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Debts Sold to Collection Agency

Debts Sold to Collection Agency

Debts are frequently sold to a collection agency.  Having your debt held by a collection agency can be a much worse position than just owing to the original creditor.  Understanding how debts are sold to a collection agency can greatly increase your credit-related knowledge. It will also help you understand how debts are collected.

Concepts Related to Collection Agencies

Collections concepts and terms are sometimes misunderstood.  For instance, most people believe that “charged off” is a good term on credit similar to the term “written off.”   “Charged off” is actually a bad term usually: it generally means that you may now have to deal with a collection agency.  The original creditor believes that your balance is now a “bad debt.” They will then simply transfer it to a more aggressive collection department or even sell it directly to a collection agency. 

Another concept that is important to understand is “transferring of a claim.”  In our modern society, debts can actually be sold or transferred to any party.   Essentially, the original creditor can just sell their right to the money owed. This includes the right for the new party to sue you for the debt.  Collection agencies will frequently have claims transferred to them to pursue in collection. They are experts only in the realm of debt collection, even suing sometimes 100’s of people at one time.

When Debts are Sold Things Get Much Worse

When your debt is sold to a collection agency, things usually get much worse.   First, the new company does not simply keep large books for people who owe money.  Instead, they aggressively attack with collection letters, calls, and other forms of collection.  These can be very difficult to overcome, usually forcing the person into settling the debt, getting garnished, or eventually filing for bankruptcy. 

Secondly, some debts will now start appearing negatively on your credit report.  Certain debts such as medical or locally-based debts usually do not even appear on your credit report until they go to a collection agency.  This can take an otherwise good credit score down quickly when negative information begins appearing on the credit report. 

Lastly, debts sold to a collection agency can result in massive, dead-end lawsuits.   For instance, if a mortgage company forecloses on a house, there can sometimes be a large debt that floats around out there for several years against mortgage holder(s).  Similarly, large or even astronomical medical debts can float out there for many years, never settled. When these debts go to collection agencies, sometimes the new creditor will immediately sue for $100,000 or whatever other large amount just to force the issue.   Those who owe the money will not have a choice. Bold action will then need to be taken to counter the situation with a settlement or a bankruptcy filing.

Credit Score Changes Decrease Bankruptcy

Credit Score Changes Decrease Bankruptcy

Major changes are coming to how credit scores will be calculated.  These credit score changes will likely make it more difficult for many people to obtain new credit.  This, in turn, will likely decrease the total amount of bankruptcy filings to some degree. People who historically have turned to bankruptcy may have a lower credit score soon, which will decrease their ability to get into more debt.

Late Payments – New Credit Score Changes

Late payments will now trigger a larger dip in credit score.  People in danger of bankruptcy are usually more likely than others to suffer from late credit payments.  This could decrease credit scores before these people are able to get into more debt. Late payments have always had a strong effect on credit score, but this effect will now be intensified with the recent changes.

Not Paying Off Credit Cards in Full

If you do not periodically pay off your credit cards in full, this will now have an adverse effect on credit.  In the past, a certain ratio of credit card balance was more preferred than paying the credit card off in full.  Now, the greater reward will go to paying off credit cards in full.   

This will have a powerful effect on decreasing the credit ability of people who are in danger of bankruptcy.  As credit cards build, credit scores will suffer. This can potentially cause the never-ending increase of credit card debt to be cut off much earlier.  It may allow some people to stop incurring credit card debt at a point where they will actually be able to avoid bankruptcy.

Personal Loans

Personal loans will now have a greater damaging effect on credit score.  Personal loans are usually used to catch up on bills. Other times, they are used to purchasing things that cannot be afforded.  Personal loans are a tell-tale sign that bankruptcy may be coming in the future. Personal loans may now do sufficient damage to credit to prevent the incurring of future debt.  This may also have the potential to ultimately decrease bankruptcy filings.

Conclusion: Responsible Lending Reduces Bankruptcy

On the most simple level, responsible lending choices ultimately reduce bankruptcy filings.   If the changes to credit score calculation reward good credit behavior and penalize bad credit behavior, then ultimately bankruptcy filings will be reduced.  The best evidence of this was the irresponsible mortgage lending that led to the 2008 financial meltdown. The ensuing bankruptcies were largely a result of those irresponsible lending and credit calculation choices.  Better credit calculation can result in a more stable economy and reduce bankruptcy.

Indiana Home Values and Bankruptcy

Indiana Home Values and Bankruptcy

Indiana home values are surging even at higher amounts generally than the rest of the nation.  These home values increasing usually do not slow down the volume of Indiana bankruptcies filed.  In fact, sometimes the increase in value can cause more bankruptcy. With Indiana home values on the rise, Hoosiers will also be faced with unique situations when they file for bankruptcy.

Hoosier Home Values Drive Higher Amounts of Bankruptcy

With more bankruptcy cases on the rise, defaults on mortgage payments will also start to occur.  More and more Indiana residents will face mortgage foreclosure. This also creates a “domino” effect that will lead to even more bankruptcy filings.

Indiana Home Values will Also Not Be Fully Protected in Bankruptcy

Even more concerning is the fact that many Indiana home values will not be “safe” in Chapter 7 bankruptcy because of their elevated status.  Homes that were bought only 4-5 years ago will frequently now have $50,000 or even $100,000 more sale value. In Indiana, the exemption (protection) in Chapter 7 for residence equity is only $19,300 per person.  This could be wholly inadequate to protect Indiana residents that are now facing a higher home value. They could be forced into a Chapter 13 repayment plan or to settle with the Chapter 7 trustee in order to keep their house. 

Hoosier Home Values Could Be Headed for a Crash

The worst aspect of rising Indiana home values is the fear that eventually a market correction or crash could be coming.  In 2008, the real estate crash caused record new numbers for bankruptcy under the new 2005 Bankruptcy Code. It is very possible that a major mortgage default and market crash could eventually happen again.  This can be a worse-case Indiana-bankruptcy scenario. If this happens, many people could also ultimately lose their jobs as the entire economy suffers. Rising home values can be a blessing that can quickly change into a curse.  It can be a great way to gain equity and savings, but can also cause crashes if the market elevates too quickly.

Lien Removal in Indiana

Lien Removal in Indiana

Lien removal in Indiana can be a confusing process.   Some liens in Indiana get put on homes through lawsuit judgments.  Other liens can come on a property through tax debt or child support arrears. Liens can be removed from a property in Indiana only through a few methods.

Indiana Lien Removal: Paying It Off

The most simple way to remove a lien in Indiana is to simply to pay it off.  A lien is a balance of money that must be paid before a property is sold.   It simply attaches to your property like a mini-loan or mini-mortgage that must be eventually paid off.   Lienholders usually will not force monthly payments or foreclosure. They simply wait patiently, knowing eventually that they will get paid.   

To pay a lien by paying it off,  you can contact the lien holder such as the IRS or a judgment creditor and get the balance for the payoff.  When the lien is paid off, it will promptly be removed with a filing that states that the loan was fully satisfied.

Indiana Lien Removal: Taking Legal Action

Sometimes you can take legal action to remove a lien.   You can petition a local court to reverse a judgment or contest a lien filing.  The lien can many times be removed from the power of your local county court. Other times, you may be able to challenge government liens either through an administrative or full court filing.  For instance, an accountant or tax attorney may be able to challenge the validity of the debt behind an IRS or Indiana Department of Revenue lien. If your attorney or accountant can challenge or settle tax debt through the administrative system, then your lien could very easily be removed.

Other times, Chapter 7 or Chapter 13 bankruptcy can be another powerful way to take legal action to remove a lien.   In both Chapter 7 and Chapter 13, you can many times remove “judicial” liens. These are liens that attached to your real estate after getting a judgment in a lawsuit.  If you do not have substantial amounts of equity in your real estate, then you can usually get rid of these liens simply through a Motion in your bankruptcy case. In Chapter 13, you can also get rid of mortgages that are completely “underwater” on your house.  If your second mortgage lien is “wholly unsecured,” then you can many times remove the mortgage lien through taking legal action and then completing your Chapter 13 case.

Indiana Lien Removal: Settle Out the Lien

Strangely enough, it is often relatively easy to get a lien creditor to take less than their full amount to settle out a lien.   You can sometimes even settle certain liens for as little as 10-20% of the total balance. Even government units will sometimes agree to some parameters or a certain less-than-full-value pay-off amount to remove the lien.   Liens have various levels of collection strength. They can be more or less collectible depending on your overall financial situation. If the lien’s collection ability is weak, they will be much more likely to settle for an amount smaller than the full lien value.  

Will the Bankruptcy Law Change?

Could the bankruptcy law change?

Elizabeth Warren’s Proposals

The last major reform to the bankruptcy code was in 2005.   With Elizabeth Warren now in the political limelight, she is calling for radical bankruptcy laws changes.  Will the bankruptcy law change soon? A look into the history of the 2005 law change and Elizabeth Warren’s proposal may shed some light on whether a Bankruptcy law change is truly coming.

The 2005 Law Change Left a Sour Taste

Elizabeth Warren aggressively fought against the 2005 law change.  She understood that it would greatly restrict bankruptcy access. As a law professor and legal researcher, she understood clearly that this would create problems for society.  Warren was largely overcome in her clear opposition. After some argument, the law was passed with little changes, coming into effect in October of 2005.

Warren’s Bankruptcy Proposals “Right the Wrongs”

Warren is now committed to being a champion for bankruptcy and debtor rights.   She strongly believes that a liberal and open bankruptcy system is required for preserving a free and profitable society.   She has proposed several changes to the existing law. 

One of the most needed changes she proposes is arguably a liberal, uniform federal homestead exemption.  This would set a fair amount that every bankruptcy filer can use to protect their home from creditors. Currently, this system is virtually different in every state.  Some states offer high exemptions that are almost unlimited. Other states only allow exemptions as low as $15,000 or even less. The current system is not uniform and unfair in some states.   Warren proposes that fair and liberal exemptions for homes and all other property are uniformly provided. 

Another powerful change would be the ease of access to bankruptcy.  Warren proposes a uniform system that would offer complete relief for the debtor in a merging of the Chapter 7 and Chapter 13 system.  All the bankruptcy forms would be simplified and provide easy access online. Then, debtors could either discharge some or all of their debts, or they could elect to pay some of the debts back.  This would all be achieved through a simplified, single system. The fees for bankruptcy will be reduced also because of the system’s simplification.

Warren also proposes that debtors could pay their attorney fees after the bankruptcy case is filed.   Currently, any work done by an attorney before a Chapter 7 bankruptcy case is filed must be paid for by some party BEFORE the case is filed.  Also, the $335 court cost must be paid beforehand. Warren desires to eliminate these requirements by allowing the court and the attorney to be paid through the bankruptcy system at a later date.  She argues that this will further increase the ease of access.

Time will tell if Warren will be successful in her goal for a bankruptcy system overhaul.  The election may allow a show-casing of the need for this law change. It may actually become a topic of debate in the election. 

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