23 Jun Why Won’t Creditors Won’t Work With Me?
At Bolinske Law we listen to our clients. One of the common themes that clients come in concerned with is “Why creditors won’t work with me.”
With a few exceptions clients coming in for the first bankruptcy consultation have all expressed the desire to repay their creditors. Most clients have suffered a job loss or job interruption, divorce, health problem or death in the family.
The result of one or more of those events creates a chain of events that is unrecoverable in most cases. The end result is the temporary inability to repay creditors.
The response by creditors upon hearing that you have suffered income problems, a sickness, divorce or death is often to trigger a default.
If you look at the fine print of your credit agreement the low annual percentage rate is a temporary rate that can be increased at any time with notice to the debtor. The result of the increase in APR causes most people to have the inability to pay the debt back because the original low rate of 13.5% jumps to 29.99% or higher.
Suddenly, a monthly payment that was $300.00, and affordable, becomes $400.00 or more. Add to that the issue that caused the increase in the first place may still exist.
So the question is why do creditors refuse to work with you?
The answer is simple creditors know that most individuals desire to repay debts. Creditors have run the numbers and determined that if they put more stress on debtors by increasing interest rates and adding fees most individuals will struggle to make the higher payment.
The higher payment often results in not only the principal being paid back but a high amount of interest as well. Creditors have essentially developed a hot box that turns up the temperature on debtors struggling to pay back the debt.
Creditors often begin to work with you when you are 90 days past due. So to have creditors “work with you” you have to stop making payments the result of which is over the limit fees, missed payment fees and interest accruing during the entire time.
Within that time the original balance has typically increased by about a third because of the fees and interest. Creditors’ next “work with you” by offering settlement of 75% of the balance paid in full within 30 days.
The fact is creditors know that few debtors can pay off the entire balance even at a 25% “discount.” When the debtor can’t pay the settlement amount the interest and fees continue to increase.
After a period of time with internal collections creditors then transfer the account to external collectors. External collectors will often call multiple times a day in an attempt to harass you in into paying the bill. At this point the amount owed is usually nearly double what it originally was.
Interest and late fees continue to accrue.
Finally, creditors will sell or assign the debt to a third party. The third party upon purchasing the debt for 5 to 10 cents on the dollar will attempt to make a profit.
In many cases the third party collector will hire a lawyer to obtain a judgment. Once a judgment is obtained creditors can levy up to 110% of amount owed from a bank account and can garnish 25% of wages from your employer.
The time frame from default to the selling to a third party collector is usually a year or so. In that time you can expect to receive a thousand phone calls several hundred letters and ultimately a summons to appear in court.
Each of the collection methods is a type of stressor. Most of my clients are extremely stressed because of the collection methods.
Upon filing bankruptcy all collection calls, dunning letters and lawsuits stop.
The most common phrase I hear from clients after filing is, “I should have filed bankruptcy sooner.”
Call Bolinske Law today or contact us here to get the help you need.
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