Bankruptcy now... or never???

[FractalWalk]

First, have a good reason!

[shmokes]

A bad debt starts over every time there is action on it.

That's not correct.

"Bad debt" is a term for the quality of debt but specifically it means a record of a late pay, bankruptcy or judgement.  Bankruptcy is a fixed line item that stay on for 7 years. A Judgement is also a fixed line item that appears for 10 years.

But your payment record is a floating data set that ages one month at a time. The credit bureaus retain data sets for 7 years, but an instance of a late payment ages as time goes on.  So each month, the payment record that was 84 months old gets dropped off the back end of the data set and replaced with the new months data.

Even if you close/cancel the account, the record is still there and ages just as if it were open. It's not hidden by inactivity on the account nor is it brought to the front by new activity.


Regarding the credit counseling, it is an excellent way to get lenders off your back and get you on a plan to pay off your debt. But it will NOT clean up your credit.  When you default on a loan or a credit agreement that is stored in your credit history. Many lenders will work with you to get the debt paid off by lowering interest/waiving amounts due/ accepting partial payments. However that doesn't change the fact that each month that you do that you are in default on the original agreement and it is continually reported that way.

So you may be paying the balance off but your are doing it in a continual state of default. Many people are surprised that after they get themselves clear from debt through credit counseling they still have bad credit.

If you do go the credit counseling route, then use a non-profit service like Consumer Credit Counseling Service. Don't go to "Joe's credit" where they charge you $X to handle paying your bills.

I think you misunderstand what I'm saying to some degree.  There is a statute of limitations on collecting a debt such as credit card debt.  If there is no action on an account for whatever time period your state has set up, 5-7 years usually, the debt cannot be collected and the lender cannot obtain a judgement.  An inactive credit card debt that cannot be collected on and for which a judgement has not been obtained against the owner of the debtwill drop off your credit report after seven years even though it has not been paid off.  But the clock for the statute of limitations on collecting a credit card debt starts fresh every time you make a payment, or transfer the balance or whatever.  If you simply stop paying a credit card bill and the credit card company doesn't get around to obtaining a judgement within the alloted time period the debt will effectively be erased.  It cannot be collected after the statute of limitations runs out and will drop off your credit report a couple years later. 

So if I owe Discover $4000, but haven't sent a single payment for the last four years, they have already turned my debt over to a collection agency and I owe the entire lump sum.  Even if I start making payments, they will all be considered late payments because the minimum payment is now $4000.  Unless I send them $4000 I am not technically making my credit card payment, even if I am sending them $100 a month.  Until I actually pay off the full $4000 that is in default I am simply making partial payments which are not acceptable on a credit report. 

In this sense, assuming that Discover did not obtain a judgement against me, I would have been better off financially to continue ignoring my debt because it a few more years it would both be legally uncollectible and disappear from my credit report.  Whereas, if I start chipping away at the debt that is already inin default, it won't disappear from my credit report until 7 years after I pay off the entire balance. 

Of course, just ignoring your debt is not a good idea because it would be foolish to count on the collection agency failing to obtain a judgement from a court,  I'm simply trying to illustrate how, once you have already allowed your debts to default and get sold off to collection agencies it's a whole different ball game.  The best you can hope for is that you will be able to strongarm the CC/Collection agency into reporting good things to your credit report by threatening them with Bankruptcy.  Credit card companies are very often unwilling to do this.  Already they have taken a HUGE loss on you because they'll only get like 15% of what you owe them even if you pay off your whole bill.  Once you've been sold to a collection agency the vast majority of any collected debt goes to the collection agency. 

So...anyway, that's my understanding.  I'm no expert, and don't even play one on TV, but I'm pretty sure that at least the bulk of what I've said up there is accurate.

[FractalWalk]

I'm no expert, and don't even play one on TV, but I'm pretty sure that at least the bulk of what I've said up there is accurate.

I think you are correct. I misunderstood what you were saying. 

And you are right that once the account goes to a collection agency, it is a different ballgame.

[fredster]

Here's a bankruptcy site with the top 10 reasons people go into bankruptcy.  It even has a "bankruptcy evaluation" section.

http://www.bankruptcyhome.com/top10reasons.htm

[shmokes]

www.creditwrench.com

Another site with lots of good information.

[pointdablame]

I just wanted to say that there is a lot of good info in this thread.  I'm sorry you're in this situation Mr. C.  I'm only 21, so I can't pretend to truly know what it's like, however my parents came very close to declaring just over a year ago.  I won't pretend to know everything that happened, however I know it got hairy for a while and the house was in jeopardy for a while.

It's a sucky situation, but I think under the right circumstances, bankruptcy could be the right answer.  You'll just have to decide if that's the right choice for you.  My parents are now in the process of building their credit back up, and its a tough road to walk.  It can be done, but you really have to be dedicated to it and always keep it at the front of your mind.

Good luck.  All this talk makes me realize I've been slacking on building up credit.  I should look into a student card and start putting a balance on it/paying it every month.  I'm starting to see that it's never too early.