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Life Cycle of Bad Debt
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1) Late payment

2) 30 days late

3) 60 days late

4) 90 days late

5) 180 days late = charge off

6) Charge off becomes a collections account

7) Unpaid collections become judgments if you are sued

8) Unpaid judgments can result in wage garnishment, frozen bank accounts and/or liens against real estate


Once you are 180 days late on a payment, your creditor must write the debt off the books. Legally they can no longer hope to get the money from you. So the account moves to collections…


Because these bad debts are worth pennies on the dollar, it is in the best interest of your creditor to work with you on a realistic plan to repay what you owe. This may be at a reduced rate of interest or none at all.

Likewise, it is in the best interest of the original creditor to work out a plan with you that earns them more than pennies on the dollar.

NOTE:  If you are sued, go to court in order to avoid a default judgment.  Be aware if the judge encourages you to engage in "pre-trial mediation" or "resolution conference".  Click here for an excellent article from Main Street on this topic.


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