Credit Card Account Went Into Collections? Here’s Some Advice

by Lynnette Khalfani-Cox, The Money Coach on October 24, 2011

in Credit Cards


Q: “I have two credit cards that went into collections. I went through some financial difficulties and fell off on paying them due to having to pay other bills first, like my home and car, et cetera. Now one of them, BofA, was referred to a lawyer. He is harassing me by calling every 10 minutes sometimes. Is it best to make a payment plan with the lawyer and the other collection agency, just take them to court, or file bankruptcy? I feel like I’m drowning in debt here, and I need a way out. Any advice you could offer would be greatly appreciated.”

A: Well, first off, I would suggest to you that you back that lawyer up, pronto.

If that person is truly an attorney, he or she should know that they’re violating the Fair Debt Collection Practices Act, one part of which essentially says that debt collectors are not supposed to use the telephone as an instrument of harassment. Calling every 10 minutes is clearly a violation of the FDCPA, the Fair Debt Collection Practices Act.

So, what you need to do is to send that person a cease‑and‑desist letter and let them know that they are no longer to contact you. If they’re trying to call your job or anyplace else, tell them you’re not allowed to get calls there and don’t call there either.

Seek a Payment Plan

If you choose to negotiate with them as a way to pay off the debts that have gone into collection, then you need to propose a payment plan. I don’t suggest that you just automatically file bankruptcy.

I don’t know enough about your circumstances to suggest whether or not bankruptcy is your best option, or even a viable option. You only mentioned two credit cards. I don’t know whether you have six other ones, any other big outstanding balances, etc. I don’t know whether you’re working or unemployed. I don’t know whether you have medical bills, need to save your home from foreclosure or face any host of scenarios that might make you want to seek Chapter 7 bankruptcy protection or file for Chapter 13. So I would be hard‑pressed to say, “Just go ahead and file bankruptcy.”

Repay What Is Realistic Based on Your Budget

Before you even consider bankruptcy, there are a couple of steps that you should take to deal with your debts that are in collections.

First, see whether or not there is a workable plan that you can arrange with either this lawyer or the collection agency. Don’t let them twist your arm or manipulate you into paying anything more than you legally owe or into paying anything that’s unaffordable for you on a monthly basis. In other words, don’t over‑commit yourself. Only agree to pay what is realistic given your current budget.

And speaking of your budget, start taking a good, hard look at it. Have you been overspending? Have you been mismanaging your finances? If so, you need to get that under control. Here is an easy two-step process to create a basic budget.

Get Outside Help

If you can’t get your budget and finances together on your own, there’s no shame in seeking help. So another step is to get credit counseling from a nonprofit, HUD‑certified credit‑counseling agency. A lot of times they can work out deals with your creditors, lower your interest rates, and help you to get back on track financially.

I would suggest you take these three steps before you consider bankruptcy. But, in the meantime, the very first thing to do is stop the harassment. I recognize how very stressful that can be, especially during these tough economic times.

Bankruptcy Should Be a Last Resort

A bankruptcy filing as a way to get out of debt is not something to be taken lightly. Bankruptcy stays on your credit reports for 10 years, even though you actually can bounce back very quickly (even in just six to 12 months) if you do a Chapter 7 bankruptcy, which does, in fact, wipe out your credit‑card debts.

Still, filing bankruptcy should always be a last resort – only after you’ve exhausted all your other options.

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