Consumers with delinquent debt targeted by aggressive collection agencies
By Barbara Craig, Attorney at Law
Consumer debt is on the rise and this bodes well only for collection agencies. The more people borrow, the more likely it is that they will get behind in their payments and end up with the debt being passed on to a collection agency. A recent study from the Urban Institute shows that 35% of consumers who use credit are seriously delinquent in paying their credit card bills and have accounts in collections. This means that one in every three Americans who use credit can’t or won’t pay their bills.
What is consumer debt?
Common types of consumer debt are credit cards, pay-day loans, medical debts, utility bills, child support obligations, and student loans. Consumer debt is debt incurred to pay for consumable items that generally do not appreciate in value over time.
To place a consumer debt account into collections, a creditor typically closes the account and transfers it to a collection agency. This usually occurs after someone has gotten seriously behind on payments; in most cases, more than 180 days behind. This means that for months, the debtor has been hounded by the creditor for not making payments and now a collection agency is tasked with pursuing the debtor for payment.
Collection agencies either purchase the debt outright, or get paid a percentage on the amount that they are able to collect. Its stands to reason that the collection agencies are aggressive in their attempts to collect – it is the only way they make money. Letters and phone calls won’t stop until either a deal is made with the agency, the agency files a collections case in court against the debtor, or the debtor files for bankruptcy.
Bankruptcy: relief from collections
Under 11 U.S.C. §101(8) of the Bankruptcy Code, consumer debt is defined as a debt incurred by an individual for primarily personal, family, or household purposes. The vast majority of debt included in a Chapter 7 or Chapter 13 bankruptcy is consumer debt and is dischargeable once the bankruptcy case is closed, assuming the debt was not incurred under the exceptions to discharge listed in the Bankruptcy Code 11 U.S.C. §523. Debts like student loans, child support obligations, and debts incurred under fraudulent circumstances are all non-dischargeable debts.
It can take six months for a case to be turned over to a collection agency. In less time than that, dischargeable consumer debt can be eliminated under a chapter 7 bankruptcy; typically in five months or less.