Credit Card Default: what happens, how to avoid?

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blood_donor
Posts: 119
Joined: Sun May 27, 2007 9:36 pm
Location: Metro Detroit, MI

Credit Card Default: what happens, how to avoid?

Post by blood_donor » Mon Jan 21, 2008 12:06 am

Hi,

A friend of mine is in bad financial shape--9 months unemployed, with a bunch of credit card debt (~$25,000). (I assure you it isn't me!)

Question:

Suppose you are in that position--no real income, no longer able to maintain credit card debt.

What happens, what is the sequence? I imagine you'll get away with no real impact for a little while, until the credit card banks mark you as defaulted and wreck your credit rating.

What then? Will they write it off, or will they sue?

If they sue, what is a typical judgement? What assets can the court seize? Would they court take the car, which is needed for the crummy job that you are working at just to feed yourself?

Also, more importantly, what should I tell my friend to do? Credit counseling? Direct negotiations? Mexico?

His main problem is that the crummy jobs he has managed to get, typically around $8-9/hr, do not pay enough for him to do much more than buy gas, insurance, car payment, and a few other necessities. He "rents" a room from his elderly parents, but has not paid rent in ages due to his long unemployment. He has no assets to speak of other than some personal possessions (laptop, nice stereo, etc.). He has been basically squashed by the debt death-spiral.

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gatorman
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Location: The Swamp

Re: Credit Card Default: what happens, how to avoid?

Post by gatorman » Mon Jan 21, 2008 7:17 am

blood_donor wrote:Hi,

A friend of mine is in bad financial shape--9 months unemployed, with a bunch of credit card debt (~$25,000). (I assure you it isn't me!)

Question:

Suppose you are in that position--no real income, no longer able to maintain credit card debt.

What happens, what is the sequence? I imagine you'll get away with no real impact for a little while, until the credit card banks mark you as defaulted and wreck your credit rating.

What then? Will they write it off, or will they sue?

If they sue, what is a typical judgement? What assets can the court seize? Would they court take the car, which is needed for the crummy job that you are working at just to feed yourself?

Also, more importantly, what should I tell my friend to do? Credit counseling? Direct negotiations? Mexico?

His main problem is that the crummy jobs he has managed to get, typically around $8-9/hr, do not pay enough for him to do much more than buy gas, insurance, car payment, and a few other necessities. He "rents" a room from his elderly parents, but has not paid rent in ages due to his long unemployment. He has no assets to speak of other than some personal possessions (laptop, nice stereo, etc.). He has been basically squashed by the debt death-spiral.
Your friend should consult a bankruptcy attorney. I'm really not up on it anymore since the law changed, but I believe available exemptions depend on a combination of state and federal law and so he would need to get the local take on what he could expect to keep.

What he really needs more than anything is a better paying job. He should be able to go to his local state employment office and get some counseling. They will have a list of "demand occupations." He should look over the list and find something that interests him and pays well (the list should specify the median pay one could expect to earn.) He should then independently investigate to ensure there is a current demand and that the longer term prospects look good to him ("construction electrician" was a demand occupation in our area until recently, with the slowdown in new home construction it no longer is, although it was still on the list until a few months ago) and that his choice is something he can handle intellectually and physically. Usually, the jobs require only an associates degree, sometimes just a certificate, and there are programs to provide tuition assistance and help with books and supplies in most states. He may also qualify for food stamps and other assistance. Veterans may qualify for additional assistance.

In my area, the health care related occupations seem recession proof, I don't know how it is elsewhere, but in our area the hospitals are always looking for people. Certain government jobs appear to be the same, EMTs for example, seem to be in high demand (but the pay is not good compared to other health related occupations.) Once he gets hired, he may be eligible for tuition assistance from his employer so he can get additional training to further improve his income.

I know the foregoing is not a short term solution to his urgent problem, but he really needs to get a plan in place and start working toward the goal of getting a better job.

Regards,
Gatorman

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