Introduction
Many people facing financial hardship eventually reach a point where they can’t keep up with credit card payments. It’s a stressful situation filled with uncertainty about what might happen next. Understanding the typical process can help you prepare and choose the right kind of help.
Stage 1: Missed Payments and Fees
Once a payment is missed, creditors usually charge penalties such as late fees. If a balance is higher than the line-of-credit, over-limit fees may be charged. Additionally, a default interest rate may apply, causing the balance to increase rapidly. Repeated missed payments make it harder to catch up and will likely lower your credit score.
After 30 days, your account becomes “delinquent,” and a credit report will typically report the account as “I2” or “R2”. The “I” is for installment, such as a loan, and “R” for revolving such as a credit card. An “R1” denotes a current account, while an “R2” denotes the account is over 30-days delinquent. An R3 is over 60-days, and so on.
As the accounts becomes further delinquent, the status number on the credit report increases. Prior to charge off, the maximum delinquent months reported is “over-150” days past due (I5 or R5). Once the account goes over 180 Days past due, by bank regulation, the account must be charged off. A charge off is typically reported on a credit bureau as “I9” or “R9”.
Stage 2: Collection Efforts Begin
Creditors typically began collection efforts as soon as the account is past due, which may include calls and sending dunning letters. As the account become further delinquent, collection efforts become more aggressive. As described above, once an account reaches over 180-days delinquent, the account is charged off, meaning the creditor has written the account off as a bad debt or has written it off to profit and loss. Writing an account off as a loss does not mean you no longer owe the debt. Unless a creditor chooses to fully discharge or forgive a balance, (sometime by issuing a 1099C) collection efforts continue.
Once an account becomes delinquent, a creditor may assign the account at any time to its internal recovery department. They may also assign the account to a third-party collection agency, or assign the account to a law firm, which may include filing a lawsuit. A creditor may also sell the account to a debt buyer.
Stage 3: Escalation to Third-Party Collections
Debt Buyers purchase debts for a fraction of their value and try to collect the full amount. While some collection agencies solely collect debt for original creditors, some collection agencies buy debt and pursue collection of its own accounts.
Some agencies are professional while others are less than professional and are often aggressive. Federal law, through the Fair Debt Collection Practices Act (FDCPA), limits what collectors can say or do, but violations still happen frequently.
Stage 4: Legal Action
If a collector is unable to collect, or unable to negotiate a re-payment with a debtor, a creditor may file a lawsuit to recover the balance. Although many creditors, collection agencies, and debt buyers have their own internal legal department to file lawsuits, they often refer accounts to outside law firms.
If you are sued and don’t respond by the deadline, the creditor may obtain a default judgment. A judgment may lead to wage garnishment, bank account levies, or property liens, depending on your state’s laws. National Legal Center lawyers can help navigate through this maze of legalities and seek a resolution.
Stage 5: Long-Term Credit Impact
Derogatory information and unpaid credit cards can remain on your credit report for up to seven years. Even if you settle later, the damage can last unless you rebuild credit over time. However, settling derogatory accounts can start the recovery process sooner than ignoring the debt.
The Bright Side of Derogatory Accounts and Charge Offs
While derogatory reporting impacts credit, delinquent accounts and charge-offs are typically prime for a negotiated settlement. Debt relief companies often rely on accounts to eventual charge-off to better position accounts to achieve favorable result. National Legal Center attorneys often negotiate accrued interest and sometimes are able to negotiate deep discounts in a starting principal balance as well. However, be mindful that results to resolve any account is always an estimate and varies case-by-case, account-by-account.
Why Legal Debt Resolution Matters
When a National Legal Center lawyer handles your debt resolution, you have professionals who can:
- Provide legal advice and guidance,
- Manage a lawsuit if any, and draft a response, if appropriate.
- Negotiate a settlement with legal oversight.
- Communicate with collectors on your behalf.
- Ensure your rights are protected every step of the way.
Legal debt resolution combines the practical goal of settling debt with the protection of attorney representation.
Final Thoughts
Stopping payments is never an easy choice, but understanding the process helps you take control. If you’re behind on credit cards or facing collection calls, talk with National Legal Center about your legal debt resolution options. With the right plan and legal protection, financial recovery is possible.
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