With a large number of Americans filing bankruptcy every year, creditors and debt collectors alike have gotten more aggressive with their collection tactics. I guess they believe that they have to be quick in today's economy or they will get nothing at all. Creditors are now quick to sue so they can get a judgment, followed up by a wage garnishment when people start getting behind on their debts. It doesn't take a rocket scientist to figure out that the debt ratios of most Americans are unsustainable. People just don't make enough money for the lifestyles they are trying to keep.
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Recently, I was walking through the mall and noticed some women that appeared to be house cleaners carrying designer purses. My grandpa would roll over in his grave to see the foolishness of people spending in living beyond their means. My grandfather did well for himself and at the time of passing had 20 pieces of property, a successful business and an old beat up car. Sure, all the assets are nice, but he thought it was a waste of money to try to drive a new car just to impress a bunch of people that you really don't care about. Americans have let your egos rule their pocketbooks. The media has pushed for the idea that image is everything, no matter what the cost. What happened to the wisdom of our elders?
Creditors are not stupid and are in business to make money. They know if they can keep someone in bondage just one more month, it will be just that much more profit for them. The credit industry also has to follow the rules and regulations of the dreaded IRS and if they want to write something off on their taxes as a loss, they will have to send it out to somebody as income. That's why many creditors will send out a 1099C for individuals that have settled debts, had their car repossessed, gone through a foreclosure and anything else where there was a deficiency on the entire balance.
Off-topic, this is another reason why filing bankruptcy is a better solution for most people rather than using a debt settlement company. A debt settlement company will negotiate with the creditors to reduce the balances of typically about 50% of the balance owed. Most creditors usually take the deal knowing that something is better than nothing and digging their heels in will only lead to filing bankruptcy of the individual in trouble. For the creditor to write it off as a loss, they will need to send a 1099C to the individual as taxable income. This becomes a problem if someone went through foreclosure and gets taxed for $100,000.
To avoid being charged with this phantom income, an individual can file for bankruptcy and wipe out any past liability of these debts. If the individual is insolvent or bankrupt, the debt will no longer be treated as taxable income. This is once again something that needs to be discussed with a bankruptcy attorney because every situation is different. The last thing a person that is in financial trouble needs, is to have IRS trouble. It makes sense to spend the money on a bankruptcy attorney and file Chapter 7 versus signing up for some sort of debt settlement or debt consolidation program. Because those programs are unregulated, they leave the individual open to all sorts of liability. Nothing beats a bankruptcy discharge to put a definite end to debt problems.
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