When you're facing financial troubles, there are many routes you can take. It can seem overwhelming, and you may not be sure which option is best for you.
In some cases, strategic default might be your best choice. Still, you should take the time to learn what strategic default is and what its consequences might mean for you.
If you're considering strategic default, or your debts are in default, and you're unsure what to do next, a California debt attorney can help you.
Understanding Strategic Default
Strategic default involves a debtor stopping any payments on current debts. Once they stop making payments for a certain time, they will be in default.
The debtor may stops making payments even though they are financially able to pay. It's "strategic" because it's purposeful, and the debtor intends to go into default.
Strategic default is most often seen in real estate. A debtor "walks away" from a property, stopping all payments and allowing a property to go into foreclosure.
Strategic Default for Unsecured Debt
While strategic default for secured loans, like property, is widespread, you can also strategically default on unsecured loans.
Unlike a secured loan, an unsecured loan doesn't require a lender to secure collateral for the loan, like a house or vehicle. Unsecured debt often includes credit cards, store cards, and personal loans.
Typically, for unsecured debt, like a credit card, you can expect a specific timeline if you're looking to strategically default. For example, when credit card payments are late, you can accrue late fees or increase your interest rate. Eventually, the account will be considered in default, and you'll be moved over to the collections department.
If you continue to avoid payment, the debt will be "charged off," but you technically still owe the money. This is where collection agencies or debt collectors generally come in. After enough time, the debt will likely reach the hands of a lawyer, and you may face legal consequences.
While this is a common process, it is still best to do your research and speak to a qualified attorney to better understand your situation and know what you could expect from strategic default.
Consider Every Possible Outcome Of Strategic Default On An Unsecured Loan
Like everything else in life, you should consider all possible scenarios before deciding to walk away from your debts. Everyone's circumstances are different, so you'll need to understand your financial situation for better decision-making.
Below are some of the most common concerns debtors face when strategically defaulting on their debts.
Creditors Can Report It On Your Credit Report
Creditors typically report everything to the credit bureaus, even including late payments. If your loan goes into default, this will reflect in your credit report. Nothing can be done about this. This is the price one pays to settle debts for less than 100%.
Creditors Can Demand Payment
Some individuals consider strategic default, thinking creditors will eventually just write off the loan and never pursue payment again, but this is often not the case.
Creditors will always do whatever is necessary to seek payment for what you owe them. You can usually expect persistent contact as they demand payment.
Even if your creditor writes off the loan, this is not the end of the road. After some time, you'll no longer hear from your creditor and will instead have to deal with a debt collector. The debt collector will take over communications and seek payment for the loan.
Debtors often find the payment demands one of the most challenging parts of strategic default. Creditors can be insistent, but debt collectors are even more so because they frequently receive a portion of your payment.
***The good news is that a lawyer can stop all collection calls, letters, texts, emails from collectors. Debt settlement companies cannot, by law, provide this level of service.
Creditors Can Sue You
After your creditor has exhausted all attempts at collecting the debt and enough time has passed, your creditor may decide to sue you. When a creditor sues you, they're seeking a judgment against you. If the court grants this judgment, the creditor is allowed to take money and assets from you to satisfy the loan.
One of the most common methods of collection is wage garnishment. When your wages are garnished, the creditor will automatically receive a certain percentage of your wages at every paycheck. This way, the creditor is guaranteed their money back.
While creditors or debt collectors can sue you, they often don't go to such lengths. Even if you are sued, winning may be challenging. If a creditor sues you, do not ignore it! Talk to a lawyer experienced in these types of cases. Many time significant savings can be achieved.
Once you're served with papers regarding your lawsuit, you will usually be given 30 days to file a response. If you fail to respond to the lawsuit, the creditor can seek a default judgment.
A creditor can request a default judgment if you're nowhere to be found and have chosen not to respond to the lawsuit. If the creditor gets a default judgment, the court awards the amount they requested in their lawsuit.
Your response to a lawsuit should depend on your circumstances and goals. After learning of a lawsuit against you, you should speak to a debt attorney as soon as possible to determine the best legal strategy.
What To Do After Defaulting On A Debt
After defaulting on a debt, consult with an attorney as soon as possible. While seeking assistance from a debt counselor might be appealing, these counselors and other companies do not have the knowledge and resources a lawyer has.
An attorney fully understands the default process, how to go about handling creditors, and how to protect your rights. Additionally, there are a variety of consumer laws – a debt attorney is well-versed in these laws and how they pertain to your situation. A debt attorney is your best ally if you default on a debt and don't know what to do next.
Strategic Default Might Still Be a Feasible Solution
Even if strategic default seems scary and stressful, the consequences might be worth the potential benefits. A debt attorney can assist you in getting answers to your questions and concerns.
Get Legal Assistance from a California Debt Attorney Today
Fitzgerald & Campbell, APLC is a debt resolution law firm helping clients eliminate debt since 1992. Our firm understands how confusing your debt solution options can be, but we're always ready to help provide quality guidance from start to finish.
When you need a financial refresh, count on our attorneys to help get you there. Our firm offers free consultations. Call us at (844) 431-3851 or contact us online.