While you may not wish for it, it isn’t unheard of for debtors to miss a payment due to various reasons.
Such cases may leave you at a disadvantage, especially if you are in dire need of payment.
Whereas debtor’s prison is a relic of the past, there are a number of legal options that lenders can explore to recover their money.
In this post, we’ll explore various legal options that lenders and debtors can take when caught up in a case of delinquent debt.
What Is Delinquent Debt?
A debt becomes delinquent when a debtor neglects to make payments previously agreed upon to a lender.
A delinquent debt usually carries high fees and can result in legal difficulties and unpleasant phone calls from debt collectors. These debts can also hurt an individual’s chances of obtaining future loans.
According to the US Department of Treasury Financial Management Service, failure to pay a debt on time doesn’t necessarily mean that it becomes delinquent immediately.
Some lenders provide a grace period over which a debtor may make a late payment without suffering any penalties. However, once the grace period elapses, the lender will categorize the debt as delinquent.
Delinquent federal debt
This is a payment situation in which a borrower misses their due date for a single scheduled payment for a form of financing.
Federal delinquent debts are government loans such as student loans, direct loans, small business administration loans, and HUD-insured loans.
Delinquency vs. Default
Default and delinquency are both loan terms that represent different degrees of the same problem: missing a payment. A loan goes into delinquency when a debtor makes a late payment (even by a day) or misses a regular installment payment.
On the other hand, a loan goes into default when the borrower fails to keep up with ongoing loan obligations or doesn’t repay the loan as laid out in a promissory note agreement.
According to the Code of Federal Regulations, most federal loans are not deemed to be in default until after the borrower has failed to make any payments on the loan for 270 days.
Defaulting on a loan can impact not only your immediate financial situation but can also have negative implications in your future financial endeavors.
Consequences of Delinquency for Debtors and Creditors
In most cases, delinquency can be rectified by simply paying the overdue amount and any additional fees or charges that resulted from delinquency. Upon doing that, normal payment of the debt can start immediately.
Unfortunately, if a borrower is delinquent in paying their bills on time, their credit rating may take a hit.
Negative information such as late payments may remain on your credit report for as long as 7 years. However, if you can counterbalance the effects of the late fees by improving your credit rating in other ways, such as paying cards on time, keeping your credit utilization low, and using credit wisely, you may raise your credit score even with the delinquencies.
Despite the stringent measures put in place by creditors such as banks to ensure that borrowers pay their loans on time, a considerable proportion of the loans become delinquent. When this happens, creditors incur heavy financial losses.
Could Debt Settlement Be the Solution?
Debt settlement may be a potential solution for some debtors with severely delinquent debt.
When a debtor falls further behind on a payment, some creditors may agree to settle the debtor’s debt instead of getting paid in full before the debtor files for bankruptcy.
Whereas it is not always easy, debtors are sometimes able to negotiate with their lenders on their own to try to come up with a mutually acceptable solution.
In return for an agreed-upon one-time payment (typically between 40% and 80% of what you owe), the lender forgives the remainder of the debt and then reports it to the credit bureau as having been settled.
That said, most creditors won’t agree to negotiate with consumers who are up to date on their payments.
Why Should You Hire an Attorney?
Most creditors refer to a debt collection agency before turning to an attorney when faced with a scenario where the debtor is delinquent. Whereas it may seem that hiring a debt collection agency would be cheaper than hiring an attorney, that’s not always the case.
The fee you’ll pay to a debt collection agency will depend on the magnitude of the collection—there are times when the debt collection process is straightforward and the cost may be lower. However, most often the debt collection process is complex and may cost a lot of money.
A debt lawyer can come in handy in debt delinquency cases.
With a debt lawyer, a creditor who is involved in a court case is sure that they have the required expertise on their side to help them recover their debts. The debt lawyer can make compelling arguments to the judge that can help lenders recover most if not all their money.
Moreover, a debt lawyer can help you quickly determine whether the delinquent debtor is using illegal means to avoid settling the debts.
This is especially useful in a scenario where the debtor decides to file for bankruptcy, yet they have the capacity to settle the debt.
Need Help Settling Delinquent Debt? Contact Hanna & Jarbo
Hanna & Jarbo, PLLC is a multi-jurisdiction law firm that specializes in debt collection and complex business litigation. We achieve debt collection 85% of every case. You won’t find better debt collection services anywhere in the Midwest. With us, you are with the best breach of contract defenses.
Our specialty practice areas
At Hanna & Jarbo, we work to not only recover past due balances but also advise them on better ways of protecting their business when extending credit in the future. Our firm represents a wide range of creditors in collecting both past-due balances and fully-exhausted debts. Our specific areas of debt collection include:
- Supplier Account Receivables
- Returned Checks (including charge-back credit card payments)
- Landlord-Tenant Debt & Money Judgments
- Charged-off or non-paying commercial credit portfolios
- Construction debts
- Auto loan and deficiencies
- General loans, notes, and credit lines in the default
- Secured and unsecured judgments or liens
- Foreign (non-Michigan) judgments
- Mortgage/Land Contract deficiencies
Equipped with knowledge to track down your debtors, enforce the law and win more than 85% of all cases, your debt recovery is in safe hands.
Contact us today, and let us help you recover what is rightfully yours.