If you are having a hard time increasing your credit score, there may be some good news on the horizon!

Major credit reporting company Fair Isaac (FICO) has been pressured by Washington to change its credit-risk scoring model to give a break to consumers that have had debt turned over to collection agencies!

While this "change" to the basic credit score scoring model is still in the works, it could be a seen as a great idea to consumers, while at the same time, another dangerous, slippery slope by lenders.

Recently, I've reviewed a few articles recently about the changes may be coming to credit reporting agencies.  One of the best was from Paul Sperry for Investor's Business Daily.  I highly recommend you checking out Mr. Sperry's article.

For years, those unfortunate people who for reasons usually beyond their control, found themselves with too much debt and not able to make payments, saw their accounts charged off by the creditors and turned over to a collection agency.

If you've read any of my blogs in the past, you know what I think about most collection agents and agencies.

While there are a lot of debt collection companies out there that are professional and stay (for the most part) within the Fair Debt Collection Practices Act (FDCPA), as with any group or organization, there are always a few "bad apples".

It seems that the Consumer Financial Protection Bureau (CFPB), created by the Obama administration, has been in talks with the Fair Isaac company to "ease up" on some of the weight they give information about your credit to determine your credit score.

Currently, FICO uses the following guidelines (along with a lot of othe information) to produce a credit score:

 As you can see, your payment history is worth 35%, so if you have had debt issues in the past and have had some or all of your accounts  go to a collection agency, your credit score would suffer.

However, under the proposed new guidelines "suggested" by the Consumer Financial Protection Bureau, FICO would no longer penalize your credit score because of delinquent MEDICAL DEBT or ANY DEBTS THAT GO TO A COLLECTION AGENCY THAT GET'S REPAID!

To me, that is great news!

In dealing with people over the last dozen years or so, I would say that the greatest majority of people who wound up in a severe debt situation, did so due to circumstances beyond their control, with MEDICAL DEBT being one of the largest debt!

It's not unusual to see someone with $10,000, $20,000 or more of medical debts.  When you see the (in my opinion) OUTRAGEOUS MEDICAL FEES charged by some doctors and hospitals, it's no wonder that people get into trouble.

If these people can find some relief to their credit score by making some changes to the way a credit score is calculated, then I'm all for it!

I like what the article said, "Obama regulators argue that it's important to insulate consumer credit scores from medical debt, for one, because such bills are "unexpected".

Another important and much needed action by the CFPB was that they released a report (2012) that basically stated that less than 80% of credit reports were accurate.

Inaccurate information on your credit report can really hurt.  The good news is that you can challenge mistakes and get the credit reporting bureaus to change your report, thereby increasing your credit score and/or credit worthiness.

Click here to get a FREE COPY OF YOUR CREDIT REPORT.

If you find yourself with too much debt, or just overwhelmed by all of this, we may be able to help:

Photo Credit:  lendingmemo.com

Photo credit:  http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx

If you have received a summons, you need to take action!   But, what should you do?

It's not enough to be stressed out by having to deal with debt collectors, now you get a summons...what should you do?

I think it was Tony Robbins who either used an acronym or borrowed it from somebody, but either way, it really is worth thinking about!  WHAT IS FEAR?

• False
• Evidence that
• Appears
• Real

There is a lot of misunderstand about what a SUMMONS IS!  Instead of being afraid or upset after receiving a SUMMONS, let's examine what a SUMMONS is all about and what to do about it!

FIRST, DON'T PANIC!

I live in Portland, Oregon, and have been helping people deal with debt, debt collectors judgments and summons for many years.  If you receive a summons from our area, it will usually state something like the following:

"You are hereby required to appear and defend the complaint filed against you in the above-entitled cause within thirty (30) days from the date of service of this summons on you.  If you fail to appear and defend, the plaintiff will apply to the court for the relief demanded in the complaint."

It goes on to read:

"You must "appear" in this case or the other side will win automatically.  To "appear" your must file with the court a legal paper called a "motion" or "answer".  The "motion" or "answer" must be given to the court clerk or administrator within 30 days along with the required filing fee.  It must be in proper form and have proof of service on the plaintiff's lawyer or, if the plaintiff does not have a lawyer, proof of service on the plaintiff."

Before you "freak-out", let's look at this carefully:

"You are hereby required to APPEAR and DEFEND the COMPLAINT FILED AGAINST YOU...

"APPEAR AND DEFEND"

I know it sounds like you must appear in court, but that's not what it means.  The phrase, "appear and defend" is further explained in the second paragraph.  The second paragraph (above) also says that you must file an LEGAL PAPER called a MOTION or ANSWER.

This MOTION or ANSWER is, in fact a LEGAL PAPER that you would file with the court if you don't believe you owe or are responsible for the debt they are claiming you owe.  Yes, it will cost you a fee (I believe the fee in Multnomah County is around $165) just to file your ANSWER, and it must be filed in the appropriate legal fashion.  This usually requires an ATTORNEY to be retained, which also costs you more money!

In most cases, the client or DEFENDANT in the claim actually owes the debt, it is not necessary to file an ANSWER.

So, the 30 days to appear and defend doesn't mean you have to go to court!

OK, so what should you do?

Here's what has happend so far:

When you have debts that you are unable to pay, the creditor will send nasty sounding letters and call and call and call (you probably have experience this already). 

If you cannot or do not respond by making some form of repayment, then the original creditor may decide to hand over to a COLLECTION AGENCCY or hire an ATTORNEY to file a CLAIM or  "COMPLAINT". 

Most of the time, the original creditor will use a DEBT COLLECTOR or DEBT COLLECTION AGENCY to attempt to get you to repay the debt. They will start by sending you letters that may sound threatening in an attempt to scare you into paying the debt.

And as you probably know, they will call constantly.  Even though we have laws that protect us from harassing phone calls from debt collectors, most people are not aware or do not know how to put a stop to these calls.  The FAIR DEBT COLLECTION PRACTICES ACT clearly spells out what a debt collector CAN and CANNOT DO!

The good news is that you can put a stop to those calls!  You must send a letter and they must stop calling (even though they can continue to send letters).

But, even though you can and have put a stop to the calls, in most cases, they are not going to give up trying to collect on the debt.

See my blog on HOW TO DEAL WITH DEBT COLLECTORS for some good tips.

• OK, you've receive the summons.
• You understand that you don't have to appear in court in 30 days
• Now what?

You should contact the attorney who filed the claim and attempt to SETTLE THE DEBT by making a lump sum payment for less than the balance due.  This is not always an easy thing to do at this point because the PLAINTIFF (the creditor or debt collector) has had to pay a pretty hefty FEE TO THE ATTORNEY to file the claim, prepare the summons and have it delivered to you.

Here's an actual example of a settlement we were able to negotiate even though a judgment had been awarded.  Click on the link below:

Actual example of a judgment that was settled.

If you are unsuccessful in negotiating a settlement, then you might have to attempt to negotiate what is called a STIPULATED AGREEMENT.  In a Stipulated Agreement, you and the plaintiff/attorney for the plaintiff have a legal document  written up ( the collector's attorney does this and you will not pay a fee). 

The agreement will basically state that if you make a certain dollar amount payment each month until the balance is paid in full, then they will not go forward with any more LEGAL OPTIONS.

WHAT...LEGAL OPTIONS?

When a Plaintiff (the creditor) is awarded a judgment (and they will be in most cases), then they now can choose to do several things...legally, to collect on the debt:

They can get a WRIT OF GARNISHMENT, giving them the ability to take 25% of your take-home pay until the debt is paid in full!

They can get a WRIT OF LEVY, giving them the right to levy one or more of your BANK ACCOUNTS!  These are devastating in that unless the funds deposited in you account are from an exempt source such as:

• Social Security
• Disability Income
• Unemployment Income
• Retirement Income
• And several other sources

...then the bank has no option but to liquidate your account and send them the funds!

WOW, ARE YOU SERIOUS?

Like the saying goes...SERIOUS AS A HEART ATTACK!

There is nothing more devastating to someone to deposit their check (from W-2 or other "earned income") and have their check or debit card declined at the grocery store because their account was liquidated over the weekend!

To make sure this doesn't happen, DON'T IGNORE THE SUMMONS!

Hopefully, I have made my point...

If you receive a SUMMONS, don't ignore it, take action!  In most cases a judgment can be prevented, thereby preventing any further LEGAL OPTIONS such as WAGE GARNISHMENT or a BANK LEVY!

If all of this sounds a little intimidating, I understand.  Let me know if we can be of help:

Photo credit:  Vic

Dealing with a debt collector can be one of the most frustrating experiences you will ever go through!  Here are a few tips that will help.

It's 5:30 PM, and you've just sat down at the table to finally relax and enjoy a meal.

You don't recognize the caller from your caller ID, but you know who it probably is. 

Yep, another call from that debt collector.

If you're like so many people these days who for one reason or another have fallen behind on your credit card or some other unsecured debt, you know how annoying it is to get these calls!

Let's put a stop to these calls!

If you do not know the address of the debt collector, then go ahead and answer the phone (just this time only!).  Tell the debt collector that you want to pay this bill, but cannot at this time.

Of course, the debt collector will try to get you to agree to some small amount to be paid as a check-by-phone or from your debit card. DO NOT DO IT!!!!

Instead, ask for the address (as though you intend to mail a check later).  If the debt collector will give it to you...great.  If not, then just hang up.  In a week or so, you should get (if you haven't already) a letter from the debt collector with the address you need.

According the the Fair Debt Collection Practices Act (FDCPA), if you write a letter demanding that the debt collector stop calling you, they must stop or face some very hefty fines!

Click below for a FREE sample letter to send:

By-the-way....

Make sure you send the letter either by Priority Mail with a tracking number or by Registered Mail.  You want to have proof that the debt collector received the letter.

OK, you've sent the letter, and since it will take a week or so for the calls to stop, what should you do the next time the phone rings?  Here is what I suggest:

TURN OFF THE RINGER ON YOUR PHONE AS SOON AS YOU GET HOME! 

If you do not have caller ID, GET IT!  You will be able to see who is calling and if you do not recognize the caller...DON'T ANSWER.  Your friends and family will leave a message. 

DO NOT RETURN ANY MESSAGE FROM A DEBT COLLECTOR...PERIOD!

Debt collectors are trained to do one thing and one thing only...get you to pay!  And although there are very clear laws that limits what they can and cannot do, some debt collectors are pretty low-down, and if you're not careful, they will get you to start paying. 

DON'T FALL FOR THE HARDSHIP PLAN OFFER!

Although a "Hardship Plan" may have it's place, once in a while, for the most part, they are not a very good solution to your problem.

In most hardship plans, you will agree to make a lower payment for about 6 months and then the creditor will re-evaluate your situation.  While this may help with your "cash flow" for a short term, in the long term, you will not be any better off.

OFFER A REDUCED AMOUNT AS A SETTLEMENT!

Believe or not, most debt collection companies will take a settlement on your account for much less than the current balance.  A 50% reduction is not unusual and depending on your circumstances, you may able to get an even better settlement reduction.

Check out some of the settlements we have done for our clients:

If you don't have a lump sum to offer, they will (in most cases) work out a TERM-SETTLEMENT plan.  Don't be afraid to ask!

Depending on how old your account is and your specific financial circumstances, the debt collector may have purchased your account from the original creditor for literally pennies-on-the-dollar, so they will usually take a settlement paid out over a 6-12 months, and in some cases longer.

What about a SUMMONS!

If you have received a summons, it is still not to late to work out a settlement or a repayment plan, but you need to take action quickly!  I have written many blogs detailing HOW AND WHAT TO DO IF YOU RECEIVE A SUMMONS.  Please take a few minutes to check out.

BOTTOM LINE:

Dealing with Debt Collectors is certainly not easy, but can be done.

Would you like some assistance?  Just let us know:

Photo Credit:   Sean MacEntee

Before you pay for "Credit Repair", you need to know what is FACT and what is FICTION!

Beware of claims from so-called Credit Repair Companies like:

• We will remove negative items, bankruptcies, judgments, liens from your credit report!
• Improve your credit score by 50 to 100 points!
• Erase all bad credit...guaranteed!
• Create a new identity!

Sound a little too good to be true? 

No one can LEGALLY remove correct or accurate information that is reported on your credit report.

After all, a credit report is a recorded history of how you have used credit.  There are many factors that go intor formulating a CREDIT SCORE. 

There are three major three Credit Reporting Agencies:

• Experian
• TransUnion
• Equifax

Although each uses a slightly different set of criteria for determining and assigning a credit score, they are basically the same.

Although you cannot remove accurate information from your credit report, YOU CAN HAVE INACCURATE INFORMATION REMOVED!

We are all entitled to receive a FREE CREDIT REPORT annually. I believe it is a very good practice to request your credit report each year to make sure there are no mistakes or inaccurate information being reported!

You are also entitled to receive a copy of your credit report used by a company that denied your application for:

• Credit
• Insurance
• Employment

You have to request it within 60 days of receiving notice of denial, so don't wait too long!

If you find errors or inaccurate information on your credit report, you can dispute it with the credit reporting agencies (yes, you may have to contact all three is the same information appears on each credit report).

You can either write a letter or go to the credit reporting agencie's website.  I believe going on line is the most efficient way to dispute items.

You will need to have:

A copy of the errors on your credit report.  You don't have to send or include the entire credit report.  Just circle the items you are disputing.

Next, you must explain or prove why your are filing the dispute. 

For example:

Let's say that you had a credit card that was completed paid off a few months ago and the credit report is still showing a balance.

You will need a canceled check or bank statement showing the payments or series of payments to the credit card company.  You may be able to get a copy of a letter or statement from your credit card company by calling or going to the credit card company's website.

Make a copy (.pdf if filing on line) and include with a brief statement of why this item should be corrected. 

For example:

I am opening a dispute about the account I have circled on a copy of my credit report with your company. 

As you can see from the attached (or enclosed) statements, canceled check(s) and/or bank statements, this account has been paid in full.

Please make this correction as soon as possible.

Thank you,

(your name)

• Not only does the credit reporting agency have to correct the error, IF YOU REQUEST, they must send a copy of the corrected report to anyone who got your report over the last 6 months!
• If the error caused you to not get the job you applied for, again, IF YOU REQUEST, the credit reporting agency must send a corrected copy to anyone who got a copy for employment purposes over the last 2 years.

By law, the credit reporting agency must investigate your dispute within 30 days.

• They must send the information you provide in your dispute to the company reporting the inaccurate information. 
• After they company investigates and reviews the proofs you included about the disputed item, it must report back to the credit reporting agency as well as all other credit reporting agencies.
• Once the investigation is complete, the credit reporting agency must provide you with the results and a free copy of your correct credit report.

What about negative information on your credit report?

Unfortunately, negative items on your credit report cannot "magically disappear", regardless of the claims of some credit repair companies!

But over time, these items will be removed.

• 7 years for most negative items
• 10 years for bankruptcies
• 7 years (in most states) for judgments

But what about those so-called "credit repair companies" that claim to be able to remove negative information?

Well, it's just not true.  In fact, you should read an article from the Federal Trade Commission's website about one credit repair company's penalties, etc.

Many credit repair companies use the VALIDATION LETTER technique.  While it is certainly legal and ethical to challenge inaccurate information on your credit report (as we discuss above), there are some (too many in my opinion) credit repair companies that ABUSE this  technique.

The rationalization is that the credit reporting agencies are some overwhelmed with disputes that often they will just correct and/or remove the disputed item without doing a thorough investigation.  After all, the credit reporting agencies are in business to make a profit.

So yes, maybe in some cases they will remove an item without much investigation, but the creditor reporting that information can (and most likely will) put the disputed information back on your report.

This type of CREDIT REPAIR FRAUD has caused many credit repair companies to be heavily fined or forced out of business over the last few years. 

And yet, for those who feel they cannot make disputes themselves or would be willing to pay for legitimate credit repair services, there are many solid, credible companies. Check with your state attorney general's office for a list of registered credit repair companies and also with the Better Business Bureau for complaints.

Photo Credit:  https://www.flickr.com/photos/brook_lands/

Dealing with debt collectors is not easy, but it can be done.  Here are a few tips on how to deal with debt collectors.

Should you pay a "credit repair" company or can you improve or repair your credit report yourself?

Here a some tips on DO IT YOURSELF CREDIT REPAIR:

You have probably seen a TV  commercial or pop up ad that claims that "so-n-so credit repair company" can remove:

• negative items from your credit report
• history of late payments
• judgments
• bankruptcy
• charge offs

Sounds like it is "too good to be true", right?

Well, you know the old saying...."if is sounds too good to be true, it probably is"!

Experian, Equifax and TransUnion are the three top independent reporting agencies.

Many people think they are non-profit or government agencies, but they are not.

They collect data and put it in a report to sell for profit!  There's nothing wrong with that, but it is important to understand that the credit reporting bureaus are in business to make a profit.

After they gather information about your credit, a report is then sold to creditors, individuals or other companies seeking information about you in order to determine your "credit worthiness".

Here is a quote from a portion of a very good article entitled:

                 How Credit Scores Affect the Price of Credit and Insurance

Information about you and your credit experiences, like your bill-paying history, the number and type of accounts you have, whether you pay your bills by the date they’re due, collection actions, outstanding debt, and the age of your accounts, is collected from your credit report.

Using a statistical program, creditors compare this information to the loan repayment history of consumers with similar profiles.

For example, a credit scoring system awards points for each factor that helps predict who is most likely to repay a debt. A total number of points — a credit score — helps predict how credit worthy you are — how likely it is that you will repay a loan and make the payments when they’re due.

So what happens when you find out that you have a low or poor credit score due to errors or incorrect information on your credit report?

You could seek the help of a reputable, credit repair company, but be careful!!!!

A good, reputable, credit repair company should not charge exorbitant up-front fees and should only be paid AFTER THE ERROR(S) have been removed.

But why pay for something you could do yourself?

Here's what you can do for yourself:

The law allows all consumers to receive a FREE Credit Report from all 3 of the credit reporting agencies annually.

Click here or go to www.annualcreditreport.com.

NEXT, study your credit report carefully.

Don't be surprised to find errors, such as:

• Balances on accounts you know and can prove that you have paid off
• Judgments that have been satisfied
• Mistakes about your personal information, such as name change, age, social security number, address, etc.
• Accounts that should have been removed because they have exceeded your state's statute of limitations.
• Accounts that you have no idea about and know for certain you never opened

IT IS IMPORTANT TO STATE THAT YOU CANNOT DISPUTE ITEMS THAT ARE LEGITIMATE ON YOUR CREDIT REPORT!

This is called "frivoulous" and could result in you getting into serious trouble!

The best way to do this is to go on line and complete each credit reporting agencies form for disputing an error.

Here are the links to the top three credit reporting agencies:

Equifax disputes

Experian disputes

TransUnion disputes

• The credit reporting companies must investigate the items in question and this must be done within 30 days!
• The credit reporting company must forward the date that you provided to the creditor or collection agency reporting the information.
• If the creditor or collection agency cannot dispute your claim, it must notify each of the credit reporting companies to remove the incorrect information from you file.
• Once the investigation is complete, the credit reporting company must send you the results, in writing plus a free copy of your credit report showing the changes have been made.
• You may also request that the credit reporting company send notices of these corrections to anyone who received your credit report in the last 180 days.

However, if you do not have access to a compute to file your dispute on line, then you will need to WRITE A LETTER (CTA) and mail it by CERIFIED REGISTERED MAIL.

After you have initiated the dispute, FOLLOW UP, FOLLOW UP, FOLLOW UP!

Although going online is the best way to initiate a dispute, you may need to call the credit reporting agency directly:

•       Equifax                 888-202-4025

•       Experian               888-397-3742

•        TransUnion          800-916-8800

If you absolutly, without a doubt know that the listed accounts is not yours (you never opened and have no idea where it came from), then you can demand that the creditor to VALIDATE THE ACCOUNT.

This is a little different than disputing inaccurate information.

You must write a letter to each of the credit bureaus (Equifax, Experian and TransUnion) and challenge the account asking the original creditor to PROVE that it is valid.

You should enclose a copy (don't send the whole report or original) of the portion of your credit report with the item(s) that you are disputing circle and/or highlighted.

Once again, the credit reporting companies have 30 days to forward and request your dispute.

STAY ON TOP OF YOUR DISPUTE!

Most creditors and/or collection agencies think that the average consumer will not go to all of the trouble to either DISPUTE A DEBT OR REQUEST THAT THE DEBT BE VALIDATED!

One woman in Bend, Oregon won a lawsuit against Equifax of a reported $18.6 Million because Equifax failed to correct her credit report!

But what if you find out that the debts are valid?

You may be able to have them removed due to the statute of limitaions or through DEBT SETTLEMENT for a 50% or more savings!

Photo Credit to Chris Potter and StockMonkeys.com

If you find yourself unable to pay your bills, about to lose your home, or in a financial hole so deep that you can't climb out of, then it is time to look into filing for bankruptcy protection.

This is the final blog about DEALING WITH DEBT.  There are basically 3 ways to deal with debt:

• Debt Management
• Debt Settlement
• Bankruptcy

In a bankruptcy, you will eliminate most of your debt or you will be able to schedule a repayment plan that will fit your budget, given your dire financial circumstances.

But, bankruptcy comes at a cost of your credit score and possibly some of your assets.

Yes, after you complete your bankruptcy, you can still get credit, but usually the interest rates are higher and the credit limits are lower.

This is why it is so important to gather as much information you can from an experienced bankruptcy attorney.  The initial bankruptcy consultation should be free and most bankruptcy attorneys will work with you as to payment of their services and fees.

Individuals filing personal bankruptcy will generally be able to file a CHAPTER 7 or a CHAPTER 13 bankruptcy.

Under normal circumstances, a Chapter 7 bankruptcy will take about 90 to 180 days to complete.  A Chapter 13 bankruptcy will take about 3 - 5 years, depending on several factors.

Good news!!!!  Once your bankruptcy attorney starts the process, the debt collection calls will stop.  If you are not sure if bankruptcy is the best choice for you and would like to put a stop to the debt collection calls, click below:

Individuals or couples with few assets and are looking for a FRESH START, tend to file a Chapter 7 bankruptcy. This type of bankruptcy is basically a liquidation bankruptcy in which a debtor trades all of their non-exempt assets as payment for all of their dischargerable debt.  Many, if not all, personal possessions are protected by exemptions and most consumer debt, such as:

• Credit Cards
• Store Cards
• Personal Loans

Individuals or couples looking to catch up on mortgage payments, get rid of 2^nd mortgages, or who are ineligible for Chapter 7 bankruptcy, can file a Chapter 13 bankruptcy.  A chapter 13 bankruptcy involves making a deal with the court to pay a certain amount of your income to the court each month in return for getting rid of all of your dischargerable debt. 

People will choose a Chapter 13 Bankruptcy because there are certain types of debt that only go away in a chapter 13 bankruptcy and, there are certain advantages that can only be had in a chapter 13 bankruptcy.  This type of bankruptcy can be used to catch up on mortgage or child support payments.  However, there is a danger of not completing your plan and thus not getting a discharge.

Filing bankruptcy does not mean that you will lose your home or your car. 

In fact, in some situations, filing bankruptcy will even allow you to keep a car or home that you were about to lose.  This is because bankruptcy allows you to protect some or all of your assets with exemptions.  These are set amounts of personal property that you can protect during a bankruptcy.  Retirement accounts are generally protected as are certain support payments that you may be receiving.

Filing for bankruptcy does not mean that everyone you know will find out!

Only the necessary parties are inform of your bankruptcy filing.  Individuals who receive notice of your bankruptcy filing are creditors, co-debtors, and co-owners of shared assets. 

A bankruptcy will stay on your credit report up to 8 years, but it will have less effect with each passing year.  Filing bankruptcy may hurt your credit score in the short-term, but it allows you the chance to start rebuilding it right away.

Still not sure how to deal with your debt?  Get answers by clicking below:

Blog article written by: Noah Bishop of BishopBankrutpcyLaw.com

Photo by: www.stockmonkeys.com

If you cannot qualify for a Debt Management Program, then you should consider a Debt Settlement Program.

In my last blog, "Dealing With Debt, Part 1, Debt Management", I explained about how the traditional Credit Counseling Program or what we refer to today as a Debt Management Program works.

As with about anything in life, there are pros and cons with any program, so you want to make sure that if you are looking for answers concerning what is the best way to deal with debt, you look at all of your options before making a decision!

When dealing with too much unsecured debt, you really only have a few options:

• A Debt Management Program
• A Debt Roll Up or Snowball Program
• A Debt Settlement Program
• Bankruptcy

What is a Debt Settlement Program?

When you accumulated too much debt unsecured debt and cannot keep up with the minimum payments due or cannot qualify for a Debt Management Program, then a Debt Settlement Progam may be your best option.

Most people who chose a Debt Settlement Program have had some, if not all of their accounts become very delinquent.  Once you miss 3 or 4 monthly payments, these accounts most likely will be charged off by the original creditor and placed with a collection agency.

Sometimes, the collection agency is actually an attorney or Law Office that only deals with debt collections. 

As you may know by now, once you miss a payment or two, the letters and calls start coming more frequently!  In fact, most consumers are taken advantage of by debt collectors because they do not know their rights.

Under the Fair Debt Collection Practices Act, debt collectors are forbidden to:

• Call you too many times in a day
• Say things that are vulgar or might indicate they could take your belongings
• Make statements or suggestions that you are going to be sued, if, in fact, they do not file a claim and start the legal process.
• Call you at your place of employment.
• Any many other acts that you need to know.

You can find some very helpful information called:

Fair Debt Collection Practice Act – Guide for Consumers

OK, so you've looked at your options and Debt Settlement is the way to go...

Although you can attempt to settle your debts on your own, not only does debt settlement takes a lot of time, but you are also going to be going up against trained debt collectors who:

• Are trained professionals
• Don't care about your financial circumstances
• Don't want to hear your story about how you got into this financial trouble
• Are usually paid based on the amount of money they can get you to pay!

A quality Debt Settlement Company will:

• Take the  time to conduct a thorough interview with you (by phone or in their office) as to your financial circumstances.
• Go over you debts and basic household budget to help determine what you can reasonably afford to contribute to the debt settlement program.
• Not try to pressure you into "signing up" quickly, but be willing to not only answer all of your questions, but will also mail, fax or email you a summary of how the program could work for you.
• Be registered (if required by law) in the state in which you reside.
• Maintain a very high rating with the Better Business Bureau.

If it is determined that a Debt Settlement Program is your best option, then:

• You will stop making payments to your creditors (if you haven't already)
• You will make a payment/deposit to your Client Reserve Account through the Debt Settlement Company.  This account is with an Insured Bank located in the state of registration.
• The Debt Settlement Company will contact each of your creditors/collectors in order to stop the collection calls and to begin to negotiate on your behalf.

By the way, you cannot stop the original creditor from calling you about a missed or unpaid account.  They have a right to do so.

But, you can certainly stop the collection calls from debt collectors!

Once your reserve account has sufficient funds, a settlement will be negotiated.  Sometimes this settlement is a lump sum for approximately 50% or less of the balance.  Sometimes this settlement can be paid out over a number of months.

Each settlement, and the subsequent reduction in principal of the settlement, depends on many factors, such as:

• Your employment status (working, W-2 wages or self employed)
• Retired
• Disabled
• On unemployment, etc.

After a settlement has been negotiated, a SETTLEMENT AGREEMENT is faxed, emailed, or mailed. 

If you are going to try and settle your debts on your own, DO NOT SEND OR AUTHORIZE ANY PAYMENT WITHOUT A WRITTEN SETTLEMENT AGREEMENT!

Once the settlement has been completed (according to the terms of the settlement agreement), a letter will be mailed out stating that this account has been:

• Settled-as-agreed
• Settle-for-less-than-the-full-balance, (and sometimes)
• Paid as agreed or Paid in full

The Debt Collector or original creditor if you are dealing with them, should notify each the three top Credit Bureaus that your account has been closed and settled.

HOWEVER, it is a good idea to follow up by running a FREE CREDIT REPORT (after about 45-60 days) to make sure that this account is not showing a balance, etc.

Most Debt Settlement Programs run about 36 -48 months or maybe longer, depending on your financial circumstances.  Once each account has been settled, you're credit scores should start going up!

Debt Settlement is a noble way to do the best you can to repay debts that you owe instead of seeking bankruptcy protection. 

Bankruptcy, in my opinion, should be considered as your last and only option, and I will be blogging about that next time.

For more information about Debt Settlement, click below:

 Photo credit to Betsssssy

Does Debt Management really work?  Will I improve my credit score with Debt Management?  Will debt collectors start leaving me alone?

These are just a few of the Frequently Asked Questions about Debt Settlement.  We get them all the time, even though we have numerous blogs about all of the aspects of debt management.

The truth is, anytime someone gets into trouble having accumulated too much debt, fear of the unknown and misunderstanding about what debt collectors can, and can't do, takes over.

Almost everyone in America has some form of debt. Many people use debt wisely and are OK.  But many people (people just like you and me) have gone through, or are going through a very tough time, financially. 

• How do you deal with to much debt?
• What are your options?
• What can debt collectors do to me?
• Can they levy my bank account or garnish my wages?
• Will I have to file for bankruptcy?
• To be honest, I'm scared!

Over the next three series of blogs about Dealing With Debt, I hope I can answer most of your questions and help alleviate some of the fear and misunderstanding associated with having too much debt.

For this series, I will be addressing UNSECURED DEBT, such as:

• Credit Cards
• Store Credit Cards
• Personal Bank Loans
• Private (not Federally backed ) Student Loans
• Repossessions (specifically "deficiency balance", which is the remaining balance after your car, boat, etc. was sold at auction)
• Pay Day Loans

SECURED DEBT, such at your home, auto, Federal Student loan, etc. have to be dealt with differently.  I will address these in later blogs. 

There are really only a few options when it comes to dealing with too much unsecured debt:

• Debt Management (or Credit Counseling) Program
• "Debt Roll-Up" or "Debt Reduction Snowball Plan"
• Debt Settlement Program
• Bankruptcy

DEBT MANAGEMENT

In the "old-days", well, not really that long ago, when a consumer got behind on their credit card payments, A non-profit, credit counseling (a tax entity title...yes they do make a profit...a lot of profit!) program was created to help people get back on track.

Basically, in a Debt Management Program , instead of making minimum payments to each of your creditors with high or very high interest rates and fees, if you qualify, you will make ONE PAYMENT to a Debt Management Company.  They have established guidelines with all of the major creditors to usually:

• Lower your interest rate
• Re-Age or forgive late or over-the-limit fees
• Stop creditors from calling
• And, a Debt Management Program IS NOT A FACTOR when calculating your credit score.
• Most Debt Management Programs last about 4-5 years, depending on how much debt you have, etc.

Although a Debt management Program can help reduce the total amount of interest and fees you will end up paying until these debts are paid off, your required monthly payment may be more than you are making now!

The Credit Card Industry realized several years ago that the worst thing that could happen to them, from a profit stand point, was to have their consumers actually pay off their credit cards.

In the early days of credit cards, the minimum payment could be as high as 4%-5%, depending on each company's policies.

Think about that... 

Let's say you had a balance of $10,000 on your XYZ Credit Card, with an Annual Percentage Rate of 19% and a minimum monthly payment of 4.5% of the balance.  

I know the credit card contracts are almost impossible to understand, so let's keep this simple:

On a balance of $10,000 at 19%, your annual interest charge would be about $1,900!

Divide the 19% interest rate by 12 (12 months in a year) and you get a Monthly Interest Rate of 1.5833%.  $10,000 multiplied by 1.5833% equals $158.33, but's let's round off to $158.

Add the $158 to the $10,000 and you have $10,158, which is the NEW BALANCE.

Multiply that by the Minimum Monthly Payment Percentage of 5%, and you get $507.90 or $508 as a minimum payment.

So, you send in the $508 payment.  Next month, you get your statement, and it shows $10,158 less your $508 payment leaves $9,650. 

But wait...there's that interest charge again!

$9,650 multiplied by 1.5833% equals $152.79 or $153.

Add $9650 plus $153 and you get $9803 as your New Balance (assuming you didn't make any more more charges!)  Multiply that by 5% and you get $490.15 as your minimum monthly payment. Wow!

Yes, in the "old days", your were forced to pay off your credit cards sooner (if you could afford the minimum monthly payment) and therefore saved more money in the long run.

But, the Credit Card Industry got wise and decided to only charge 2% or maybe 2.5% as a minimum monthly payment. 

Without taking a lot of time repeat the above process, you should be able to see that on a balance of $10,158 if you only had to make a 2% minimum monthly payment, your payment would only be $203 instead of $508!  That's $305 less!  Good deal, right?

Well, here's what happened:

For the credit card industry, it was a very, very good deal! But, for those of us who didn't think the process through, we thought, "Wow, I could barely afford the $508 miniumum monthly payment, but at $203, I can CHARGE UP ALMOST TWICE AS MUCH  and still make the payment!" 

So, charge, charge, charge!!!  And we know what happens.  Now you have $20,000 of total unsecured debt at an average annual interest rate of say, 19%.  But, you only have to pay 2% of your "new monthly balance" each month.

OK, $20,000 multiplied by that annual interest rate of 19% divided by 12 or 1.5833% equals $317 of interest.  Add that to the $20,000 and now you have $20,317.  At 2%, that's a minimum monthly payment of $406.  Cool!  Your monthly payment on $20,000 is actually less than it would have been (back then) on $10,000.

Watch out! We all know where this is heading! 

All kinds of calculations are out there on the web that show that if you only make the small minimum payments on your credit cards until they are paid off, you will end up spending 3-4 times as much as you originally borrowed! On $20,000, you could end up paying back $60,000 - $80,000 over many years!

Good deal?  Only for the Credit Card Industry!

So, you call a Debt Management Company.  They go through all the financial consultation (free and if not, hang up!) and determine that your Debt Management Program will be approximately $550/month, which includes their montly fee as well as an enrollment or set up fee to get started!  

But,  if you have an extra $150 (that you could use to qualify for the Debt Management Program), you would be debt free in about 48 months and save thousands of dollars in interst and fees.

Not bad at all, but there is another option.

Debt Roll-Up or Snowball Plan

If you have the extra money, and the self discipline to set up and follow a Debt Roll Up/Snowball Plan, then you should consider doing this instead of using a Debt Management Company.

Why?  Well, of that $550 required in this hypothetical Debt Management Program, $50 (or maybe a little more) may be going to the Debt Management Company to administer the plan.  Now, that's not outrageous, and if the program ends up not only saving you a lot of money in the long run and giving you peace of mind, then go for it.

But, if you are like me, I like to do things myself if at all possible and, I don't like spending a dime more than I have too!

I've written an entire blog about a Roll Up/Snowball Debt Program. Click here.

But what if you are in deep financial trouble?

• Lost your job
• Went through nasty divorce
• Lost a spouse, loved one or partner
• Been Disabled and are permanently Disabled and only receive Disablility Income
• Are retired and the fixed income from your Social Security and/or Retirement Plan is just not enough to keep up!

Then you should check out a Debt Settlement Program.

I will be writing about that in Part 2, but if you'd like to know more now, click below:

Is a Debt Management Program for you?  It depends on many factors.

Photo credit:

Jason Rogers

Not only are things "Bigger and Better in Texas", so is protection from debt collectors!

Living in Texas (I grew up in Dallas) has a lot of advantages, but none as important as protection from debt collectors.

If you are facing overwhelming problems with too much debt and you are fortunate enough to be a Texas resident, then you have certain protection from creditors and debt collectors that other states do not offer!

For the sake of this article, I'm talking about UNSECURED DEBTS, such as:

• Credit Cards
• Store Credit Cards
• Personal Loans
• Private Student Loans
• Medical Bills
• "Pay-Day" Loans

When you can't make at least the required minimum payments on your unsecured debt, and miss a payment or two, here's what usually happens:

First, the original creditor (Visa, Master Card, US Bank, etc.) will most likely give you a call and send a letter reminding you that your account has become delinquent.  Sometimes the language is very...let's say, "firm or somewhat threatening".  Something like:

Dear Mr. So-n-so:

Your account with XYZ company has become seriously delinquent.  Missing payments on your account can have a negative effect on your credit report.  We understand that you may be facing a difficult time and want to work with you on this matter. 

Please give one of our customer service representatives a call to discuss your options. It is imperative that you bring your account current as soon as possible, to avoid legal action.

OK, so what do you do? 

If you think you will be able to get your account caught up, then give them a call to see what can be done.  Sometimes the creditor is willing to forgive late fees and other penalties if you can bring your account current.

But what if you know you can't "bring your account current"?

It has been my experience, that most people who need help with their debts are not someone who just "over-spent" foolishly.  They are people just like you and me who got into trouble. It's important to know how this process works so that you (or someone you know) is not taken advantage of by a debt collector.

There are all kinds of reasons why people get in trouble with their credit:

• Loss of employment
• Loss of a spouse or partner
• Prolonged illness
• Disability
• Retired and on a fixed income not quite enough to keep up!
• and many other reasons that are beyond your control!

After the original creditor has made many attempts to contact you by both phone and mail, they may decide to write-off or charge-off your account and transfer or sell to a debt collector.

Now the DEBT COLLECTOR starts sending "nasty" letters and making call after call!

If you have only missed a payment or two, and have the means to get caught up, I think it is a good idea to contact your original creditor to discuss trying to bring your account current. 

But, I do not believe it is your best interest to call a debt collector.

There are those that disagree with me on this, but my experience in dealing with debt collectors over many years has taught me that they only have one job and that is to get as much money in the shortest period of time.

They don't really care about your situation and for the most part are not sympathetic at all.  In fact, I had one of my retire clients who had also lost her husband of over 50 years tell me that a debt collector told her that she should go get a job and quit making excuses for her debts.  Really?  72 years old and a widow!  And not only that, rather than file for bankruptcy protection as she could have, she has chosen to settle as many debts as possible.

Many debt collectors are fine, professionals and you can work with them. But some are, well... you know!  So, my advice is not to try and call to explain your situation, especially if you live in Texas!

What happens if a debt collector takes LEGAL ACTION?

A debt collector has the option to FILE A COMPLAINT in your county's court.  This is a legal option they can use in order to scare or force you to pay your debt.

Once the COMPLAINT is filed, you will receive a SUMMONS.  The summons will state that the PLAINTIFF (that's the credior or debt collector) CLAIMS that you owe this debt.  It will also state that you have 30 days (some state 20 days) from the receipt of this summons to file an ANSWER.

An ANSWER is a legal brief explaining why you legitimately do not owe this debt.  There is usually a cost to file the ANSWER, and most likely you will need an attorney to file it so it is in the proper "legal" form. About 99.9% of the time, you owe the debt, so there is no need to dispute it.  The key is to know how to handle it.

I've written several blogs over the years explaining what to do if you recieve a summons.  If you live outside of Texas, I would encourage you to not only read about your options, but you will need to take action.

But hey, ya'll...if your a Texas resident, I've got good news!

The purpose of filing the claim is to get you to:

1)  Take action to pay your debt out of fear of what may happen if you don't!

2)  The debt collector hopes to be awarded a JUDGMENT, so they can either GARNISH YOUR WAGES, place a LIEN ON YOUR HOME or even LEVY YOUR BANK ACCOUNT.

In the great state of Texas, you have laws that protect you from creditors like few other states. 

Your wages cannot be garnished for unpaid, unsecured accounts, but even in Texas, they can be garnished for child support or alimony, unpaid taxes and defaulted student loans, so be advised!

Your home is also protected from a lien with a wonderful Texas Homestead Protection!

Although there a some restrictions to the homestead law, basically it means that a creditor cannot apply a lien against your property for unpaid, unsecured debts.

So, your wages and home are protected in Texas, what about your bank account?

As in all states, if your only source of income is from Social Security and/or a Retirement Plan or Fund, Disabily Income, etc. and those monies are directly deposited in your bank account, THEY ARE EXEMPT FROM GARNISHMENT OR LEVY.

HOWEVER, although your wages are exempt in Texas, once they are deposited in your bank account, they would be subject to a garnishment or levy (after a judgment is awarded to the creditor)!

I advise any client who has earned income to NOT DEPOSIT to your bank account with a judgment against you!  I know it can be a hassle, but think about what it would be like to start bouncing checks on Monday after your bank account was FROZEN over the weekend!

Bottom line for all of you Texas Residents:

• Your home (including a mobile or manufactured home) is exempt from a LIEN
• Your wages are exempt from garnishment
• But, you need to take caution with your bank account!

Photo credit: 

https://www.flickr.com/photos/tomjmac/3695294596