal advice and won’t tell you which solution is right for you. Only a qualified attorney or trustee can advise you about whether bankruptcy is a good fit for you, or whether you have a viable consumer financial protection claim. The tool is designed to help simplify the process of acquainting you with your options and directing you to resources that can help you take the next step.



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About the Author

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Michael launched Your Money Geek to make personal fun and accessible. He has worked in personal finance for over 20 years, helping families reduce taxes, increase their income and save for retirement. Michael is passionate about personal finance, side hustles, and all things geeky.

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