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The ailing U.S. economy and the housing crisis are making it increasingly difficult for credit cardholders and other debtors to fulfill their financial obligations, a trend observers say will take a toll on the debt- recovery industry's liquidation rates. "A principle source of recoveries for most of our industry was the ability of the debtor to refinance their home and generally take out cash with which they could pay off or pay down their credit card bill," says Gary Wood, president of Collins Financial Services Inc., an Austin, Texas-based debt buyer. "If [that option] isn't now completely dried up, it's certainly beginning to look pretty dry." The increasing costs of energy and food will make settlements-in-full harder to come by, and debtors will need to set up payment plans, Wood tells CardLine sister publication Collections & Credit Risk. "To the extent that people are able, many of them will [repay their debts],". he says. "But if it costs them two and a half times as much for gasoline to get to work, then the wherewithal to settle the amounts they owe is reduced," he says. Instead of settling a debt for $1,000 in one lump sum, consumers will choose to spread payments over several months, Wood says. "Over the long term, you get the same amount of dollars if you're the collector, but time is money, so you have the present value being reduced," Wood he says.
