What is an informal bankruptcy?

Answer 1

"Informal Bankruptcy" is the term proposed by authors Dawsey & Ausubel in their 2004 article by that title.

It is defined as simply hanging up on creditors' calls and ignoring their letters.

For those lacking visible assets and/or verifiable employment in "debtor friendly" states it can be a viable option. In other states such as Georgia and Tennessee, strong creditors' remedies dictate either a formal bankruptcy strategy or a departure from the state.

The authors' study was somewhat limited however, and did not take into account the possibility that debtors pursuing an informal bankruptcy strategy might at some later time use the federal bankruptcy laws, make partial or full repayment voluntarily, or lose some assets or income to attachment or garnishment.

Probably the most advantageous strategy for someone in financial straits who does not want to avail themselves of a formal bankruptcy would be to self-educate themselves on the local and Federal Laws regarding collections and debt, maintain good records and vigilance over their credit reports and the local courthouse plaintiff/defendant indexes.

Over time, the debtor could fight the cases they could win and potentially settle the cases that were brought by more stubborn creditors. The tables could also be turned on many creditors by suing them for the almost-inevitable FDCPA and FCRA violations, and some debtors report that such suits provide them a second income.