What seniors should know about debt collection – part one of two
This two-part article takes a look at what seniors should know about debt collection. Americans are going further and further into the red. Experian Information Solutions reports that consumer debt in the United States reached $13 trillion in the fourth quarter of 2018. Helping to comprise that total debt are credit card debt at $834 billion; mortgage debt at $9.4 trillion; personal loan debt at $291 billion; student loan debt at $1.37 trillion and auto loan balances at $1.27 trillion. All of these numbers are all-time highs.
Alarmingly, senior Americans are not immune to unbridled spending. The National Council on Aging (NCOA) reports that seniors are carrying more debt into retirement than ever before. Their 2018 report entitled Older Adults & Debt: Trends, Trade-offs, and Tools to Help details the frantic pace at which seniors are racking up debt. According to the Survey of Consumer Finances, the NCOA indicates that households headed by an adult aged 65 or older increased consumer debt as follows: 41.5% in 1992 to 51.9% in 2010 to 60% in 2016. By 2016, the median household debt for older adult households was $31,300 – more than 2.5 times what it was in 2001.
While medical bills, mortgages, student loan payments and personal loans comprise some of the debt seniors have amassed, credit card and housing debt are among the most common. According to the NCOA, in 2001, only 24% of senior households had credit card balances; by 2016, that number had increased to 34.2%.
U.S. News and World Report contributor, Bob Musinski suggests that credit card debt by senior Americans may be a natural occurrence while “unexpected costs in retirement, increased daily expenses and the carryover of debts from their working years” may not be. He notes that baby boomers grew up in credit card households, so their continuation of credit card use, and potential credit card abuse, is a natural continuation of their youthful and somewhat liberal existence.
Naturally, the increase in consumer debt by seniors will result in a rise toward more debt collection efforts against older Americans. So what should seniors know about debt collection? First, they must identify the type of credit the debt collector seeks to collect. In generally, debt is either “secured” or “unsecured” and those seeking to collect them are respectively referred to as “unsecured creditors” and “secured creditors.” Unsecured creditors are lenders or entities to which a senior owes money for services provided. Unsecured creditors, however, do not have any collateral from the senior. Landlords are unsecured creditors who can take legal action to have you evicted or to collect rent or the cost to repair the premises. Utility companies (gas and electric) are unsecured creditors who can terminate services for lack of payment. Phone companies are unsecured creditors who can terminate phone use and internet services. Credit card companies are unsecured creditors who can seek to obtain a money judgment for purchases made on their credit card accounts.
Secured creditors are generally thought to be lenders, banks, or other asset-based entities that hold a fixed or flexible charge over a business asset or assets. If a debtor defaults on his or her debt obligation, sale of the specific asset over which security is held provides repayment to the secured creditor. Creditors who extend loans for vehicle purchases are generally considered secured creditors. The vehicle is the collateral for the loan and a secured creditor can repossess the vehicle if a senior doesn’t pay all installment payments as required of him or her. Loans for furniture, homes and boats are other examples of secured loans.
Secured creditors have more remedies at their disposal than to unsecured creditors. If an item such as a car or furniture is repossessed, the secured creditor can then sell it and apply the sale proceeds toward the total amount due on the account. If the sale price does not satisfy the total amount due on the account, any deficiency amount may be sought by the secured creditor through other means. Let’s say that a senior has a $10,000 car loan and she can’t make the payments. The secured creditor will likely repossess the car. Suppose the secured creditor sells the car for $5,000. The secured creditor then applies the $5,000 sales price to the total on the account and seeks to obtain the deficiency amount of $5,000 through litigation. Litigation refers to the process of resolving disputes by filing or answering allegations through the local circuit court system.
Article continued next month….
Todd Miller is a monthly contributor and regularly writes and speaks on various legal topics including bankruptcy, estate planning, probate and elder law. He formed the Law Office of Todd Miller, LLC, 1305 Southwest Blvd., Ste. A, Jefferson City, Missouri in 2006 and represents civil, criminal, business and governmental clients. Most recently, he was recognized by the Missouri Bar in its Best of CLE Spotlight for his contribution to educate Missouri lawyers and in 2016, he received the prestigious Adviser of the Year award by GolfInc. Mr. Miller earned his juris doctorate degree from the University of Missouri School of Law in 1999 and graduated with honors from Lincoln University in 1991. You may find him at www.toddmillerlaw.com (573) 634-2838 or on Facebook, LinkedIn, and Twitter.