When you have too many credit accounts and cannot meet the minimum payments required, then it may be time for you to consider a DEBT SETTLEMENT PROGRAM.

There are many reasons a financially stressful situation like this can happen, but some of the most common are:

• Loss of employment or layoff
• Too little income in retirement
• Unexpected medical bills
• Increasing cost of medications
• Divorce
• Disability
• Loss of spouse or partner

These are just some of life experiences that can financial hardship.

If one or more of these sounds like what you are going through, you may have several options:

If you have enough equity in your home, a refinance or equity line of credit may be a solution.  

If you qualify for a consolidation loan or balance transfer and the interest rate is not too outrageous, then that may work.

You may qualify for a Credit Counseling or Debt Management Program.  But if you are having a hard time keeping up with the total due for all of the minimum payments now, most likely this type of program will not help.

What about BANKRUPTCY?

I believe bankruptcy can be a viable option if you have tried all other options.  Bankruptcy laws have changed over the last few years to prevent someone from trying to use bankruptcy to discharge debt when they possibly could meet their promised to repay!

So how does a DEBT SETTLEMENT PROGRAM work?

If you have missed a couple of months of making the minimum required payment due on all of your accounts or cards, they are probably getting close to being "charged off".  

When this happens, the account will most likely be transferred or sold to a third party debt collector or debt purchasing company.

Most people are not aware that there is a multi-million (or most likely) billion dollar industry that purchases old, delinquent debt for pennies on-the-dollar for collection!

Let's say you have a credit card and due to circumstances beyond your control you just cannot make the payments.

The original creditor will call and send letters trying to get you to start making payments again.  But after 3-4 months, the account lands with a Debt Collector.

Now the Debt Collector starts calling, and calling, and calling.....

The good news is that now you can put a stop to those annoying calls!

But the letters keep coming!

These letters will try to get you to pay or in some cases, they may offer to SETTLE THE ACCOUNT for less than the balance due!

This offer may be anywhere from a small reduction or possibly a very good reduction.  

You may also be able to contact the debt collector to NEGOTIATE a better settlement or perhaps to let you take advantage of the settlement offer by making a series of monthly payments that you can afford.

Negotiating with debt collectors can be very time consuming and stressful.

I've been helping people deal with the stress of too much debt and negotiating with debt collectors (many time attorneys) for many years, so I know from personal experience!

The agent for the debt collector's job is to get as much money out of you as possible!  In many cases, their income, commission or bonus depends on being very inflexible.

The agent will try to intimidate you and in many cases try to shame you into getting you to pay back all of the balance!

There are laws that protect consumers from illegal collection tactics, but most people are not aware of them.

I've written several articles about dealing with debt collectors.  Here's one that may be especially helpful:

Debt Collectors, the FDCPA and Your Rights

For the sake of this blog, let's say that you negotiate a settlement for less than the balance due...NOW WHAT?

DO NOT, I repeat, DO NOT make any payment (by phone or mail) without a WRITTEN SETTLEMENT AGREEMENT!

A settlement agreement is basically a modified contract from the original contract (application) you signed when you took out the card or loan.

If the agent will not email, fax or mail the written agreement, then no settlement/no payment....PERIOD!  It is your only proof of payment once the agreement is completed.

Here is link to what a settlement agreement looks like:

Once the settlement agreement is completed, you can request a letter or statement showing a $0 balance, but if they will not comply, then your cancelled check or bank statement showing payment along with the settlement agreement will suffice.

Over time, you can get yourself back to being DEBT FREE! 

If all of this sounds like a little too much for you to handle, let us know:

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When a debt collector calls, it can be not only annoying, but also a little scary!  But dealing with debt collectors does not have to be something you fear.  Let me show you what to do...

No matter how serious you financial and/or debt situation is, there is  a solution.  DON'T BE AFRAID!

• Debt collectors are people just trying to earn a living.  

I've been dealing with them for many, many years and most of them are not hard to deal with. If, you know a few things about them.

Usually, the debt they are calling about is one that you owe.

Of course, if you can prove that you don't, you can always demand that they "validate" the debt by providing documentation.

The Fair Debt Collection Practices Act (FDCPA) gives us protection from illegal debt collection practices.

Basically, it spells out what a debt collector can and cannot do in attempting to collect debt.  It allows a consumer to question the validity of the debt they are calling about. 

There are also many "credit repair" companies that advocate using the validation process to remove debts from our credit report.

While you should challenge or dispute errors on our credit report, beware of opening a validation dispute on accounts you owe as it might backfire on you!

Unless you can prove beyond a doubt that you never had or have paid the debt with proof in writing, don't send the letter!  Why?

A debt collection company has been retained by the original creditor or the owner of the debt.  Yes, creditors buy and sell debt.  In fact, it is a multi-million dollar business.

Anyway, while a request to validate the debt may work, it could cause the debt collector to become very aggressive in their collection efforts! 

This may include filing a CLAIM, resulting in a SUMMONS, that may lead to a JUDGMENT, which could lead to WAGE GARNISHMENT, LIENS and BANK LEVIES!

So, before you "jump into" debt validation...You need to contact the collector, but before you do, get prepared:

1)  First, you'll need a BUDGET:

 This will not only let you know how much (if any) money you can offer to SETTLE the debt and the debt collector will most likely ask about your situation.

2)  Call the collector:

Be calm and respectful! 

Trying to act "tough" or being disrespectful will NOT HELP!

While you'll need to explain your situation, don't "over do it".  The collector may need to submit your settlement offer with some budget information to the owner of the debt or they may be able to discuss and negotiate a settlement right now.

Always ask them what it would take to settle the debt! 

They may come back with, "How much do you have to offer?"  

Say something like, "I don't know, I am barely making it now.  What will it take?"

In negotiations, the person who gives out an amount of money usually loses!

Let's say you owe $5,000  and they say they can settle for $4,000. While that is a nice $1,000 reduction, you should be able to do a little better.  Say something like...

"I just don't have $4,000, but I may be able to could come up with $2,000 if you could give me a little time."  That's it...stop talking...wait for a response.

They may or may not accept, or they might come back with a counter offer.

You're trying to get somewhere around 50%.  Here's a few examples:

Negotiating a settlement is not easy! (I know!  I've been doing this for about 17 years now!)

If you are successful in negotiation a good settlement, you MUST GET THE AGREEMENT IN WRITING!!!!!!!!!

Let me state that again....NO AGREEMENT IN WRITING....NO DEAL!

If you are unsuccessful, then just tell them that you'll have to get back to them and politely hand up.  They may or may not follow up with you.

FINALLY, the worst thing you can do is to ignore the debt.

If you do, while the account may be pulled back to the owner of the debt and transferred to another collector, it cause the collector to become too aggressive and possibly initiate legal action by the collector!

By dealing respectfully and confidently with the debt and the collector, you may be able to settle the debt or if necessary, just set up payments to repay the entire debt.

Hope this helps!

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Debt Settlement is a great way to pay off old, delinquent debts.  But, will it hurt or help your credit score?

If you find yourself with too much debt and not enough money to keep up with at least the minimum payments, a debt settlement program may just be what you need to get a fresh start!

But, I'm always asked, "Will debt settlement lower or raise my credit score?

Let's be honest....

The reason you are considering debt settlement is most likely due to the fact that you have accumulated so too much debt and your credit score had gone down already!

Maybe you...

• Lost your job.
• Are retired and living on tight, fixed income from Social Security and/or other retirement income.
• Had a serious illness or possibly a career ending disability.
• Went through a divorce.
• The death of a spouse or partner.

How are Credit Scores determined?

There are basically 5 things that go into making up your credit score:

Payment history ...

• This makes up about 35% of your credit score!
• How have you been handling credit? 
• Do you make payments on time?
• Have you been late too often?
• How long have you been using credit?

Balance-to-limit ratio...

This accounts for 30% of your credit score and in my opinion, actually carries more weight!

Add up all of your balances and the total credit limits you have.

Divide the total balance by the total limit.

Example:

You have about $25,000 of total credit card balances on 5 different cards.

Your total credit limit (each card is different) adds up to $35,000.

$25,000 divided by $35,000 = 71% !!!

When your ratio is above 30%, lenders think that you are over-extended and are not a very good risk to pay back a loan, etc.

This balance/limit ration is very, very important!

*Hint:

Many people make a serious mistake in trying to improve their credit scores by closing credit accounts or cards after paying them off.

Let's continue the example above and see what really happens:

Before:         $25,000 of $35,000 of available credit (credit limits) or 71% (too high!)

After paying off a couple of cards, the ration looks like this:

Total account balance         $ 10,000

Total credit limit                   $  35,000

Ratio:    $10,000 divided by $35,000 = 28% !!! (Looking good!)

Thinking that getting rid of a couple of cards will help his credit score, he calls and closes 2 accounts and his credit score goes back down!

Ratio:    $10,000 divided by only $25,000 (closed 2 accounts with $10,000 limit)

Now his ration is back up to 40%.  Yes, better than 71% before, but still over the 30% goal!

Length of Credit History...

This accounts for about 15% of your credit score.

Younger borrowers have not established a "credit use history" and fair or not, are punished in their credit score.

Lenders are looking for seasoned credit users who have proven they can handle credit.

It will take some time for this factor (only 15% weight) to improve.

In the meantime, don't run out and start opening up several credit cards thinking this will help!

This takes us to the next factor:

New Credit...

If you try opening several credit or store cards, it suggests to the lenders and the credit bureaus that you may be in financial trouble and are trying to "borrow your way out"!

Even though new credit accounts for only 10% of your credit score, it is still very important!

There are no "short cuts".  It takes time and a good payment history to improve your credit score.

Credit mix...

A good mix of revolving credit (credit cards) and installment loans (auto loan) looks better and is viewed as a good risk to lenders and the credit bureaus!

Although accounting for 10% of your score, this is still important!

OK, now you see there are several factors that go into making up your credit score.  So will a debt settlement program help or hurt your credit score?

There are no "quick fixes" so beware of ads that say they can remove negative items from your credit report, etc.) is to pay down and or settle balances.

If the only way to start improving your credit score is by paying down the balances, what if you just don't have that much income?

If your total minimum payments requires $500/month and you only have about $200 (if there are no emergencies, etc.), what are your options?

Debt Management (used to be called "credit counseling")

In this program, each of your creditors agrees to lower your interest and possibly waive some late or over-the-limit fees.

Your total monthly payment is usually about 2.4% of the total balances, which may be the same or even higher than the total of all of your payments now!

Let's say you have $25,000 of total credit.

At 2.4%, that's a payment of abut $600 a month!

If you are having trouble making the required total monthly minimum payments now, most likely a Debt Management Program will not help.

Debt Settlement

Once your accounts start going to collections and you start getting letters and calls (lots of calls!), it's time to face the hard facts!

You're in real trouble and if you don't do something quickly, creditors may start to file claims which leads to a summons, which can lead to judgments.

After a judgment is awarded, a creditor can apply for wage garnishment and/or a bank levy!

Serious stuff!

When a borrower is in serious trouble, they may be thinking about looking into BANKRUPTCY as their only solution.

Creditors will usually be willing to accept a settlement or reduced amount to avoid this.

Settlements can run from 40% to 70%, depending on several factors.

The bottom line is that once a settlement is completed, even though your credit history shows late or no payments for awhile, now you have repaid or "settled-as-agree" the account and you have a $0 balance!

To potential lenders and the credit bureaus, this looks good and your credit scores will start to improve!

Bottom line...

Debt Settlement will help improve your credit score over time!

If it's not bad enough having too many debts and bills, receiving a SUMMONS is especially stressful!

One of our clients sent me an email this morning and said...

"I received this subpoena last night.  Kind of freaking out.  What do I do!"

We've been helping people deal with the stress of having to much debt and just not enough money to keep up for many years.

I've written many blogs about what to do with or how to prevent a summons, but wanted to give some insight that may help.

WHY DID YOU RECEIVE THE SUMMONS?

When you miss payments due on your accounts (I'm only talking about unsecured accounts like credit cards, medical bills, etc.) the original creditor will start calling and sending letters.

They may offer a few options for getting you "back on track", but for most people, these don't help or are possible due to your circumstances.

Trying to explain to the agent is usually a waste of time, so I don't advise trying.

If you do, just say something like...

"I've had some things happen and can't make payments right now.  I intend to get caught up soon and would appreciate it if you'd stop calling."

After a few months, most likely your account will be transferred, assigned or even sold to a collection agency.

Now you can at least put a stop to the calls:

DEALING WITH DEBT COLLECTORS

There are thousands of companies that make a lot of money collecting bad or old debts!  These companies may take accounts on consignment, in order to earn a portion of the money they recover.

Or, they may have just purchased the account for pennies-on-the-dollar from creditors who have given up on trying to collect and have just written off the debt as a loss.

The debt collector most likely will be open to a SETTLEMENT.  The amount of settlement is determined by many factors, but on the average, a settlement of 50% to 70% (more or less) may be available.

 DON'T IGNORE A SUMMONS !

To many people take the "hide your head in the sand" approach to their financial crisis.  Although I certainly understand and appreciate how they feel, the debt is not going to go away!

If the calls and letters from a debt collector go unanswered or returned, after a few months, the debt may be:

1. Recalled back to the original creditor
2. Transferred to another debt collection agency
3. Sold or transferred to a Law Firm that specializes in Debt Collection

If your account lands with #3, and if they cannot reach you or an agreement or settlement cannot me negotiated, they may decide to FILE A CLAIM.

Once a CLAIM is filed with your local county court, a SUMMONS is prepared and sent out for delivery.

The delivery may be by a COUNTY SHERIFF or COMPANY PAID TO DELIVER the summons.

Either way, receiving a summons is (like my client said), kinda "FREAKS YOU OUT!"

Although a summons (or small claims order) may differ, most of them state something like the one my client received:

     "YOU ARE HEREBY REQUIRED to appear and defend the Complaint filed against you in the above-entitled cause within 30 days from the date of service of this summons on you, and in case of your failure to do so, Plaintiff (creditor or debt collector you owe) will apply to the court for the relief demanded in the Complaint."

Well, it sure sounds like you have to go to court within 30 days, doesn't it!

But, if you kept reading, it would explain.  (I'll paraphrase and explain to save time:)

It says you must "APPEAR".  Notice the word "appear" is in italics.

It then goes on to explain what "appear" means:

It basically says that if you wish to give proof of why you do not owe the CLAIM being made, you have 30 days to provide the court with a legal document called a "motion" or "answer".  You also have to pay the required filing fee ($165 in this particular county court).

The summons goes on to say that if you have questions you should see an attorney immediately and usually gives a phone number for your state's Bar Lawyer Referral Service.

NOW WHAT?

OK, so you have the summons and understand that you don't have to go to court.  What should you do?

The worst thing you can do is ignore the summons!!!!!!!

If you ignore the summons, a JUDGMENT will most likely be awarded to the PLAINTIFF.

If this happens, the attorney for the plaintiff will seek the legal options available to get funds awarded in the judgment.  These include:

• Wage Garnishment
• Bank Levy of your bank accounts
• Placing a lien against your home or other property

I don't have the space here to address each of these, and there are things you may be able to do if you are facing one or more of these due to a judgment.

The important point is....

DON'T LET IT GET TO THIS POINT!!!

In most cases, some kind of agreement or solution can be negotiated before or even after a JUDGMENT has been awarded.

You may have to repay the entire balance due to avoid a garnishment, levy or lien.

This will most likely be a STIPULATED AGREEMENT that will be filed with the court.

This basically will say that as long as you make the required payments specified int he Stipulated Agreement, the Plaintiff will not continue to seek the legal options described above.

Once the Stipulated Agreement is completed, a LETTER OF SATISFACTION will be mailed to the court and the judgment is removed.

Now, I've explain a lot. What's the main points?

You have several options to prevent your account from ever getting to becoming a judgment.

• You can't ignore the debt.
• It will not go away!
• If you receive a summons, don't panic!

If you are overwhelmed, we may be able to help:

Photo Credit

If you have received a summons for an unpaid, unsecured credit debt, you know how intimidating it is!

In order to help you understand why this has happened and what your options are now, I'm going to walk you through the basic process and give you ideas on how to prevent in the future.

Dealing with the stress of having too much debt and not able to make the minimum payments due is a terrible experience.

Then, you get a knock at the door and are handed a SUMMONS!

Now what?

Do you have to go to court?

Are they going to garnish your paycheck or levy your bank account?

Most likely, the answer is NO!

Let me walk you through the basic litigation process and I think you'll understand more and hopefully feel better!

When you applied for the credit card or unsecured loan, you were making a promise to repay the debt per the payment and interest of that account.

But, things happen in life and you most likely have had one or more of the following events cause this:

• Unemployment
• Illness or disability (medical bills!)
• Death of a spouse or partner
• Divorce
• Retired on a very limited fixed income!

 Letters and calls

When you don't make the minimum payments required by your credit account agreement, you'll start getting letters and calls.

The letters will warn you that you missed a payment and now you must make up the missed one, pay the late fee and add the next payment due!!!!

The calls usually come after a couple of months of missed payments.  Unfortunately, the original creditor has the contractual right to call you.

Once these accounts are charged off and/or sold to a collection agency, you can put a stop to the calls.

(I'll show you how to stop calls from collectors in just a minute.)

I've been helping people deal with credit issues for over 15 years and have not found it very helpful or productive to try to explain yourself to the agent making the call.

If you feel like you just have to...try saying something like:

"I've had some things happen and can't make the payments now.  I intend to get caught up soon, but would appreciate it if you would stop calling."

This may work, but don't be surprised if it doesn't.

Collection Letters and Calls

After 2-3 months of non-payment, your credit card or unsecured account will most likely be transferred to a DEBT COLLECTION AGENCY.

If the calls had stopped, they will begin again.

But, now you can stop the calls.  Here's how:

The calls will stop, but the letters will continue.

You may get a letter with a SETTLEMENT OFFER. 

It will say something like...

The current balance is $$$$$$$, but we are making a one-time settlement offer of $$$$$.  This must be received in our office by (date).

 Sometimes, these are not bad offers!  I've seen some at 40% or so of the balance (yes with all of the added interest and late fees), but for example, a $4,000 settlement on a balance of $10,000 is a pretty good deal!

However, I'm guessing that if you had that kind of money, you wouldn't have gotten behind in the first place!

Debt Collection Agencies (sometime attorneys who specialize in debt collection) have either purchased the debt or have taken it on a kind of consignment.  The debt collector will get a percentage of what they collect.

So, they are going to play "HARD-BALL" and try to get as much as possible out of the debtor (you).

You can negotiate a settlement, but the final settlement will be determined by several factors:

How much the collector paid or stand to earn on this particular debt.  Different creditors (Capital One, CitiBank, etc.) each have their own parameters of what they will or will not take as a settlement.

Your particular financial circumstances also play a very important part of the negotiating process!

If you are employed and are paying a mortgage, the collector may not be willing to come down much as they may decide to file a claim hoping to get a judgment in the future.  I'll explain more about this later.

But, if you are unemployed, disabled, retired, renting and just barely getting by, they will be more willing to accept a good settlement (40%-50%).

Before you make the call, it is a good idea to have "all your ducks in a row" so to speak!

You need to have completed a budget (what's coming in and going out each month).  The collector will need to provide this in order to present you offer to the original creditor or their manager.

Here's a FREE BUDGET WORKSHEET to help:

Now that you know where you stand financially, you can make the call.

Most debt collectors are surprisingly professional and even polite, so you do the same!

Being aggressive or having a "take it or leave" attitude will not help!

But on the other hand, don't beg or show weakness either.

Just explain your situation and that you are trying your best to work out settlements rather than being forced to seek BANKRUPTCY PROTECTION.

Although bankruptcy is an option, you should do everything you can to avoid it as it stays on your credit report a long time and makes it difficult when applying or credit in the future.

OK... Let's say you negotiate a good settlement....Now what?

Before you set up or make any payments, you MUST....ABSOLUTELY MUST have the agreement emailed, faxed or mailed IN WRITING!

Once you have the written agreement, you can either call to set up automatic payments or mail them per the agreement.

To give you an idea of what a real settlement agreement looks like, click below:

If you are mailing the settlement, make sure it arrives on or before the due date!  They can and will void the agreement if you are late!

If you cannot reach a settlement agreement, the collector may opt to go for a judgment.

I've written several articles about this process.  Rather than go into it in this blog, check out:

What To Do If You Receive a Summons

I hope this has helped. Let us know if we can help...

Photo Credit

"I don't understand why I received a summons!"

"I never received anything about this!  

"What can I do about it?"

I have been helping people deal with all of the problems of credit card and other unsecured debt for over 15 years, and I get calls like this almost every week!

If you have ever had someone come to your home, office or received a registered letter with a summons, you know how stressful this is.

To prevent this from happening, you need to understand how the debt collection process works and what you need to do to stop a summons before it ever gets started.

What happens if you cannot keep up with the minimum payments required by you credit accounts?

Remember, I'm writing about unsecured debts, such as:

• Credit Cards
• Personal loans or lines of credit
• Store Cards
• Medical Bills
• Utility Bills
• Private Student Loans
• Pay-Day type loans

OK, let's say that you have gone through, or are going through a financial hardship due to one of many situations beyond your control...

• Loss of employment
• Divorce
• Death of spouse or partner
• Medical (accident or illness)
• Disability
• Retirement Income too little/fixed

Most of their stories goes something like this (I'll bet this is close to yours!):

After our divorce, I tried to keep up with the credit cards that I was left with, but without my ex's income, I just couldn't. 

For the first few months, I would just pay the minimum payment on all of the larger balances and let the smaller ones go.

, I tried taking a "cash advance" on one of the cards that still had a little bit of credit left on it to pay something towards the others.

I knew I was in big trouble, but felt hopeless...there was nothing I could do!

After a while, I had to make decisions like whether to pay the utility bill or the Visa bill.

Of course, the utility bill had to be paid.  It's winter and cold!

I even had to use the last credit card (with any "credit limit" left) to buy groceries once in awhile!

I finally stopped paying on most of the cards but one, hoping that something would happen and I could get caught up on the others one day.

I started getting phone calls....lots of phone calls and letters.

I tried explaining my situation a couple of times, but the agent didn't seem to care.  All she wanted was for me to send something right away!

Finally, I just stopped answering the calls or the messages.

The letters started saying that unless I contacted them immediately, they were going to "charge off" my account and it might be turned over to an attorney for collection. (That was scary!)

After a few months, the calls slowed down or stopped from the original creditors, and now they were coming from debt collectors.

The letters from the Collection Agencies, were offering to work with me, but I just didn't have enough to make ends meet.

So, I just threw the letters away.

One evening, the doorbell rang and a man handed me an envelope and said, "You've been served."  (Kind of like in the movies.)

The Summons said something like (I was too upset to really read it carefully) I was now a defendant in a lawsuit.

The Plaintiff  was the Visa Card/Store Card.

It seem to say that I had to go to court ("appear") in 30 days or that a judgment would be awarded to the Plaintiff.

I found out that the "Appear" really meant that if I wanted to argue or explain why I didn't owe the debt, I had 30 days to send an "Answer" to the court.

The "Answer" had to be legally correct and would most likely need to be prepared by an attorney (how much would that cost?) and there would be a filing fee on top of that!

I knew I owed the debt, but couldn't do anything about it.

So, I just IGNORED THE SUMMONS.

OK, let me stop there...

I'll address that last phrase..."I just ignored the summons" later.

When you don't or can't pay the minimum payments due on your credit cards, the creditor can call and write seeking payment.

As long as the account is still with the original creditor, they have the right to call.  But, when it is transferred or sold to a collection agency, you can put a stop to the calls:

In this hypothetical case (although very, very common), let's see what this person did wrong and what should have happened.

When you sign up for and are approved for a credit account, you are promising to repay what you borrow/charge plus interest and fees.

So, when you don't, the creditor has a right to "legally" attempt to get you to pay.

In this article, I'm not going to get into the "legal" vs. "illegal" actions some debt collectors take, but have written several blogs you might find helpful.

What Debt Collector Can and Cannot Do

One of the most commons mistakes someone makes is to use one credit card to pay on another.

I believe it is illegal, but regardless, you should never do this!  You are just compounding the problem.

If you have equity in your home, you may (and I'm not a big fan of this) want  to see if it would be possible to either consolidate all of your credit card debt with a home equity loan or line of credit.

The danger is that so many people do this, add years and increase the balance of the mortgage and then, charge up the cards again! 

So, BE VERY CAREFUL!!!

Paying on one card and not the others, may help keep that particular account open, but in the long run, your're not helping yourself.

Here's the first and most important step:

As soon as you know you are in serious financial trouble, it's time to get very honest with yourself and find out exactly where you stand.

You need to do a complete (honest...every dime in and out) budget.

This will tell you the truth and help you decide on a possible solution.

If you have some money left over at the end of the month, you have a couple of options:

Debt Management or Debt Settlement

I'll get into detail a little later.

If you don't have any money left over at the end of the month, then it's time to consider:

Bankruptcy Protection from your creditors!

I think Bankruptcy should be your last and only option after you try other programs.

OK, let's say you have some money left over at the end of the month...

What can you do?

Briefly (see link above for details), a Debt Management Program (used to be referred to as Credit Counseling) is a program whereby each of your creditors agree to lower interest rates and sometimes waive fees for a set amount of monthly payment for a set amount of time.

As long as you keep up, they will not take any more collection options.

But, the problem with this type of program is that the monthly payment is not much lower (if at all) than the total of all of your previous minimum monthly payments!

If this is the case, then a Debt Settlement Program may be the answer.

A Debt Settlement Program is for people who have (or are about to have) accounts in collections.

Rather than make payments to the creditors or debt collectors, you will deposit an amount (that you can afford after completing the budget), into a FDIC Insured bank account to be used to offer settlements on you debts.

Debt Collectors and Debt Buyers may take 50% or less to settle old debts.

Once they are all settled, your credit report will start to improve.  

Here's a few examples of settlements we have negotiated for our clients:

OK, that's what this person should have done, but didn't...

NOW WHAT?

Even after you receive a SUMMONS, you may be able to negotiate an agreement whereby you pay back what you owe in monthly payments you an afford.

The Plaintiff will most likely move to obtain a DEFAULT JUDGMENT and it will be filed with the court.

But, if they agree, a STIPULATED AGREEMENT (repayment plan) will be filed also.

This basically says that as long as you make your payments on time and the amount agreed upon, they will not take any legal options to collect, such as:

• Wage Garnishment, or
• Bank Levy

If you already have a garnishment or bank levy, you still may be able to negotiate an agreement to stop these, but it's not easy.

The point is...

You may be able to prevent a summons, but if you do receive one, please....

DO NOT IGNORE !

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Around tax time, many people receive a 1099-C form and usually do not know what to do about it.

Here is some very important information on not only why you received it, but what to do about it:

You need to understand:

• Why you received the 1099-C.
• Why you cannot ignore.
• If you will have have to pay more tax
• How to file with your tax return.

Anytime a creditor accepts less than the full balance due and the "forgiven" amount (the difference between the actual balance and the amount you paid) is greater than $600, the creditor most likely will report it to the IRS.

I said "most likely" because not all creditors will report a settlement/forgiveness.

If they do, then you will receive an IRS Form 1099-C that shows the creditor, the amount given and some general instructions on what to do.

Of course, typically with the IRS, the form is somewhat vague and not very clear as to what you need to do.

So, let's walk through this....

WHY DID YOU RECEIVE A 1099-C?

If you cannot make the required minimum payments on your credit cards or other unsecured debts, after a certain amount of time (usually 3-4 months) the creditor may sell or transfer the debt to a debt collection agency.

The original creditor will most likely write the balance off as a loss (to offset their tax reporting) and usually sell the debt at "pennies on the dollar".

Let's say that the debt collector/debt buyer bought your Visa Card debt of $5,000 for $500...(yep, the get these very, very cheaply!)

Now, you start getting calls and letters from the debt collector saying you owe the $5,000 to them (even thought they only paid $500).  Starting to get the point?

Oh, by-the-way, once the account has been sold or transferred from the original creditor, you can put a stop to the phone calls:

But, even though you stop the calls, the amount you owe still remains!

Depending on your specific circumstances you may have gone through or are going through, the debt collector/buyer may be willing to accept a SETTLEMENT.

A settlement is an agreement to accept less than the full amount to satisfy the debt, usually saving you 40%-60%.

The difference between the balance owed and the amount accepted as a settlement is called a "FORGIVEN" amount by the IRS, and as I said before, you most likely will received a 1099-C form because of it.

YOU CANNOT IGNORE THE 1099-C!

We get calls from clients all the time who received the 1099-C, ignored it, filed their income taxes as usual, and then, a few months later, start getting letters from the IRS saying they own more money plus penalties and interest!

And, even though you can file an amended return in hopes of getting this taken care of, it is a lengthy, time consuming process now.

The time to deal with the 1099-C is now....not later!

Just because you receive a 1099-C doesn't necessarily mean that you will have to pay more tax.

Let's say that the Visa Card that had a balance of $5,000 and was sold to XYZ Collectors, was ultimately settled for $2,000.

Good deal!, you just saved $3,000!

Well, that's true, but, the IRS looks at it as if you had received $5,000 of goods and services, but only paid $2,000, so you had an additional $3,000 added back to your gross income for that year.

Now your total adjusted net income (the amount you will have to pay tax on after all deductions and credits are deducted from your gross income) is increased by $3,000.

If the TAX RATE (the percentage of the adjusted net income) was 20%, then you would owe an additional $3,000 x 20% or $600 more tax! (not including penalties and interest!).

But, if you had read the fine print of the 1099-C you received, it said that (paraphrasing here) that...

 you may be EXEMPT if you were INSOLVENT at the time of the FORGIVENESS.

What does "INSOLVENT" mean and how do you show or prove to the IRS that you were? 

How do you file with the IRS?

You must provide the IRS with a little information and the proper forms (specifically IRS Form 982).

Basically, you are going to show that at the time of forgiveness (the settlement) you had more LIABILITIES (debt owed) than your ASSETS (all equity, bank accounts, etc.)

If this is the case, then you DO NOT have to include the FORGIVEN amount as additional income and therefore, and will not have to pay any additional tax!

But, you have to provide/include the proper documentation and form with your tax return.

Don't be surprised if your tax-preparer doesn't know what to do with the 1099-C and don't "just pay the extra tax" as a result!!!

Just click below, follow the instructions:

If you have credit accounts that have been turned over to debt collectors, you know what it is like to be harassed by calls and letters!  You don't have to put up with it, if YOU KNOW YOUR RIGHTS!

The debt collection industry exits for the sole purpose of  assisting creditors with collecting on unpaid debt that is legitimately owed by a consumer. 

However, many debt collection companies will purchase debt from creditors or other debt vendors in and attempt to collect for huge profits! These guys by up huge blocks of "debt" at pennies on the dollar.

Although I don't fault anyone or any company trying to make a profit, I do take serious issue with debt collection companies that prey on consumer's fear and lack of knowledge.

The Fair Debt Collection Practices Act (FDCPA) was passed to not only protect consumers from debt collectors, but to also inform the consumer of his/her rights.

The Federal Trade Commission is an agency of the United States Government that was formed to protect consumers rights and to enforce violations.  The FTC has published a short, yet very informative article that you should download and read carefully.  To get you copy, click here:

Federal Trade Commission...Facts for Consumers

Although I recommend that you download the above information, here is a brief summary of what the law limits what a debt collector can and cannot do:

They CANNOT:

• Call you before 8 am or after 9 pm (in your time zone)
• Use an automated dialer to call many, many times a day.
• Call you at your place of employment after you have verbally requested that they not call you there.
• Harass or abuse you by using threats of violence or harm as well as using obscene language.
• Falsely imply that you have committed a crime and will be prosecuted.
• Threaten that they will seize or garnish your property, income or bank account unless they intend to do so within a reasonable amount of time or have already obtained a judgment.
• Call your friends, family or co-workers and discuss your debt.  They may contact others, but only to attempt to get or confirm your contact information.
• Use "official" government looking stationery trying to represent that they represent the government or agency.

If you think that your rights have been violated, you should file a complaint:

You can file a complaint with the Federal Trade Commission  Here is a link to that site:

FTC Complaint Assistant

You can contact your state's attorney general's office and file a complaint.  Just do a "Google search" for your state's attorney genera's site. 

For example, here in Oregon, you would go to:

State of Oregon Consumer Complaint Form

If that doesn't help, there are numerous attorneys that specialize in defending consumer's rights that have been violated by debt collectors. 

Let's look at some of the most common violations:

One of the most annoying practices used by debt collectors is to call you several times a day or week! 

Fortunately, you can put a stop to these calls!  Here is a link that will tell you what to do:

 I've been assisting our clients on how to deal with debt collectors for over 15 years and although most operate within the FDCPA law, some will not.

Most people who are dealing with debt collectors have gotten themselves into financial trouble due to one of several circumstances, such as:

• Loss of employment or reduced income
• Retired living on fixed income
• Divorce
• Death of spouse or partner
• Illness or disability

When one or more of the things happen to you (or someone you know), then it is common to use the easily available credit to "make ends meet".

I would say the 95% of our clients over the years got themselves into credit card trouble like this!

They fully intended to repay all their debt, but life and circumstances beyond their control just wouldn't let them.

Now, they found themselves in such a financial mess that they could not even keep up with all of the minimum payments due.

I have some GOOD NEWS!!!

Once your accounts are sold or turned over to debt collectors, the may be willing to accept an amount less than the full balance to satisfy the debt.

This is called a "settlement".  We do this for our clients every day. 

Here's what a settlement looks like:

Finally:

• Don't let debt collectors intimidate you!
• Know your rights and stand up!
• Use debt settlement to get a fresh start!

We have been helping people like you since 2003 and would be glad to see if we could help.  For a FREE CONSULTATION, just click below:

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One of the worst things that can happen to someone is to be delivered a SUMMONS!

Before you go into a PANIC MODE, here are several VERY IMPORTANT things you need to KNOW and DO if you receive a SUMMONS:

At Debt Relief NW, we get calls every week from someone who has received a summons and usually they ask the same questions:

• "Why did this happen?"
• Do I have to go to court?
• Are they going to garnish my check?
• Are they going to take money out of my bank account?
• Is there anything I can do about this?

 So let me walk you through this and see if I can be of help...

I need to give my disclaimer that I am not an attorney and not given legal advice.  This article only  comes from my experiences of helping people deal with debt for many years. 

WHY DID THIS HAPPEN?

For the sake of this article, I'm only dealing with UNSECURED DEBT and not debt like a home, car, boat, etc.

When you take out a credit card or personal loan, you are given a certain amount of purchasing power (CREDIT LIMIT) based on a lot of factors that you CREDIT REPORT reveals.

You are promising to repay the amount you charge on your account according to the terms contained in the application or contract you sign.

If you don't, then the creditor can take certain actions to recover the debt.

Usually, they start by sending you letters telling you what you already know...that your payment is late! Later, these letters start getting a little more serious in the language and tone.

You may get calls from the creditor. Yes, they have the right to call you about your delinquent account, as you gave permission when you signed up. (Remember all that "fine print"?)

They may offer you a plan to get you back on track and even a SETTLEMENT option.

But, if you are unable to do either, they may decide to CHARGE OFF your account and place or sell to a DEBT COLLECTOR.

Debt Collectors earn their fees by getting you to pay as much as they can! Period!

They train their agents to call and do everything short of violating the Fair Debt Collection Practices Act. 

In some cases, they do not and here is a link to an article from the Federal Trade Commission that you should look at:  FTC, Dealing with Debt and the FDCPA

If a repayment plan cannot be worked out, the debt collector may decide to take LEGAL ACTION in order to recoup money for themselves and/or their client (your creditor.

They must FILE A CLAIM in the county court where you reside. 

The CLAIM will spell out (in legal terminology) that you took out the loan and didn't repay, therefore they are seeking RELIEF (JUDGMENT).

Do I have to go to court?

Although the SUMMONS reads like you do, if you read carefully, it is not. 

Here is an actual example of the text from a summons one of our client's received:

YOU ARE HEREBY REQUIRED to appear and defend the Complaint filed against you in the above-entitled cause within 30 days from the date of service of this summons on you and in the case of failure to do so, for want thereof; Plaintiff will apply to the court for relief demanded in the Complaint.

It goes on to read: (the italicized words are actually in italics in the summons)

You must "appear" in this case or the other side will win automatically.  To "appear" you 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 Plaintiff does not have a lawyer, proof of service upon Plaintiff.  If you have questions, you should see a lawyer immediately.  If you need help finding a lawyer, you may call (in this case) the Oregon State Bar's Lawyer Referral Service at (503) 684-3763 or toll-free in Oregon at (800) 452-7636.

OK, let's break this down:

Sound like you certainly have to "appear and defend" the Complaint!

But keep reading...."failure to do so..Plaintiff (plaintiff is the creditor) will apply for relief.

"Appear", "Motion", "Answer":

If you can prove, and I mean documents, etc. that clearly prove you do not owe this debt, then you can file a "Motion" or "Answer" by either hiring an attorney (remember...this is a "legal paper" to prepare it, paying the court fee and file it with the court clerk or administrator within the 30 day period.

Rarely is this necessary!

You owe the debt, didn't pay the debt, didn't work out anything with the original creditor or debt collector, so now, they have availed themselves of the legal process.

ARE THEY GOING TO GARNISH MY PAYCHECK?

CAN THEY TAKE MONEY OUT OF MY BANK ACCOUNT?

At this point in the process, there has not been a JUDGMENT  awarded to the Plaintiff/Creditor.

A creditor CANNOT apply for a WRIT OF GARNISHMENT OR LEVY without having been awarded a judgment.

So, just because they FILED THE CLAIM and you received the SUMMONS, that still does not give the the legal right to GARNISH OR LEVY.

So, let's get to the all important final question most people have after receiving a summons...

IS THERE ANYTHING I CAN DO ABOUT THIS?

Good news...

IT IS STILL NOT TOO LATE TO WORK OUT AN AGREEMENT WITH THE CREDITOR OR ATTORNEY TO AVOID FURTHER LEGAL ACTION!!!!!

 At this stage of the "legal process", you can contact the attorney and in most cases, (depending on various circumstances and your specific situation) an agreement called a STIPULATED AGREEMENT can be negotiated.

The Plaintiff/Creditor may be willing to accept either a lump sum (sometimes a reduction from the total due) or monthly payments instead of moving forward in the legal process.

But, you cannot procrastinate...cannot ignore the summons!!!!

If you do, the Plaintiff and/or Attorney for the Plaintiff may not be willing to work with you!

Here is an actual Agreement I was able to negotiate for one of my clients recently.

PAYMENT AGREEMENT ON PENDING AGREED JUDGMENT

The Defendant and Plaintiff agree on this date: January 12, 2018

1. The Defendant acknowledges that, upon default of this Payment Agreement, Judgment may enter in Clark County Superior Court in favor of the Plaintiff and against the Defendant(s), pursuant to the Agreed Judgment signed by the Defendant, in the total of $1,3 52.23, filing fees of  $270.00 and a service fee of $98.00, for a total amount owing of $1,720.23, less payments made pursuant to this Payment Agreement. The Plaintiff agrees to accept and Defendant(s) agrees to pay a settlement amount of $946.56, with no interest, so long as all payments arc made timely and as agreed in accordance with this Agreement. In the event of a default in payments, the Plaintiffs agreement to accept this settlement amount will be null and void.

2. Plaintiff agrees to accept payments on the settlement amount of $946.56, and not to undertake further collection efforts on the Judgment, so long as Defendant(s) makes an initial payment of $ 100.00 on or before January 28, 2018, followed by monthly payments of $100.00 or more, to be paid on or before February 28, 2018 and continuing the 28th day of each month thereafter, until the settlement amount of $946.56 owed is paid in full.

The agreement goes on to explain how and where to mail payments, etc.

But, here is what I was able to do:

• The original Credit One account had a balance (all the interest and late fees added) of $1,352.23.
• There were added filing fees and service fees of an additional $368, bringing the total due of $ 1,720.23.
• The Plaintiff (creditor) agreed to accept a total of $ 946.56, payable at $100/month without any additional interest, so long as we make the payments per the agreement.

By-the-way, each state allows interest to be charged on a judgment. In  this case, the client lived in Washington, where the allowable interest would have been 12%.

Bottom line...

• By negotiating a stipulated agreement, the client will not face any garnishment of bank levy.
• Save approximately $774.00!
• And, once the agreement is complete, a letter of satisfaction is sent to the court and the judgment is removed!

If you have received a SUMMONS, take ACTION! 

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         and a service fee ot $98.00, for a total amount owing of $1,720.23, less payments made pursuant to this Payment Agreement. fte PlaintifT agrees to accept and Defendant(s) agrees to pay a settlement amount of $946.56, with no interest, so long as all payments arc madc iimcly and as agrccd in accordancc with this Agrccmcnt. In thc event of a dcfault in payments, thc Plaintiffs agreement to accept this settlement amount will be null and void.

2. Plaintiff agrees to accept payments on the settlement amount of $946.56, and not to undertake further collection efforts on the Judgment, so long as Defendant(s) makes an initial payment of $ 100.00 on or before January 28, 2018, followed by monthly payments of $100.00 or more, to be paid on or before February 28,

2018, and continuing the 28th day of each month thereafter, until the setLlement amount of $946.56 owed is paid in full.

Several years ago, my wife and I faced one of the darkest times of our lives.  Although we were in a financial mess, we found a way to work through it.

Hopefully, our story may help someone else. 

Here goes...

I never dreamed that I would ever be in a situation where I could not pay my bills!

With a good job that paid me a better than average income and my wife earning a good salary as well, we were  living the "good life", until.....

Our lives dramatically changed!

I had been working for the same company for about 10 years, was in charge of a large area of the country, and my sales and sales team usually led the company.

This meant that I was getting a nice bonus each year as well as my large salary!

Like I said, "Life was good!"

Although I had heard the rumors about a possible sale of the company to a larger competitor, I was told "Don't worry, even if this happens, you'll be OK".

Right!

One afternoon, my supervisor called me into his office and I could tell that something was up.

After a few minutes of chit-chat, he finally came out with it and let me know that the sale was going to happen, and that the new company was going to terminate my position and replace me and my team with their own people!

I just stood there...in shock, thinking...

            "What was I going to do?"

So, here I was:

• Unemployed (for the first time in my life!)
• Have a mortgage (nice, large home!)
• Family (2 kids, ages 8 and 10)
• A little over 40
• No real job prospects in a bad economy!

I knew I was in trouble and I was starting to panic!

JOB SEARCH, BILLS, and STRESS

I sent out dozens of resumes and went on several interviews, but no luck.

One night, my wife and sat down and completed a "Home Budget Worksheet".

Even though I kinda had an idea of what came in and what went out, I really hadn't ever taken the time to track it carefully. 

After all, we were making great money and really had nothing to worry about.

Boy, was I shocked to see the real numbers!

We found out that we were spending a lot of money on things we really didn't have to have, such as:

• Starbucks coffee
• Athletic club membership (that I rarely used)
• Internet and TV Service that included about 1,000 shows and channels we rarely watched!
• Going out to dinner a couple of times a week
• You get the picture...

And then....

The hot water heater stopped working.  

The plumber said that there was nothing he could do to repair it as it was just too old.

With our savings just about gone, I had to use one of my credit cards to buy a new one and pay for the installation.  

Even though the total was about $1,000, it really only increased my minimum monthly payment by $25 or so.

And the spriral started...

It was better than nothing, but the final take home pay was just not enough to cover everything.

I was really beginning to stress out!

CREDIT CARDS TO THE RESCUE?

We had no choice but to pay only the absolute essential bills like the mortgage, utilities, groceries, etc. and let the credit card bills, medical bills, and yes, even the car payment get behind. 

I mean, what else could we do?

Sure, there was a little equity in our home, but with our bad credit rating, we wouldn't qualify for a second mortgage or refinance.

Over time, I had to use the cards to make up the shortage we faced each month.

As the total credit card debt was increasing due to late fees and over-the-limit fees, we had to use a CASH ADVANCE once in a while just to pay a utility bill or buy groceries!

The crazy thing was, even though we hadn't made a payment in 3-4 months, and were getting nasty letters from our creditors, we would still get an OFFER from a credit card company for another card or to consolidate all the others with a BALANCE TRANSFER!

We actually had three cards from one company!  Made no sense!

Sure, this "rob Peter to pay Paul" action was holding them off, but we knew that a"day of reckoning was coming!"

DECISION TIME!!!

One evening, after the kids were asleep, we sat down at the kitchen table and took a long, honest look at our situation.

There just wasn't enough money to cover all of our expenses and bills.

It looked like BANKRUPTCY was our only option.

As we discussed this, my wife told me that she had a friend who had gone through a similar financial situation and had prevented choosing bankruptcy by going through a Debt Settlement Program.

I called the company she had used, but after a few minutes talking to the rep on the phone, I just didn't have a good feeling.

It seemed that all he wanted to do was to get us to "sign up" right away and that he really wasn't listening to our particular situation.

Tried the DIY method to negotiate settlements

I tried to contact the debt collectors myself, but soon learned that they did not care about our situation and were not very sympathetic and usually very rude.

Sure, they were willing to settle the account for a little less than the full balance, but they wanted the money in a lump sum!

I lost my temper and told one guy, " You %%#@*&^%, if I had that kind of money, I wouldn't be in this situation!"  He seemed as if he could care less.

I was angry and embarrassed!

CHOOSING THE RIGHT DEBT SETTLEMENT COMPANY

After several frustrating attempts like this, I went online and checked out a couple of debt settlement company's Better Business Bureau reports.

There weren't very many that were accredited and had an A+ rating with no complaints!

It was very evident that not all debt settlement companies were the same!

Since they all seemed to offer the same services, we decided to narrow the field by using the following tests....

• Their Better Business Bureau record
• Registration with our proper government divisions
• Examples of actual settlements for their clients
• Positive testimonials from satisfied clients
• They had to REALLY LISTENED AND WERE SYMPATHETIC TO US!

After calling a few, we decided to go with a company that seemed to meet the criteria we wanted.

THE PROCESS

Once we enrolled, the first thing they did was to put a stop to those annoying and basically harassing calls from the collectors!

I can't tell you how great it was to have someone "in our corner" now!

We had stopped sending payments to the creditors (just didn't have the money!)for about the last 3 or 4 months and some of our accounts had already been turned over to a Debt Collector.

We started making monthly deposits (what little we our budget would allow) into an FDIC insured account for future settlements.

This monthly deposit was a little less than half of what the total minimum payments would have been, so this really helped!

Over time, the company was able to settle each of our debts!

Some of them were settled at less than 50%, saving us a lot of money!

I really appreciated the service we received.  It helped calm us during the whole process.

Well, it took about 4 years to get all of our debts settled (we had enrolled about $40,000 of various unsecured debts), but it was well worth it.

When we had questions or concerns, we were always able to talk to our representative and/or the negotiator.

Not only did we save thousands of dollars through the settlements, our CREDIT SCORES started to improve!

TODAY

Here we are, still in our home, no creditors calling, all of our credit cards have a $0 balance (we actually cut them all up!) and we FEEL GREAT!

Even though we could have, we are very glad we didn't turn to Bankruptcy Protection.

Hope this has been helpful!

Debt Settlement is not for everyone, but for us, it worked better than we expected:

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