Debt can be one of the most difficult things to get rid of. Once a person racks up a huge amount of credit card debt, for instance, paying off this debt can often take years. According to many reliable sources, the typical American who holds a recurring credit card balance owes somewhere in the range of $15,000 to $17,000 in total credit card debt. Of course, this is only an average, and so this single figure is obscured by outliers who hold very high sums of debt; but as a general yardstick it’s useful for gauging how widespread a problem debt can be for many Americans. How quickly can the typical person expect to pay this type of amount off? For many people, climbing out of debt requires years of hard work, and so it’s quite common for people to be paying off debts which were initially drawn out a long time ago.
If you’re trying to resolve debts from many years ago, we have an important message for you today: paying back old debts may not be the wisest decision from a financial perspective. In this post, we will explain why you should think twice before attempting to pay back old debts.
Partial Payments Reset Statute of Limitations
Whenever you incur a debt, a statute of limitations applies to its collectability. This means that the creditor only has a certain amount of time in which it can attempt to collect the debt, and then after this deadline expires the debt is no longer collectible (and is effectively written off as a “bad debt” by the creditor). The statute of limitations is therefore a useful thing for a debtor because this provides a potential means to avoid repayment. However, what many people don’t realize is that the statute of limitations can be disrupted by a partial payment.
In the State of Florida, as in other jurisdictions, the statute of limitations is “reset” whenever a debtor makes a payment of any amount, and so a debt which may have been rendered non-collectible may be collectible simply because the debtor makes a partial payment. For reference, the creditor usually has 5 years from the date of the debt to recover the debt via judgment. If someone refrains from making a payment for 4 years, and then makes a partial payment, then the clock is reset and the creditor gains another 5 years to pursue collection via court judgment. Hence, the partial payment keeps the debt collectible, which can actually be financially detrimental for the debtor.
Bankruptcy May Be the Better Option
If you keep a debt alive via partial payment, this can lead to all sorts of unpleasant consequences. If you fail to satisfy the debt in full, a judgment could lead to aggressive collection actions, such as wage garnishment. The potentially better solution is to dissolve the debt in bankruptcy rather than attempt to pay the debt back gradually over time. Although bankruptcy can have its own drawbacks (such as a temporary blow to a person’s credit score, for instance), it also carries significant benefits as well, which is precisely why so many people utilize this tool on a yearly basis. A Chapter 7 bankruptcy will allow you to literally wipe the debt away without any expectation of repayment. A Chapter 13 bankruptcy, on the other hand, will allow people to restructure their debts in a workable payment plan over the course of several years. Both of these options may be preferable to gradual repayment without bankruptcy, depending on the circumstances. A consultation can help determine the best possible strategy in your case.
Contact Financial Freedom Advocates for More Information
If you’d like more information, don’t hesitate to contact Financial Freedom Advocates
today by calling 786-668-6688.