Informal Bankruptcy Can Be the Key to Eliminate Credit Card Debt

March 28th, 2010 | Posted in Credit Card Debt

One difference between formal bankruptcy and informal bankruptcy is the first stops payment to all creditors, while the second stops payment to selected creditors.

Formal bankruptcy offers legal protection from creditors, but it does severe damage to a credit rating. While informal bankruptcy offers no legal protection, but on the other hand it does less damage to a credit rating. By not paying credit card banks’ unsecured debts, you eliminate credit card debt and have a better chance of continuing the payment of secured loans like a home mortgage or auto loan that can be reclaimed by the bank.

Credit card companies do not do a good job of collecting debts from card holders with overdue balances. The Federal Reserve requires them to budget for a certain percentage of bad debts. Due to that they expect that many card holders will be incapable of paying back what they owe, and do not make a great effort to collect those bad debts.

Commissioned debt collectors and collection attorneys get about 30 percent of what they collect for credit card banks. They rely on threats, lies and/or legal firm letterhead to scare debtors into paying, according to the Credit Card Debt Survival Guide. They know some will be more difficult to collect from than others. So they concentrate their efforts on the most vulnerable debtors. They do not expect to collect from everyone.

A while after default, the accounts, except for those that have been collected, are sold by the credit card company to a junk debt buyer for less than 10 cents on the dollar. Debt collectors for junk debt buyers are more aggressive because they can earn up to 50 or 60 percent of what is collected. But they are also more opportunistic because they only need to collect on 20 or 30 percent of the debts to make a lot of money.

Becoming educated about consumer rights and knowing how to put together the proper written response to a debt collector’s collection effort is the key to successful informal bankruptcy and the way to eliminate credit card debt. Consumers should demand original documentation of the debt, as is their legal right, according to the Credit Card Debt Survival Guide.

You are invited to learn more about how to eliminate credit card debt, whether you can afford to pay or not, read theCredit Card Debt Survival Guide. www.credit-card-debt-survival.com