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How do I find all my debts to file for bankruptcy?

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Q:

How do I find all my debts to file for bankruptcy?

A:

If you are considering filing personal bankruptcy, identifying your secured and unsecured debts is one of the first steps. Unsecured debts are debts not attached to an asset, including medical bills, unsecured personal loans and credit card debts. Secured debts, however, are debts that are collateralized by an asset and are not dischargeable in bankruptcy. Secured debts can include car loans and mortgage debt.

Steps to Identify Secured and Unsecured Debts

Whether bankruptcy is a good idea for you may depend on whether you have secured or unsecured debts. For example, discharging certain unsecured debts may eliminate the spiraling debt cycle of late fees, penalties and high interest rates. But if you only have secured debts or debts that cannot be discharged, bankruptcy may not be the best option. To make this determination, you will need to identify your debts by taking the following steps:

  1. Collect all of your bills – The first step to identify all the debts you owe is to collect your bills for the month. The bills can then be categorized on a spreadsheet. Be sure to include the lender’s name and debt balance for each bill.
  2. Contact the credit agencies – Next, you will need contact each of the national credit reporting agencies (Equifax, TransUnion and Experian) and request a credit report. Each agency should provide a free credit report every 12 months. The report will provide the mailing address, telephone number and debt owed for each lender. Although the reports may be very similar, different information may be included on each report.

Common debts reported on credit reports will include medical debts, credit card balances, personal loans, mortgage debts and car payments.

After you have completed the steps outlined above, you should have a good idea of most of the unsecured and secured debts that you owe. The next step is to validate that you really owe the debt and whether the statute of limitations for the debt has expired.

Collection Agency and Purchased Debt

It is not unusual for companies to hire collection agencies to attempt to collect debts for them, thus saving time, money and resources to collect the debts on past due accounts. Debts may be assigned to collection agencies, with the agencies keeping a percentage of debts collected, or the debts may be sold to collection agencies.

Before repaying any debts that have been sold to a collection agency, you should first ask for validation and proof of the debt purchase. Under the Fair Debt Collection Practices Act (FDCPA)—which prohibits debt collectors from using abusive, unfair or deceptive practices to collect debts from consumers—you have the legal right to ask for debt validation.

Debt validation allows you to request (in writing) the name and address of the original creditor and verification or judgment of the debt. If the collection agency cannot provide this information, they are not allowed to contact you for debt collection or report the debt as unpaid to the collection agencies.

How do I know if I still owe the debt?

Debt collectors and creditors have a limited number of years, referred to as the "statute of limitations," to collect unpaid debts. Unfortunately, identifying the number of years can be difficult because it varies by state and by type of debt. The statute of limitations may also be restarted if you take certain actions (i.e. make a partial payment).

So how do you find out if your debt is too old for the creditor to collect? You will need to identify whether your debt is based on a written contract, oral contract or promissory note, and whether it is open-ended or closed-ended credit.

As mentioned above, the statute of limitations can vary by state, although it is generally between three and 10 years. The statute of limitations can also start the day that the first payment was due, the date you made your last payment, the date you made a promise to pay, the date you entered a payment agreement, or the date you acknowledged the debt liability.

If a creditor attempts to file suit against you after the statute of limitations, you do not have to pay the debt. In fact, any attempt to sue you after the statute of limitations can be a violation of the FDCPA. Keep in mind, however, that the debt does not disappear. The collection agency only loses their right to sue you. You may still voluntarily repay the debt.

Cleaning Up My Credit Report

We have discussed identifying secured and unsecured debts and validating whether these debts are still owed. Next, let’s discuss how to clean up your credit report.

The easiest way to improve your credit report or to maintain a high credit score is to pay all of your debts on time and in full. Any attempt to avoid payment, including bankruptcy, will lower your credit score.

If you have negative information on your credit report, this information can only be removed by the creditor who reported it. Experts suggest that even if you are unable to repay all of your bills in full and on time, if you maintain contact with your creditor and stay on good terms with them, they may be more willing to help you rebuild your credit.

The worst thing that you can do is to allow bills to pile up on your desk and ignore them. They will not go away and your credit score will suffer.

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