Recently on our legal forum a user asked, “I am in a bit of a bind. I got very sick and could not work. I had to stay in the hospital for several weeks without insurance. We scrapped together a bit of money but most of the charges ended up on our credit card. Now, the credit card company and hospital are threatening to file a creditor lawsuit against me. I still cannot work. What are my options?”
A bankruptcy judge has fined Bank of America for continuing to pursue collection efforts against a couple who used bankruptcy to discharge their mortgages.
According to a recent news article, a new organization has formed in order to buy junk debt at pennies on the dollar and then abolish or forgive the debts. Strike Debt, a movement that evolved from Occupy Wall Street, held a fundraiser in the form of a TV telethon on November 15th to raise public awareness of predatory debt practices, debt resistance and mutual aid. Continue reading
In an effort to sell debt settlement, a blogger for the industry recently wrote on the “How Life Works” website an article entitled The 5 Dumbest Things You Can Do if You Have too Much Debt. In this case, the article should be exposed for what it is, an advertisement blog to sell debt settlement for the hosting company. Although one can poke holes in all five assertions made, the debt settlement blogger is busted for declaring bankruptcy dumbest.
Whereas I might partially agree with the assertions made by the blogger on debt in general, his or her comments on bankruptcy in particular were out of character and misinformed. In the article, here is the actual list of the five strategies the blogger says you may want to avoid, and I have made comments where I agree and disagree with each:
Paying on the minimum on your debt, as this will result in the amount you owe actually growing, and your problems will only become worse.
Comment: What the blogger is most likely talking about here is making minimum payments on revolving credit card accounts. The statement about such payments is true, unless you are paying on an account with no interest.
Relying on friends and family, as this can damage a relationship with the most important people in your life.
Comment: Where it is true financial relationships can strain family ties and relationships, financially relying on family and friends can be one of the greatest relationship builders known. We all start out very financially dependent on our parents, but few of us rely on our friends. It may not be wise to borrow money from family or friends when you are independent, especially if you are overextended, but if it is obvious your financial situation is not for an extended time, and you have the means to pay the money back, it may not be the dumbest thing either.
Unscrupulous credit counselors that demand cash upfront or high fees for help they promise, but don’t deliver.
Comment: Not all credit counselors are unscrupulous. The idea of learning how to manage a budget is not only a good idea, but it is required through certified counselors by federal bankruptcy laws before you can file bankruptcy. You can never know whether or not any vendor will deliver what they say they will without researching their credibility, and even then, you may learn differently the hard way.
Using new, high-interest loans to pay off lower interest rate loans. While it may be easier to just have one payment, it will actually increase the amount you have to pay back.
Comment: Consolidating your loans will not necessarily increase the amount you have to pay back. It can, but if you get one overall lower interest rate than the average current rates paid, you can pay back less for the total principal borrowed. Under certain circumstances, consolidating loans is a time honored and viable way to deal with debt.
Declaring bankruptcy–this can have permanent and severe consequences on your financial future. Avoid it if you can, especially when debt settlement may work for you.
Comment: This is probably the most ludicrous statement the blogger makes. You cannot avoid bankruptcy if it comes. It is what it is. Bankruptcy does not have permanent consequences. As a matter of fact, filing for bankruptcy protection is the only sure way of freshly starting over financially. Yes, you may have to rebuild your credit, but if you have not been able to pay your bills, your credit already needs rebuilding.
Settling debt only temporarily solves financial problems. You can say the same for filing bankruptcy. Learning to manage and live on a budget while maintaining a livable income are the only things you can do to really solve debt issues. Filing for bankruptcy protection is the only option that gives you the fresh new financial start you need to learn financial management.
People who owe money and are facing bankruptcy options are often confused about what their rights are concerning collection laws. Often, they hear about the laws that protect them from unfair collection practices, and they want to retaliate when collectors violate the law. So, exactly what is the rights of debtors when it comes to the collectors violating the law?
Here is an example of a debtor facing bankruptcy who recently blogged on a bankruptcy forum website: “I received a letter from a Junk Debt Buyer (JDB) yesterday, offering to settle my debt with them. (25% off big deal). Am I wrong but I was thinking the first contact letter had to contain a statement about debt validation? This was my first letter from them and no where on the letter does it say, unless you notify this office within 30 days, that you dispute the validity of this debt or any portion thereof, this office will assume this debt is valid.”
The Fair Debt Collections Practices Act was passed in 1978 as Title VIII of the Consumer Credit Protection Act. Its purpose was to “eliminate abusive practices in the collection of consumer debts, to promote fair debt collection, and to provide consumers with an avenue for disputing and obtaining validation of debt information in order to ensure the information’s accuracy.”
In general, the act creates various guidelines that debt collectors can conduct business, it defines the rights of consumers involved in debt collections, and it prescribes penalties and remedies for violations of the Act.
The debt collection laws, written specifically for certain circumstances, are like all other laws written. They are subject to interpretation by courts of law when there are alleged violations. In the United States, we are still innocent until proven guilty. That also applies to debt collectors who are perceived to have violated the law.
In recent years, complaints about a new type of collection agents, called junk debt buyers, have abounded. With many of these collectors working for agencies who train them without a formal education in the collection industry, something not required to get the job, it is no wonder that complaints have soared. Like any other new industry going through growing pains, mistakes have been abundant, and they are not likely to cease any time soon. Only the test of time and court trials will determine whether or not this new breed of collectors will survive, but as long as junk debt collections remains a billion dollar industry, odds are in its favor for survival.
What most debtors fail to understand when dealing with collection agency violations is that the law requires them to provide a court with the burden of proof that the debtor’s rights have been violated. Since the laws have become more friendly to consumers in recent years, it is not as hard to prove violations as it might first appear.
Normally, debtors can familiarize themselves with the laws to understand what guidelines the collectors must follow. Debtors can then document any violations by carefully dating any correspondence through any means of verification. Careful documentation goes a long way in proving to a court where collectors have violated the law. Once proven, the collectors stand a good chance of being penalized like any other violator of the law.
Harassment by a Collection Agency in the News
On February 10, 2012, The Huffington Post posted an online article placed on their website written by Harry Bradford. Excerpts taken from the article read: “Anne Sessions of Lane County, Oregon is suing Wells Fargo after one of its debt collectors reported to police that that the 85-year-old was threatening suicide, a claim she maintains was false.”
It seems the Wells Fargo collection agency went a little far in their harassment for debt collection from an 85-year-old senior who was anything but close to suicide. After the call to the police, the police took the senior into custody and sent the senior to a psychiatric pavilion for observation. There, she was found to be no danger to anyone including herself.
The senior reported she commented to the collection agency representative in their conversation that many of the collection agent’s customers must want to commit suicide after being harassed by the collection agency. This prompted the debt collection agent to try and trap the senior into admitting she was the one wanting to commit suicide. He suggested this by asking such taunting questions like “But…if you did [commit suicide], how would you do it – hurt yourself?”
Court records show being sent to the psychiatric pavilion left Sessions stuck with a hospital bill worth $1,055. The senior has filed a lawsuit against the debt collection agency in order to recover her hospital bill and $250,000 in punitive damages for the harassment of her by the collection agent.
Abuse and Harassment Claims on the Rise
The Federal Trade Commission has recently reported in their 2011 annual report that debt collection harassment has been increasing across the collection agency industry this past decade. debt collection abuse and harassment claims rose from 119,609 in 2009 to 140, 036 in 2010, the most ever reported.
The Government Beginning to Clamp Down
The FTC has begun clamping down on abuse and harassment claims against any collection agency showing signs of serial abuses. The collection agency who gives out harassment to the average debtor on a regular basis is beginning to receive harassment of their own for their abusive debt collection activities. Some of the debt collection agencies on the receiving end of harassment by the FTC may be getting the point on how it feels when being harassed. The only difference is that the pressure by the FTC placed on the collection agency who is illegally harassing debtors is legal.
Examples of Some Abusive Debt Collection Claims that Go Too Far
The FTC has been clamping down on a variety of collection agency abuse claims that includes repeated calls to debtors, failing to notify consumers in writing of their rights, and misrepresenting the debt in question. Some of the more horrific cases of harassment include using profanity and various types of threats against debtors.
Two of the more notable abuse cases took place in California where one debt collection attempt was made when the debt did not even exist. Another debt collection attempt was made by a collection agency who threatened to kill the debtors pets and desecrate the bodies of deceased family members.
Harassment goes too far when a debt collection agency makes these type of harassing and abusive debt collection efforts.
- Debt Collection Company Gets Slap on Wrist (betterbankruptcy.com)
- Law and Answering Collection Agency Calls After Filing (betterbankruptcy.com)
Filing bankruptcy can solve some garnishment problems
There are a lot of reasons creditors might want to take a portion of the income a debtor makes through garnishment of their wages, but before they can garnish anything, every creditor has to get a court ordered judgment against the debtor through a legal petition in a court having jurisdiction. In many garnishment issues, filing bankruptcy can often solve some problems associated with it.
Personal bankruptcy and garnishment story
Posted on February 6, 2012, a debtor considering filing bankruptcy to protect himself against judgments ordering the garnishment of his wages, shared these comments in a bankruptcy forum about his personal bankruptcy story:
“I am a degenerate gambler. I have lost any excess money I have to gambling…I make $24k a year, pay child support directly taken out of my check, and my take home pay after taxes, garnishment, and child support is $1050. My hard expenses is $700 per month. I will be joining a Gamblers Anonymous, but If I could get the one garnishment off my back, I am not even sure I would have to file bankruptcy… One wage garnishment for a judgment had an original debt of $3700. I have paid $4700 so far, but the creditor says I still owe $8,000 worth of penalties and interest. They will not settle the debt. I hired an attorney for $500 to settle it, and he cannot settle it.”
The problem with judgments
The problem with judgments is that they are the expressed will of what a court of law has decided is fair. A creditor can legally obtain principal, penalties, and interest through a successful garnishment process. The debtor in the illustration had his chance to challenge the judgment during the legal proceedings of the lawsuit filed by the creditor to obtain the judgment.
Once a judgment has been rendered, there is little legal recourse for a debtor to pursue other than filing bankruptcy. There is really no reason for a creditor to ever negotiate a judgment away unless the debtor is unemployed or threatening to file bankruptcy.
Maximum garnishment of wages
The maximum garnishment of wages that can be taken out of a debtor’s check, by federal law, is the lowest of the following:
25% of your disposable income.
Any amount greater than 30 times the federal minimum wage.
These limits don’t apply to garnishment for unpaid tax debts, bankruptcy court orders, child or spousal support, or voluntary wage assignments.
The moment you file for bankruptcy protection the automatic stay of the bankruptcy starts preventing collection activities of any kind, including any garnishment of wages for exempt or non-exempt debts. The automatic stay will remain in force until the bankruptcy is closed.
Potential resolution of garnishment
Filing for bankruptcy protection, depending on what bankruptcy you file, can permanently remove the garnishment of wages for debts non-exempt from discharge. Exempt debts from discharge, like such debts as child support and student loans, cannot prevent the garnishment of wages continuing once the bankruptcy is closed. In discharged non-exempt debts, a garnishment can be removed from the original court that provided the judgment.
A bankruptcy lawyer can help you determine whether or not any garnishment of your wages is non-exempt and eligible for discharge.
- Why Bother to File Bankruptcy? (betterbankruptcy.com)
- Should You File Bankruptcy if You are Collection Proof? (betterbankruptcy.com)
- Eleven Common Bankruptcy Definitions You May Want to Know (betterbankruptcy.com)
- Discharge of Debt in Bankruptcy? (betterbankruptcy.com)
How do I handle Payday loans ?
With the increase in the amount of debt that many Americans are carrying related to credit cards, mortgages, and other liabilities, the number of places offering payday loans has skyrocketed. Payday loans, also known as cash advance loans, are short-term loans—usually for one to three weeks—that are designed to allow a person to pay their expenses until their next payday. When you accept the payday loan, you are typically required to provide income and employment information to the lender along with a post-dated check (although it is becoming common for payday loans to be obtained online). The post-dated check would be written to the lender for the amount of the payday loan plus the fees charged by the lender.
Laws Governing a Payday Loan
The laws governing the fees and interest a payday lender may charge for payday loans varies by state. However, where payday loans are allowed, they are typically bad news for consumers, because once you accept a payday loan, it is difficult to ever get out of debt given the typically high fee and interest rates these lenders charge. For example, it is not unusual for the payday lender to charge $15 (or more) for every $100 borrowed; this could mean that for a two-week payday loan of $300 you have to repay $345.
When your payday comes, you are expected to return to the payday lender to repay the payday loan amount plus the fee. If you do not return as agreed to repay the payday loan, the lender will attempt to cash the post-dated check to satisfy the amount owed. If the check bounces, the payday lender will begin charging you interest and start taking other steps to collect the money owed.
Collection methods used by lenders for payday loans include those commonly used by credit card companies and other holders of unsecured debt. These methods can include letters and phone calls to you, filing a lawsuit against you to obtain a judgment, or assigning or selling the debt to a collection agency. Lenders are not legally permitted to contact your employer or your neighbors, nor can they arrest you for failing to repay a payday loan. However, it is not unusual for cash advance lenders to threaten jail time in an attempt to scare the borrower into repaying the loan. But as failing to repay a loan is a civil rather than a criminal issue (assuming you did not take the loan under fraudulent circumstances, such as with the plan of not repaying the payday loan from the start), jail time is simply not a possible punishment.
Top 4 ways to stop payday collections
If you are looking for ways to address the money you owe related to cash advance loans or you want to stop collection efforts, you have several options:
1. Notify the collection agencies to cease collection efforts for the payday loan under Public Law 95-109 Section 805-C.
This law stipulates that if you notify a collection agency in writing to stop contacting you, they are permitted to contact you one final time outlining what steps you need to take and what action they may perform if you do not take those steps. The final action they indicate they will take against you will often be threatening in nature, such as filing a lawsuit against you. What the collection agency and the original lender actually do if you do not repay the loan will depend on the unique circumstances of your situation.
2. Wait for the statute of limitations to expire.
Every state has laws defining how long a lender can collect an unsecured debt, which is known as the statute of limitations. If the lender is unable to collect from you by when this timeframe is reached, the lender will no longer be legally able to collect the money you owe them. If the lender believes you are unable to repay the debt and that you likely will not have the money to do so, they may choose to write off the debt rather than pursue you further through legal action or other means.
3. Negotiate with the payday lender or collection agency.
Payday lenders expect that many of the consumers they loan money to will default on repaying the loan. If you truly do not have enough money to repay the full amount, you can likely negotiate with the lenders or collection agencies to accept less than the full amount you originally owed but still consider the loan repaid. Just be careful that if you enter into such an agreement that it is reviewed by an attorney who is experienced in such matters, to be sure that it is binding against the lender.
4. Declare bankruptcy
Depending on your overall financial situation, declaring either Chapter 7 or Chapter 11 bankruptcy is an option that can eliminate unsecured debt such as payday loans and give you a fresh start. However, bankruptcy has a significant and lasting impact on your credit, so you should consider bankruptcy as a last resort.
Keep in mind that the information about is general in nature. Before you settle on an option for your situation, it is typically a good idea to consult an attorney. An attorney familiar with debt collection issues will be knowledgeable of laws and statutes applicable for your state and can give you specific guidance as to what option is best for your individual situation.
First time bankruptcy filers often ask a lot of questions about bankruptcy, collections and credit issues. Here are some common misconceptions about bankruptcy, collections and credit issues asked in the form of questions:
Will the credit of the co-owner but not cosigner of your car be affected if you file bankruptcy?
What is the difference between a co-owner or buyer and a co-signer? A co-buyer or co-owner’s name will appear on the title of the vehicle. They will normally have 50% property ownership rights to the vehicle. The co-signer does not necessarily have to be the co-buyer or owner but is equally responsible, with the other signer, for making sure the loan for the vehicle is paid.
Filing bankruptcy will not affect the credit relationship of a co-owner as long as the co-owner was not the co-signer of the debt. The bankruptcy filing might affect the credit of the co-signer on the loan if the loan goes into default. Creditors, depending on the type bankruptcy filed, might go after the co-signer of the note if the other signer files for bankruptcy protection. Any bankruptcy filed will stop repossession of the vehicle by the creditor when the automatic stay of the bankruptcy court goes into effect.
Can a debt collector threaten to sue and give a 24 hour period to respond and negotiate?
Some people have the misconception that all bill collectors know or care about collection laws. The truth of the matter is they should, but they do not. A debt collector can threaten to sue you and give you as much time to respond or negotiate as they want, but the threats are simply threats. The Fair Debt Collections Practices Act governs the actions of bill collectors. Bill collections, just like bankruptcy, is a process governed by laws. A debt collector must have a judgment won by a lawsuit in a court before they can take legal action against you. You must be notified about any pending lawsuits.
Can a judgment be settled by going to the courthouse and making payment for the judgment amount?
Do you have to pay the creditor to satisfy a judgment? No, you can settle the judgment by going to the courthouse (in most situations) and making a payment for the judgment amount. After doing so, you most likely should get a letter or receipt stating the debt has been satisfied in full. You may need the letter or receipt if questions about your credit report come up later.
Bankruptcy laws can be complicated. Contact us today and we will help you find a bankruptcy attorney in your area.
This personal bankruptcy question was posted on the internet in 2011 in a bankruptcy discussion: “How does a collection agency determine how much money they will settle a debt for?”
Most creditors either specialize in credit loans or provide credit for you to purchase their products. Very few have their own collections departments.
The credit industry, specializing in small limited loan amounts, has evolved into one of the largest financial industries in the world. Participating credit corporations and businesses have learned how to manage large portfolios of loans and make sizable profits while experiencing very little risk, The now build their risks into their services.
The average debtor’s loan is a very small part of the debt extended in the lender’s world. You are nothing more than a number to most of the credit card companies and national store chains providing you with their credit. If you default on their credit, the company will hardly miss your absence.
Lending institutions today are much more likely to sell their debt to others companies specializing in the art of debt collections rather than try to collect from you themselves. Since they have already built in the risks of default, they do not waste their time attempting to get you to pay your debts.
Most large lending institutions selling debt write off the debt for tax purposes and sell the debt for pennies on the dollar. Debt buyers usually pay anywhere from 3 to 25 percent of the original amount owed. Other lending institutions will give the collections agency a percentage of whatever they collect, and they will usually allow the agency to settle for whatever they can get.
That means most debtors can potentially settle for a little more than the collection agency has in the loan. Most of these handlers and/or owners of the debt will be authorized to settle somewhere between 25 to 70 cents on the dollar. The actual debt settlement amount will depend on your financial condition. If they figure you are bankrupt and are going to file bankruptcy, the settlement amount will drastically decrease.
On the other hand, if they feel you have assets, many agencies will want 100 percent of what is owed and might take you to court to get a judgment. If successful, they can attach a lien to the assets or garnish your wages (in certain states).
How does a collection agency determine how much money they will settle a debt for? It simply depends on how much they have invested in the debt and how much they know about your current financial condition.
If you are bankrupt, it is time to talk to a bankruptcy lawyer. Let a bankruptcy attorney review your financial situation and determine if bankruptcy is right for you.