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Report: over one-third of Americans have debt in collections

Our readers are aware of the debt problems faced by Americans, and the stress this puts on individuals and families. What readers may not know is that over one-third of Americans are indebted enough that they have debt in collections. That data, which comes from a recent study published by the Urban Institute, doesn’t speak well for the state of financial health in this country.

Debt goes into collections once it is over 180 days overdue. When it goes into collections, it is purchased by a third party at a discount. Debt collectors then attempt to recoup some of the money through various tactics. When debts go into collections, the debtor’s credit score takes a hit which can last for up to seven years. So it is definitely something to avoid whenever possible. 

Debt, of course, can be beneficial in many cases, particularly when the debtor is building equity or utilizes the debt to build a company, but consumer debt—such as credit cards—can quickly spiral out of control. Student loans are a particularly growing problem for young Americans, many of whom are finding themselves entering into a less than satisfactory economy with overwhelming debt.

One of the benefits of the bankruptcy process is that it puts an automatic halt on debt collection activities, giving debtors at least temporary relief and allowing them to come up with a plan to clear their debts. Filing for bankruptcy is not something one does simply to escape debtor collectors, of course, because it has a serious impact on one’s credit score, even if it can ultimately prove beneficial.

Anybody who is serious enough in debt to be considering the possibility of bankruptcy should contact an experienced attorney to determine whether a filing is right in their case. Bankruptcy is certainly not the only option for financial recovery, and those who go forward with the process need to be confident it is really the right choice in their case. 

Source: CBS Moneywatch, “The United States of Delinquent debt,” Aimee Picchi, July 29, 2014. 

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