Massive Credit Card Debt and Overspending

Q: I have a friend who is $118,560 in credit card debt and won't quit spending or take responsibility. In fact she gives out everyone elses info to be reached. Can she be helded accountable or could these companies press charges, maybe even impose a jail sentence?

A: Your friend has a serious problem, as you know. It could be a spending addiction, but it could also be another type of addiction that is resulting in irresponsible financial behavior. The best expert on this topic is Doug Thorburn and you will find more information about his work at http://www.preventragedy.com/ He has several books and articles I'd recommend you check out.

As for the legal ramifications of the debt, unless your friend has a lot of financial resources, it sounds like she is heading toward being unable to pay the debt. The result will be collections, lawsuits and perhaps even bankruptcy. Although we don't have debtor's prison in America, certain types of fraud (bounced checks, for example) can result in prosecution and possibly jail time, so I would recommend she talk with a consumer law attorney with a debt collection/bankruptcy experience as soon as possible to try to get some assistance in resolving the debt.

Unfortunately, you won't be able to solve her problem for her, but perhaps what you learn will be helpful as she recognizes the mess she is in and decides she is ready to get help.

Settling old collection debts

Q: I have some old credit cards (for 200 to 500 dollars) debt that I will be able to pay shortly. Should I contact a lawyer or the debt collectors on my own?

A: I don't see any reason to get a lawyer involved for those small debts unless you think there may be legal issues involved (harassment or unfair debt collection practices, for example). If you do need an attorney, visit NACA.net for a referral to a consumer law attorney with debt collection experience.

As for these debts, keep in mind several things:

1. If they are outside the statute of limitations, you have significant negotiating leverage.
2. Collection accounts may not be reported more than 7.5 years from the date you first fell behind with the original creditor, regardless of whether they are paid.
3. Simply paying a collection account -- in part or in full -- is not likely to raise your credit score. Your score will likely go up when they are too old to be reported any longer, and are removed.

Finally, get all agreements in writing from the collector before you pay, and do not give them access to debit the funds from your bank account. Visit StopDebtCollectorsCold.com for more information.

What To Do If You Can't Pay Medical Bills

Q: I remember a KNX broadcast where you discussed credit companies that help consolidate debt. My Son had a Blue Cross personal medical insurance policy and after being hospitalized and treated by several doctors Blue Cross sent him a notice that he had a pre-existing condition from childhood, cancelled his policy and is withdrawing payments for any treatment that may be associated with their suspicion of pre-existing condition (pretty much every doctor visit).

Currently the combined bills are around $14,000 and we're not sure how many more might come in. The hospitals and medical professionals cannot accept any reasonable payment plan and are beginning to threaten or have begun collection. I thought of the debt consolidation companies and remember that you said you know some reputable ones. Is this viable or can you offer any suggestion to other remedies?

A: I am sorry to hear about the tough time your son is having. First, I would not simply accept the notion that those bills can't be reduced. He is basically uninsured, and should try as hard as possible to get reductions in the amounts due. (The insurance company, if it did cover him, likely would pay a lot less than the sticker price for medical services.) You'll find good information on how to do that here. I would also recommend you contact your state insurance commissioner to learn whether you have any rights with regard to how his policy was handled.

By debt consolidation I assume you mean credit counseling, and he can certainly talk with the company I recommend here. However, if the bills are being turned over to collections and he can't pay them, he may need to either consider negotiating settlements or talking with a bankruptcy attorney if absolutely necessary.

This is no doubt stressful on top of his medical issues, and I am hoping he will be able to find a way to get the care he needs without having to go through bankruptcy.