Consumer Credit

A Friend Tried a Debt Management Plan – It Didn’t Work

There are a ton of debt management companies out there that will promise to consolidate your debt, or reduce your debt or give you ONE, LOW MONTHLY PAYMENT! All too often, they don’t work. Bankruptcy does, and there are really good reasons for that.

Remember two things. First, if it sounds too good to be true, it probably is; and second, there is a huge difference between a contract between you and a private company and Federal Law enforceable by the U.S. Court system with the assistance, if necessary, of the U.S. Marshals.

If you have tried a debt management plan or consolidation plan, one of those places that promises that it is every bit as good as a bankruptcy; only to find that the phone kept ringing, and the lawsuits kept coming? Well, first of all, actually read your contract. My guess is that if you sit down and actually read all the small print, you won’t like what you find. It also won’t promise results or relief. The problem with debt management or consolidation plans is that your creditors are not required to accept a deal that you cut with someone else. Think about it, if your creditors decline to go along with the plan, what is the debt management company going to do about it?

If creditors decide that the Bankruptcy Code doesn’t apply to them, the Bankruptcy Court’s orders are punishable by contempt of court. You won’t find that in the small print of a debt management contract.

Now, there are people who think that a Bankruptcy filing is too good to be true. It really isn’t for a variety of reasons. First of all, it is a public proceeding. Now, that doesn’t mean that your First Meeting of Creditors will be held in the middle of the local shopping mall. It does mean that your court file is a public record. Second, bankruptcy is an admission of failure. It hurts. It is hard to accept. It is hard to do. The for profit debt management companies know this. They play off of it. That is why people pay them and want to believe in them. Third, bankruptcy is about the worst thing you can do to your credit report (although, if you police your credit report post discharge, it won’t be nearly as bad as you expect). Finally, there is really good public policy in favor of our bankruptcy system.

One of many things that separates our economic system from most of the world is that we understand that not only does the freedom to succeed include the freedom to fail, the freedom to fail is necessary for the freedom to succeed. If you can’t afford to fail, you can’t afford to try. This makes more sense in a business context, but the consumer context is that someone with more debt than he can pay is not a contributing member of the economy. He is not taking care of himself and his kids. He isn’t saving for retirement and college. He isn’t out buying stuff, if he is too consumed with trying to pay for the past. Bankruptcy fixes this. That is serious economic policy that was recognized by our founding fathers, which is why the need for a Bankruptcy Code is one of the few areas of law specifically mentioned in the U.S. Constitution.

So, when a private company tells you that they are just as good as the United States Court system. Ask yourself, why you want to believe that.

Then, either contact Consumer Credit Counseling Services, which is one of the few legitimate debt consolidation companies that is non-profit and won’t misrepresent what they can and can’t do; or, admit that if you have too much debt to pay, you have too much to pay – consolidated or otherwise.

Elaine

Categories: Bankruptcy, Business Bankruptcy, Consumer Credit, consumer law | Tags: , , , , , | Leave a comment

Loan Delinquencies — Times Are Changing

I was just reading an article about loan delinquencies.  These are national numbers released by the New York Federal Reserve.  Delinquency rates are loans that are at least 90 days past due, and the real surprise to me was the rate for student loans.

Nationally, 3.1% of mortgage loans are delinquent;

3.5% of auto loans are delinquent; and

11.3% of student loans are delinquent.

Really?  More than 1 in ten student loans is at least 90 days past due?  Washington, I think we have a problem.

Elaine

Categories: Consumer Credit, Student loans | Tags: , , | Leave a comment

What If the Tax Refund Doesn’t Catch You Up?

Like most businesses, mine has patterns. One of those patterns is that someone will call me about this time of year and we will talk for a bit about a possible bankruptcy filing. Then, I won’t hear anything back from them for several months. What happens is that shortly after talking to me, the caller discovers that he is going to be getting a substantial tax refund – enough to get caught up. Of course, in some cases they are right; and I never hear back from them; and that is a good thing.

Then, there are the people who are calling back in May or June. They got a $3,000 or $4,000 tax refund. They threw it all at the problem bills. Those payments paid a ton of interest. A few months later, they realized that they are still in trouble. Their tax refund bought them a little bit of time and not much more. So much of it went to interest that it didn’t really reduce their principal balances much. They still can’t pay the debt. They still can’t save for retirement. They still can’t help their kids save for college. They still need dental work they can’t afford. They still have cars that desperately need new tires. Oh, and they have $0 saved to pay for a bankruptcy filing.

If you think you will, “get caught up” with your tax refund; do a lot of math first. How much of your payments will actually reduce the principal. What interest rates are you paying and how long will it take that rate to increase your balances more than your refund reduced them? How long will it be before you can start doing the things you need to do – like plan for retirement, college costs, oh, and just how long will those tires last, anyway?

I don’t actually mean to be this depressing, and if your tax refund will get you out of trouble; more power to you. If all it will do is buy you some time, then maybe it is time to take a deep breath and consider where your real responsibilities lie – Visa, Master Card or your family’s future? Personally, I like to think that Visa and Master Card are big enough to take care of themselves.

Ok, so you still really want to pay this. Great. Pay it. But wouldn’t paying it without interest be a better solution than what you are currently fighting? There is a way to do that. It isn’t fun, it isn’t quick and easy; oh, and it isn’t cheap. It is called a Chapter 13 Bankruptcy. Yes, it is a bankruptcy; but it is a bankruptcy that lets you take five years to pay as much of your unsecured debt as you can – with NO interest.

Do the math, and do it before you throw yet another tax refund at 28% interest charges.

Elaine

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What do You Do When You Can’t Pay Your Bills

Most of the people who call me have always paid their bills. They have never been in the kind of position that leads them to call a Bankruptcy lawyer before, and they are scared and don’t know what to do.

The first thing that I tell them is to just breathe. Calm down. Stop the racing mind. Just breathe.
Now, prioritize. Pay the utilities, the car payments, the house or rent, the groceries first. Second, if at all possible keep a small cash reserve. Did you hear me say pay the credit cards? Sure, if you can, you should always pay your bills; but if you can do that, you aren’t reading this. If you are reading this you have lost a job or your income has dropped dramatically, you’ve had major health problems, or even worse, your child has had major health problems. Even good insurance won’t necessarily insulate you from major financial ramifications.

Seriously, I have had people on the phone hyper-ventilating at the thought of not paying their credit cards. I ask them what they think will happen, and they can’t tell me; but it is clearly TERRIFYING. We’re talking asteroid slamming into the Earth, wiping out all life kind of terrifying – which may explain what happened to the dinosaurs. They missed a payment on their Master Card. Ok, so, I’m teasing a bit.

Here is what is likely to happen if you stop paying your credit cards. First of all, they are going to start calling – a lot. This is why God invented caller ID. Then, they are going to shut down your charging privileges – probably not a bad thing. About the same time, they will start reporting you delinquent to the credit reporting agencies. Sometime thereafter, you will get a letter that they are referring your file to a LAWYER for further action. The word lawyer is in all caps, because the only reason for this letter is to be scary. They can send your file to anyone they want to for “further action” or whatever other scary (and generally vague) terms they want to use, and they don’t have to send you a letter telling you they are doing it. When that file lands in the lawyer’s office, his office will also send you a letter telling you that they have it. Notice, that no lawsuit has been filed yet? It is easier and cheaper to try and scare you with letters than it is to sue you. That doesn’t mean you won’t be sued, you probably will be – eventually; but in the meantime you still have a bit more time to try to find your feet.

You will know you have been sued when you are served. The actual rules for service of process are complicated, but if you wind up with a copy of something called a Summons and a Petition or Complaint – odds are pretty good that you have been sued. How do you know that is what these things are? Well, they have the name of the court at the top, then the names of the parties beneath that on the left, with a case number on the right, then a bunch of paragraphs explaining who you are, who is suing you, and why you are supposed to owe them money. Letters start, “Dear so and so”. Court pleadings don’t.

Once you have been sued, you will be given a certain amount of time in which to file an Answer or otherwise appear and dispute the case. If you don’t do that, then a default judgment can be taken against you. Once a judgment has been taken against you, then (at least in Oklahoma) the creditor can attempt to garnish your wages, levy on bank accounts or otherwise force you to pay them money – and it will hurt. A wage garnishment can take up to 25% of your gross wages – not take home – gross. Of course, you will still pay taxes on the pre-garnishment amount,, so your net will be substantially reduced. Most people can’t afford that.

Everyone in financial trouble is different. Some people will decide to contact a lawyer earlier in this process than others. One thing that is almost universally common is that most people who have accounts in collection want to pay them. They frequently put off calling a lawyer hoping that they will be able to pay them. Where this becomes tragic is when they wait too long hoping against hope that something will save them from drowning. Then, their employer is served with a wage garnishment; and they have no money to pay attorneys fees or filing fees. They don’t have the paperwork started to get a bankruptcy filed; and they can’t afford to pay really basic living expenses if they are having their wages garnished. At that point these people are starting to be out of options. So, once you are sued, it is probably time to call a lawyer if you haven’t already and get things started. The collection process takes long enough and filing a lawsuit increases the collection costs enough that if you haven’t found a way to get the account paid by then; you probably aren’t going to.

Once a lawsuit is filed, time is no longer on your side.

Elaine

Categories: Bankruptcy, Consumer Credit, Litigation | Tags: , , , , , , , , , , , , | Leave a comment

Medical Debt and Credit Reports

The reporting of medical debt on credit reports has gotten quite a lot of press lately.  The Consumer Financial Protection Bureau has recently done a fairly extensive report that includes a number of findings.  One of these is that 1 in 5 Americans has outstanding medical debt on their credit reports.  Another is that slightly more than half of all debt in collections is medical debt.

The CFPB makes the point that part of the problem with medical debt appearing on credit reports is rooted in the complexities of the health insurance billing process.  No dispute there.  The CFPB also wants to enact regulations to change the way that medical debt is reported on credit reports.  The goal is to make medical debt less detrimental to a credit score (at least as it is currently calculated) than other kinds of debt.  I have a problem with that.

WHAT!?!  I’m supposed to be all pro-consumer.  How can I have a problem with that?  Simple.  First of all, there is no such thing as a single credit score.  We all have many of them, and they change constantly.  Establish rules for how credit scores are to be calculated, and the credit reporting agencies will simply change the way they package the information.  Why?  Because they exist to serve their clients’ needs, and their clients are people who lend money and collect money.

But, but, but, classifying medical debt on credit reports differently from other (presumably less noble debt) only makes sense!  If you do that, than anyone looking at a credit report can tell that this person always pays for his car, he just can’t pay that horrendous hospital bill that his insurance company refused to pay.  So, a car lender ought to be able to glance at a credit report and score and tell that this person makes his car payments, so it would be good business to make him a car loan.  Right?

Not so fast.  If someone applying for a car loan owes $30,000 to the local hospital the fact that he has always made his car payments before is not going to stop the hospital from suing him and garnishing his wages.  If the local hospital is taking 25% of the gross off of just about anyone’s pay check (Oklahoma law, only), that could change whether or not he is still able to make his car payment.

Despite popular opinion, credit reports (and credit scores) don’t measure how good a person you are; and the idea of reporting medical debt differently seems to buy into that fiction.  An outstanding liability that remains legally enforceable — whether it be medical, taxes, child support or credit cards — is always going to be a threat to someone’s ability to repay a new obligation.  Wage garnishments, bank levies or any other form of enforcement action that is available to the creditor will impact on someone’s ability to make future payments.  Changing how something is reported or how it is factored into a magic number won’t change that.

The ways to make meaningful changes in your ability to access credit remain the same.  First, if your insurance company denies a claim — appeal it.  Complain to the State insurance commissioner.  Do everything you can to get the claim paid.  Second, police your credit report.  If something shouldn’t be there, get it removed.  If debt has been re-aged or is otherwise no longer enforceable — dispute it.  If you owe the money and it really is legally enforceable, then you either need to find a way to wait it out (and hope that they don’t sue you just before the Statute of Limitations runs) or consider a bankruptcy filing.  Even if a chapter 7 isn’t the answer, a chapter 13 might be.

Oh, and don’t be afraid to ask for help; and don’t be embarrassed.  No one who knows enough about credit reports or the collection industry to be of any use will confuse anything on your credit report with your value as a human being.

Elaine

Categories: Bankruptcy, Consumer Credit, Credit Reports | Tags: , , , , , , , , , , , , , , | Leave a comment

What Will I Have to Pay in a Chapter 13?

A Chapter 13 Bankruptcy is basically a modified payment plan where you can restructure certain kinds of secured debt, get current on secured debt on which you have fallen behind (like a house or a car) and pay some percentage of your general, unsecured debt (like medical bills and credit cards).

Let me begin by saying that SOME percentage of your unsecured debt means just that – SOME. I say that to clients in my office, and they almost universally translate the word some to mean all. They are not synonyms. The actual percentage paid by most Chapter 13 debtors is closer to zero percent than it is to 100%, and most of us can afford to pay 0%.

So, what does that actually mean?

There are two primary factors that determine how much money you will have to pay to make a Chapter 13 plan work. The first is determined by what is generally known as the Means Test. The Means Test is basically a worksheet where you start with your income and deduct your reasonable and necessary living expenses until you come up with an amount left over. If that figure is positive, then you will have to pay that amount each month for probably 60 months to your general unsecured creditors (the credit cards, medical bills, personal loans, that kind of debt). In other words, if you have $112 a month left over, you will have to pay $112 each month for (probably) 60 months plus 10% as a trustee fee, so $123 a month, over the life of your plan for the benefit of the general unsecured creditors. Most of my clients are paying a lot more than that on this kind of debt when they come to see me. So, for most people flunking the Means Test and having to pay something to their general, unsecured creditors is actually an improvement!

The other factor is the kind of debt that you have. If you want to keep the house and the car and you owe money on them, you are going to have to keep paying for them. This really shouldn’t be a surprise. The car, in the Western District of Oklahoma, will have to be paid through the plan; meaning that the plan payment you pay to the Trustee every month will include enough for him to make your car payment for you. If you are behind on the car at the time that you file the case, you can expect that you will catch up on it (and probably pay it off) over the life of the Chapter 13 plan.

Your house is a little different. If you are current on the house at the time that you file for bankruptcy (in this district), you may continue to pay the mortgage payment directly. However, that means completely current. So, if your mortgage payment is due on the first, and late on the 15th, That means it is due on the 1st. So, if you file bankruptcy on the 2nd, that payment had better already have been made. If you are behind on your mortgage payment, then it will be paid through the plan and the plan will include enough money to get you caught up an d current on it over the life of the plan.

If you owe other secured debt, debt that is secured by a lien on a specific piece of property, and you wish to keep the property, then that debt will have to be paid during the life of the plan. Debts that are given certain priority for payment in the Bankruptcy Code must be paid in full over the life of the plan. For most people that means recent taxes, and past due child support or alimony, these are things that have to be paid over the life of the plan. What most people expect to see listed here but isn’t is student loans. Student loans are a whole different problem in a Chapter 13 that will be addressed separately.

So, what this means is that most Chapter 13 plans pay for the house, the cars, the taxes, the child support (if any), fees to support the Trustee’s office and the Debtor’s attorneys fees. Then, there will be some amount added to be shared amongst the general, unsecured creditors who are usually everybody else. That amount is determined by the Means Test, and in many cases it is less than my clients have been paying on that debt before they filed.

Now, I don’t mean to kid you. A Chapter 13 plan is not a walk in the park. There are good reasons why only about 30% of all cases filed successfully complete. It isn’t, however, nearly as bad as clients expect it to be.

Often when clients come to see me their mortgage company is wanting a year of missed payments made up in six months or less. They are facing a wage garnishment that will take 25% of their gross income. The IRS is threatening to levy on their bank accounts. There is a repo guy out looking for their car, and the lender wants all the missed payments plus late fees, plus interest plus the repo guy’s fees by Tuesday. A Chapter 13 plan, even if it is expensive, can be a huge relief after the financial pressures most of my clients find themselves facing.

So don’t be afraid to investigate a possible Chapter 13 filing. It can do things for you that you can’t get done anywhere else, and, although, it won’t be cheap, it may be more affordable than any of your other options.

Elaine

Categories: Bankruptcy, Consumer Credit, foreclosure, Mortgages and Foreclosure, Student loans, Taxes | Tags: , , , , , , | Leave a comment

Don’t Be Afraid to Sue Somebody

A friend of mine, Louis Green, and I were talking last week about talking to clients about being a plaintiff, i.e., suing somebody.  Louis is a consumer law attorney.  He handles many of the same kinds of issues that I deal with, but he practices in District Court rather than the Bankruptcy Court.

A while ago Louis had a man come to see him – who was seriously embarrassed.  He was an older man, who felt like he should have known better; but — to be blunt — he was suckered by a car dealership.

The first thing he needed to understand is that he was taken advantage of by professionals.  This can be hard for a lot of us to grasp (umm, that would include me), but people who are truly professionals at things tend to be better at them than those of us who are really just amateurs.  I hate this.  There are all kinds of things that I think I ought to be just as good at as anybody else — but I’m not, and my kidding myself is hurting no one but myself.  (Why, yes, I do self-manage my IRA — your point?  Sigh.)

This man was old enough to know better.  He had bought cars before.  He knew better than to sign things without reading them, but the print was small; and his eyesight isn’t what it used to be; and the pros made him feel rushed and uncomfortable.  Well, even though he should have known better, that wasn’t his fault.  He was damaged by it, and he stuck to his guns.  He hired a good lawyer; and he won — an award large enough the car dealership required that it be kept confidential for fear anyone might find out how much they were having to pay.

Was all of this embarrassing?  Yes.  Did his adult children find out he had been scammed?  Yes.  Did he have to take the time to go to court and participate in discovery and deal with lawyers?  Yes.  Was it worth it?  That is a question that only he can answer, but I can say it was the right thing to do.

When people come to see me, they are tired of dealing with it all; and they just want it over.  Bankruptcy is good at that, but sometimes, they really do need to step up and be a plaintiff.  Sometimes, you just need to say — No, what you’ve done is wrong; and I am going to put up with the embarrassment and the inconvenience to make you pay for it.  Is it worth it?  More often than not, yes.  Is it the right thing to do?  Yes.

So, think about it.  Sure, you can file a bankruptcy and discharge the underlying debt, but if someone has been incorrectly reporting on your credit report or illegally harassing you about a debt, if a car is a lemon (for information on Oklahoma’s lemon law) or you were scammed by the dealer, at least consider whether or not you should be a plaintiff, as well as, a debtor.

Elaine

Categories: Bankruptcy, Consumer Credit, consumer law, Credit Reports, Litigation | Tags: , , , , , | Leave a comment

Christmas Bills, a New Year and Bankruptcy

There are a number of reasons why Bankruptcy filings surge after the first of the year. The New Year brings introspection and the desire to finally find a way out of the hole you have been trying to climb out of for years. Christmas bills can be the last straw. Then, of course, there is the impending tax refund, which can be a helpful way to pay for the bankruptcy filing.

There are a few things to consider, though.

First, let’s talk about Christmas bills. The general rule is that you want to wait at least 70 days and preferably 90 days after you have last used your credit cards before filing a bankruptcy. There are exceptions to this, but those are sufficiently fact specific, that you will want to talk to a lawyer about your particular facts. What you should remember is, if you haven’t already stopped using your cards – do it now, before you call the lawyer. Then, go ahead and schedule the appointment. You will want some time to get things ready to file anyway, but have a good idea what your card usage has looked like during the last 30 – 60 days so you can discuss it with your lawyer in detail.

There are actually a couple of issues with tax refunds. First of all, you will be happier if you have your tax return for the completed year prepared before you file your Bankruptcy. In some cases, you will have to have it, but you will always want to have it in hand. One reason for that is that if you have not received your tax refund before you file your bankruptcy, your Trustee may be entitled to the refund. The solution to that, of course, is to have already received it and done something constructive with it before the case is filed. I will caution you that you will want to discuss exactly what you do with that refund with your lawyer before you do it – not after. Of course, I think that one of the best things to do with that refund is to pay your attorney for filing the bankruptcy – but I might be prejudiced.

Finally, there is that decision to start a new year finally freeing yourself from the unending cycle of debt that you have been mired in. Finally, it is time to put yourself back in a place where you can take care of yourself, your family, put something aside for retirement – yes, it is time! Not so fast. Is it time? Are you through getting into trouble? If you have lost a job, do you have a stable pay check coming in? With health insurance? If you’ve had health problems, are they behind you? If so, then, yes. It is time. Time for a New Year and a new start.

Elaine

Categories: Bankruptcy, Consumer Credit, Taxes | Tags: , , , , , , , , | Leave a comment

There May Be Some Justice in this World After All

CNN is reporting that the FBI has arrested the owner of a debt collection business in Georgia and six of his employees.  The collectors in this case were lying to people, telling them that the collectors were Federal agents, and if this debt wasn’t paid the person they were calling was going to be arrested.

There are two things that make this story unusual.  First, of course, the arrest of seven people by the FBI.  The second, however, is what enabled that arrest — the debt collectors were inside the United States.

It is not uncommon for me to get calls from terrified clients, because they have just gotten a call like this; and some of these callers are very good and very persuasive.  In most cases, however, if you could trace the call you would find that it came from a VoIP number — in Pakistan, Eastern Europe or Northern Africa — take your pick.

So, it is really refreshing to see the FBI getting involved in one of these scams when the scammers are within reach.

If you get a phone call like this.  The first question I tell my clients to ask is for a mailing address to send a cashier’s check to pay this debt.  Now, since these people were in Georgia they might have given out a mailing address; but the overseas scammers won’t.  They will tell you that there is no time for that, the debt must be paid right now by electronic funds transfer out of your bank account.  I tell my clients to take a deep breath and try to think of any legitimate creditor who won’t take a cashier’s check drawn on a Federally insured financial institution.  That is a dead giveaway that you aren’t dealing with someone legit.

The next thing, though, is to try and remember the last time you knew someone who was arrested for not paying their credit cards.  Now, you can be arrested for ignoring or disobeying an order of the Court (like failing to appear at a Hearing on Assets); but you won’t get a phone call giving you an out for that.  So, keep thinking, the last time you knew someone who was arrested for not paying an old credit card account was when?

Now, consider what it costs a State to incarcerate someone.  So, the State is going to do that to collect a debt owed to some debt collector?  Really?

The long and the short of this is, if you get a phone call from someone claiming to be collecting a credit card or medical bill, and that person threatens to have you arrested if you don’t pay — and probably if you don’t pay RIGHT NOW.  Your first thought really should be that this is probably a scam.

Elaine

Categories: Consumer Credit | Tags: , , , , , | Leave a comment

Why Things Aren’t Like They Appear

I read a lot of business news.  I do for a lot of reasons.  One of those reasons is that I need to know what the larger, economic trends are as they unfold around me.  That is part of my business.  One thing that I have been noticing for a long time is that what I see in my office and what I read in the National business news has never quite seemed to match up.  The news talks about economic growth, increased productivity, skyrocketing executive pay and returns for shareholders.  What I see is people struggling really hard to hang on to where they used to be.

Marketwatch had an article today that caught my eye.  I read the article, because of the title, “Your Paycheck Has Been Shrinking for the Last Five Years.”, but it was the last sentence that really grabbed my attention.

“So wage growth has been generally weak for more than 15 years.”

Yea, or maybe even more than that.  It is nice to know, sort of, that it isn’t just the little microcosm that is my office; but it is still getting old to keep watching people come in who are making the same or less than they were 5 — 10 — even 15 years ago.  I’m not adjusting for inflation, here.  I am talking real wages.  I’d say wage growth has been slow all right.

What scares me is what this has to say about future social and economic stability.

Elaine

Categories: Bankruptcy, Consumer Credit | Tags: , , | Leave a comment

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