Credit cards can be tricky resources. If used properly, they can assist with making purchases in a difficult time.
If used carelessly, they can lead to multiple collection proceedings and even bankruptcy. Many debtors believe that they can continually spend using their credit card(s) and not have to face the financial consequences later should they decide to quit paying the bill.
However, this belief could not be further from the truth.
Credit Card Debt 101
In bankruptcy, two different types of debt are recognized: secured and unsecured. Credit card debt is considered “unsecured” debt because it does not have an asset associated with it as collateral, like a house or car.
If a person defaults on a debt that is “secured,” the creditor can take the property serving as collateral. However, if a person defaults on unsecured debt, things get a little more complicated. Unsecured debt is then divided into two groups; priority and non-priority.
Credit card debt is normally put into the second category and is not given the same priority as past-due taxes, child support and alimony. Credit card debt is either discharged via Chapter 7 or handled via a payment plan via Chapter 13 bankruptcy.
The mistake many debtors make is that they will never have to worry about their over-spending and charging. They assume the debt will just disappear. That happens, but not always. Sometimes the credit card company sells a debtor's past-due debt to a collection agency. It is at this point where the debtor tends to freak out.
Collections Proceedings
Collection agencies are aggressive. They are hired to collect on a debt, and they mean business. Expect countless and persistent calling. The debtor will also receive notice that a lawsuit has been or may be filed to collect the debt.
It is extremely important to keep the paperwork once it is received. If the debtor does not respond and assumes that the judgment will not happen because of the existence of the bankruptcy in their past, they could very well find themselves subject to a default judgment and their wages garnished.
Contact an attorney immediately and ask how to formally respond to the lawsuit. He or she will be able to assist with a response and possible defenses. An attorney can also help to settle the debt with the collection company.
Possible Defenses
The first defense to claim is that the debt was already dealt with and discharged properly in bankruptcy. If that is the case, one should be able to quickly eliminate the problem. Another defense could be either the debt was already paid or the statute of limitations for them to pursue collection of the debt has expired.
Another defense could be that the debtor was not properly served or the collection agency did not have standing to sue the debtor or is suing the wrong person or entity. Depending on how aggressive the collection agency is, another defense could be that they are violating the Federal Trade Commission (FTC) Fair Debt Collection Practices Act (FDCPA).
This law prohibits debt collectors from using practices that are abusive, unfair or deceptive to collect on a debt. Lastly, an attorney could attempt to prove that the charges on the debt are fraudulent, if applicable. If a debtor is not able to assert either of these defenses, it is at least worth speaking to an attorney to help them mitigate the damages or put together a payment plan that is reasonable given the individual's financial situation.
The worst thing someone can do is to ignore the debt completely. A default judgment could be obtained against the debtor, and interest and fees on the judgment will continue to accrue until the judgment is paid in full.
The debtor may also face additional collection measures and the possibility of wage garnishment or even further bankruptcy in their future. Always call an attorney if you are not sure or have any questions about the legal ramifications of any debt proceedings filed against you and do so as soon as you receive notification that they exist.
Contact An Arlington Bankruptcy Attorney For A Free Consultation Today
Always call an attorney if you are not sure or have any questions about the legal ramifications of any debt proceedings filed against you and do so as soon as you receive notification that they exist.
This experienced Texas bankruptcy lawyer can help you evaluate the best response to a collections lawsuit and how filing a bankruptcy may be the best way possible to help address any concerns you have about the bankruptcy process.
Call the Law Office of Marilyn D. Garner at 817.381.9292 for a free consultation to discuss how we may help you.