Dealing with Debt Collectors, the Underbelly of Credit – Part 2

Are you in a situation where you cannot pay your bills? The cause of your status may matter when you attempt to negotiate extensions on the debt. If your creditors will not work with you and your bills exceed your ability to pay, the cause of your debts diminishes in importance.

Last week, I focused on initial steps to take when you’re faced with bills you can’t pay.

After you make a complete list of debts, decide if you have the income to pay any of them.

• Do you have some small bills you can pay in full? It will be to your advantage to clear any debts you can.
• If you don’t have funds to pay bills, be sure the accounts are closed.
• When you know your credit is about to be trashed because you must stop paying bills, it is to your advantage to close all of your accounts rather than have creditors close them after they are in default. Close accounts in writing and ask each creditor to send you a letter verifying the account is closed. Keep the letters.

In most cases, financial crises are not anticipated. More than 50 per cent of bankruptcies are caused by medical bills. While most of us want to find a way to pay our debts, it is not always possible. The most difficult decision, for you, may be admitting you cannot pay.

First, see a legitimate credit counseling firm. The credit counseling industry is rife with crooks. It’s difficult to know who to trust. Pitfalls and horror stories caused me to avoid writing about them previously. The National Federation of Credit Counselors screens credit counseling firms. From their website, you can find reputable credit counselors in your area and on the Internet.

New bankruptcy laws require that your finances be evaluated by a licensed credit counseling firm before you file for bankruptcy. This is your first step toward determining your options. Responsible credit counselors will help you understand what is possible for you.

Until you know what action you will take, allow an answering machine to pick up those aggravating debt collector calls. Avoid them. Don’t permit them to upset you.

If your bills far exceed your income, your only option may be bankruptcy. While credit consequences come with bankruptcy, it makes no sense to allow enormous debts to cripple your life for years if it is unlikely you will be able to produce income to pay them. After a bankruptcy is discharged (finalized), you will be able to re-build your credit. With two years of responsible credit history you can buy a house. While a bankruptcy remains on your credit reports for ten years from the date it is initially filed, its impact on your credit diminishes after it is discharged and you construct a solid new credit foundation. During the period while a bankruptcy is on credit reports it is important to let any creditor know about it before they see it. If it was caused by medical bills, the mortgage meltdown, or another one-time crisis be sure to explain that before your credit is checked.

When you and your credit counselor determine the best course of action for you, the credit counselor will contact all your creditors to stop collection procedures or, if you will be filing for bankruptcy, you may need to communicate with them.

It is easy to stop all debt collectors from contacting you. However, if your debts are large and their only alternative is legal action, when you stop them from interacting with you they may proceed with a lawsuit. This is why you let an answering machine take the calls until you develop a plan.

To stop a collection agency from contacting you, write a cease and desist letter. Do not let anyone know you will file for bankruptcy if that is your plan. They will attempt to secure a judgment against you before you file. This New York City Debt Collection Guide contains helpful information. On page four, you will find simple instructions for writing and mailing a cease and desist letter. Federal laws govern fair credit practices, making this letter writing process the same in every state.

Overwhelming debts can create immense stress. Find a debt solution that enables you to move forward with your life.