August 2nd, 2010 at 09:14am
Under Consumer Debt+ Harassing Phone Calls
One of the most difficult concepts for most borrowers to grasp when you fall behind on your credit card payments or your mortgage (or both) is the idea of charge-offs.
When a lender (regardless of the type of debt) decides that you are no longer likely to pay your debt, they will “write off” or “charge off” your account. This will happen anywhere from a few months to a year or more after you fall behind. When this happens, they take your account off their books and no longer expect you to pay. Usually, they will take a tax write-off for your bad debt, and in some cases they will collect on an insurance policy that they hold which pays them in the event you cannot.
So… this is the end of your debt, right? Well… for the specific creditor, yes. They no longer expect you to pay. However, frequently this is not the end of your debt for you as the borrower. In fact, this is where things can get nasty. In most cases, creditors will sell your account to a collection agency. More on this in a moment.
As long as you are working with your creditor (talking to them and making attempts at paying them), they will most likely not write off your account. If the payments you’re making aren’t large enough or frequent enough, you’ll be talking to an in-house collector. These creditors would rather see you strung along as a borrower of theirs than charge off your account and sell it to a third-party collection agency.
Remember: the whole goal of these lenders is to loan you money. As long as they can keep you classified as a borrower, they want to do so…
This means that they’ll typically work with you by lowering your interest rate, making accommodations so that you can move payments to the end of your note, or make lower payments for a while. It all depends on the type of debt. But they have all sorts of unadvertised in-house programs that they can put you in which are designed to keep you on board as a borrower. With the exception of mortgage lenders (which are in a class of their own and have their own practices and policies), the lender would most likely love to do whatever it takes to string you along and keep you making endless payments on a balance that never decreases (even better: one that grows because you’re not even fully paying the interest).
But at some point… if you quit paying for a long enough period of time or stop responding to their harassing phone calls, the lender will charge off your debt.
How a Charge-Off Affects You
What happens next raises some interesting legal questions. Can you legitimately be expected by anyone to pay a debt that the original lender says you no longer owe? If the lender has taken a tax benefit or collected on an insurance policy, should you be harassed by anyone to make payment?
For collateralized or secured debt, typically the collateral will be seized. If you have a car note, for example, the lender will attempt to repossess your vehicle. This will happen without any warning. A tow truck will pull up to your home or work and take off with your car. Laws vary from state to state, but you may not legally be able to stop this person from taking your car. Some people try all sorts of crazy tactics — parking a car in an unusual or hard-to-reach location, or hiding it entirely, or even skipping town with it. But chances are… if the lender wants to repossess your car, they’ll get it.
If you have a mortgage, then seizing your collateral amounts to foreclosure. The only good thing about foreclosure right now (as I’ve talked about previously here) is that your state’s court system is likely to be really clogged up right now and it will take some time before they can actually complete the process. In short: you have options.
But if the debt we’re talking about here is unsecured, the situation is different. Some examples of unsecured debt include:
- credit cards
- “signature” loans
- a second mortgage or home equity line of credit — if you’re underwater on your first mortgage (meaning that you owe more than the property is worth)
- anything else for which you didn’t pledge collateral
With unsecured debt, when the lender charges off or writes off your account, you have a situation that actually is to your advantage.
Most people don’t realize that they have options now. They just assume that dealing with collection agencies is a new fact of life. They never think to challenge the legal grounds that a third-party collector may be using as a basis for harassing you.
The fact is that significant legal questions remain as to whether or not certain types of unsecured debt can be sold.
For example, credit card debt is not the same as a loan. With a loan, there is a clear contract that includes an exact amount to be borrowed (usually on a one-time basis) along with the exact repayment terms. A credit card, however, is a series of continuing offers to contract. This type of contract is not transferable due to the nature of the series of continuing offers.
If you allow yourself to be bullied by a collector who has bought up bad debt from a credit card company, however, you will find yourself inadvertently agreeing to allow them to collect. And your agreement is what they need! If, however, you challenge the legitimacy of the debt, they frequently have no legal footing! If the debt wasn’t transferable, then you must specifically agree to the notion that you owe the debt buyer any money in order for them to have a valid right to collect!
Unfortunately, most people agree to the debts by not requesting verification within 30 days of being notified in writing. This is a major mistake.
We’ll talk more about this in the future. Feel free to comment here if you have questions about this topic or if there are specific areas of this that you’d like to see us discuss.
The bottom line is: always dispute the debt, its legitimacy, and the amounts. Do it in writing. And do it within 30 days of receiving notice from a collector.
By Average Joe
July 6th, 2010 at 08:18pm
Under Consumer Debt
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Product Description
Everything you need to get out of debt and repair your credit.
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To make the process easier Solve Your Money Troubles also includes sample letters to creditors, as well as worksheets and charts to calculate your debts and expenses and help you create a repayment plan.
The 12th edition now covers the latest bankruptcy laws, the Fair Debt Collection Act and the new credit-scoring system used by some credit bureaus.
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By Average Joe
May 28th, 2010 at 05:04am
Under Consumer Debt
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Life Without Debt gives you the tools you need to survive in this credit-oriented and debt-plagued society. In his latest book about breaking free from the cycle of debt and despair, best-selling author, Bob Hammond, teaches you the philosophy of "debt-free living". His book shows you how to stabilize your financial life once and for all.
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By Average Joe
January 24th, 2010 at 06:22pm
Under Consumer Debt
One question I get asked a lot by people who are drowning in debt is:
Is it worthwhile for me to use one of these “Credit Repair” or “Debt Elimination” services?
Here’s a simple and straightforward answer: No. Not when they try to “fool” the system.
There is a great way to eliminate your debt. And let me preface what I’m about to say with a few explanatory words.
Most of us aren’t complete idiots, despite what our bill paying history may or may not say about us. You probably didn’t sit down one day and say to yourself, “I think I’ll drown myself in bills,” or, “What I’d really like to do is borrow so much money that I’ll never be able to repay it all.”
You probably didn’t decide that you wanted to pay 3 to 10 times for that refrigerator, big-screen TV, laptop computer, or whatever. You thought that you could pay it off during the “same as cash” period.
But then life happened. There was that trip to the emergency room… the pregnancy you weren’t expecting… you got laid off, downsized, rightsized or whatever. Stuff.
And now you’re overwhelmed. The phone is ringing. Creditors are calling. Or maybe you’re staying afloat (for now), but you’re just making a bunch of minimum payments and you’re not actually making any progress.
I have good news for you:
You got caught in a very carefully-laid, scientifically engineered, cleverly marketed trap that was designed to keep you in debt until the day you die.
So… since you can now breathe easy and realize that you’re not a complete idiot — regardless of your current credit score (which in and of itself is part of the scheme designed to encourage you to stay in debt) — let me say that I am aware that you probably already know how to get out of debt.
How To Get Out of Debt
We all know how to do it, right? Here are the obvious ways:
- Eat lots of rice and beans and send every extra penny in to your creditors.
- Earn more money (e.g. get another job) and send your paycheck to your creditors.
- Sell anything of value and send that money to your creditors.
- Spend less than you make, and send all the leftover money to your creditors.
Okay… I know what you’re thinking. You’ve already thought of all of those. Shoot… you might have even tried some of them.
Well… as Dr. Phil would ask:
How’s that working for you?
For most people it doesn’t work to do the obvious stuff. It’s like losing weight. We all know how to lose weight: eat less, exercise more. Not rocket science. And yet the number on the scale — like the number on our debt — always seems to go up instead of down.
How to Really, Legitimately Eliminate Debt
First of all, don’t fall for any of the schemes that are designed to harass your creditors with correspondence and make false claims about what you owe. Scouring the fine print on all your contracts is an amusement you can save for the day after you finish cleaning out your garage and spacing out the hangers in your closet.
Nobody can actually “fix” your credit score. My question is: why would you want them to anyway? All your credit score is good for is telling the world that you are addicted to borrowing money. (Have you ever noticed that a high credit score only belongs to people who borrow money frequently?)
So… for most of us, the question isn’t what to do, but how to actually do it.
You need a plan that does several things:
- Gives you the leverage to stop borrowing. If you’re driving your car and you see a collision coming, it won’t help you to stand on your brakes if your other foot is still on the gas pedal. You’ll never get out of debt if you keep borrowing money.
- Works with your personality (and that of your spouse / significant other) to get you on track and keep you there.
- Rewards you or provides positive reinforcement as you make progress.
- Makes the most of your existing income.
Let’s face it: most of us won’t stick to a plan that is excessively painful. If it requires too much effort, doesn’t keep you focused on the prize (being debt free), and doesn’t help you stay motivated, you’re doomed to fail before you start.
My Recommendation
Get a real picture of where you are. Add up all your debt. List your total monthly payments and the total balances on everything.
Use a proven system. There are bunch of them. One great way to tackle this issue that will seriously help you stay motivated is to use software that does the heavy lifting for you (at least as far as calculating how much to send to whom and when).
The Debtwork System Software is a solution that uses a simple “red light / green light” system to:
- Eliminate credit card debt, car loans, home equity loans and even student loans – in just 1-3 years!
- then pay off your 30-year mortgage in another 4-5 years!!
- live 100% on a cash basis, even when financial surprises occur, and never need credit again.
- cut your effective interest rates in half
- reduce your financial stress
- begin your journey of financial continuing education
- lay the foundation for your strong retirement plan
This is exactly the right idea. Check it out and get started today!
I am not the creator of the product(s) mentioned here. I do receive income from advertisers and am compensated when you make a purchase of product(s) I recommend. However, I only choose products to recommend that I believe will be worthwhile, and the compensation I receive enables me to provide this website and the content you see here without charge.
By Average Joe
November 29th, 2008 at 04:16pm
Under Harassing Phone Calls
I’ve heard people tell stories about how many years ago you used to get bombarded by collectors via the U.S. Postal Service.
These days, thanks to the Fair Debt Collections Practices Act, they’ve found much better ways to harass you. 3rd-party collectors are required to send you a notice in the mail, but they’re highly incentivized to contact you by telephone. The reason? The FDCPA lays out significant regulations around telephone contact. If you deal with creditors by phone, you virtualy waive all your rights and give up any leverage you may have.
I’m not saying don’t ever talk to them. But, you can tell that they don’t want you to contact them by mail because they do their best to cause their dunning letters to look like junk mail. This should be a clue. If mail was something that worked to their advantage, you’d see a lot more activity there. Insteady, they want to send you the minimum notice to abide by the law, and then hound you to death on the phone.
By the way, under the law, a 3rd-party collector is required to send you the notice within 5 days of contacting you.
How To Avoid Harrassment by Phone
Here’s what you need to do right away:
- When you are contacted by a new debt collector, immediately make note of the date and time of the first phone call.
- As soon as you receive the written notice (it should be postmarked within 5 days of the first phone call), respond in writing. Your response should dispute the debt (even if you think you owe it, the amount may be wrong), request verification (they must stop contacting you until they mail you the verification according to the law), request that they prove that they have a legal right to collect the debt (this is actually an interesting legal question – particularly if it was a credit card debt), and document date received (send it certified mail, return receipt requested – this proves that they received your notice)
- Make notes about everything – whether they contacted you after receiving your written communication and before they mailed you the response, for example. This may come in handy if you ever want to sue them for violating the FDCPA.
- For your written request to protect you, it must be sent within 30 days of your receipt of their written notice.
- Then, mail a 2nd notice announcing to them that they are not permitted to contact you by phone. Specifically state that you are not permitted to be contacted at work, that they are not permitted to contact you or anyone else by phone. They will try to locate your relatives and harass them as well, unless you specifically state what they are permitted to do and not permitted to do. Send this notice certified, return receipt requested.
- Document everything. If they call again, it can only legally be because they are notifying you of some action they are taking (e.g. filing suit, canceling the debt, etc). If they call after they have received your written notice, and they’re only calling to ask you when you plan to pay or otherwise ask for payment, then you have an actionable violation of the FDCPA on your hands. At that point in time, it’s worth it to contact an attorney that specializes in protecting consumers.
Here’s How They Trick You
The debt collectors are highly experienced. They study what works and what doesn’t work. Harassment works. They wear you down until you do something that you would otherwise not do (borrow money from relatives, declare bankruptcy, etc). They also know how to get right up to the edge of what is legal under the FDCPA and push you. They also frequently violate the act, but because consumers are typically uninformed, they get away with it.
One stunt that they pull is that of selling the debt off. Once you have sent written notice to a 3rd-party collector (as long as you haven’t invited them to sue you by using words like “cease and desist”), they will typically sell the debt to someone else (or, if the original creditor still actually owns the debt, they will choose to reassign it to a different collection agency).
What this means to you is that the process starts all over again with a new debt collector — even though it’s for the same debt.
One nasty offender along these lines is American Express. They use a wide range of debt collectors, some of them “law offices,” which makes it sound very official when they call you. If someone contacts you from a “law office” regarding a debt to American Express, chances are extremely good that the person calling you is not an attorney. Nor do they have any intention of suing you. It’s far more profitable for them to remain in the debt collections business rather than the litigation business.
If someone from one of these bottom-feeding organizations tells you that they are an attorney, make a note of their name and ask them what state they are admitted to practice law in. They cannot tell you that they are planning to sue you (or take any other legal action) if they aren’t actually planning to do so. What’s interesting is if they aren’t licensed to practice law in your state, then they aren’t planning to sue you. Plain and simple.
If you aren’t vigilant about taking these steps with each 3rd-party debt collector that contacts you, be prepared for a barrage of calls.
One particularly nasty offender is NCO Financial Systems, Inc. They are a collector for American Express. They may collect for other companies as well, but I couldn’t tell you from any personal experience. What I can tell you is that they have contacted me hundreds of times. Frequently they hang up or leave automated messages. I’m willing to bet that someone will be initiating a class-action suit against them for violating the FDCPA. If so, you will see my name in the class (assuming that there’s decent representation in the case).
They are particularly annoying because their dialer goes nonstop.
One piece of advice: if you plan to pay the creditor(s) what you owe, then send them $10 a month or some basic amount on a consistent basis. If you do that along with taking the other steps I mentioned above, you can count on them not annoying you by phone.
Trust me, it’s worth it.
Read more about the Fair Debt Collections Practices Act.
By Average Joe
November 24th, 2008 at 11:33pm
Under Harassing Phone Calls
I truly hate being behind in my bills.
We’ve been here before… a couple of tough spots when we got behind a payment or two. Usually, it’s been because of something happening in my business (I’m self-employed). We’ve always managed to get ourselves caught up pretty quickly.
But if you fall behind on payments to credit card companies or mortgage companies, you find out right away that one thing you don’t have control over is the phone. Yes… there’s the Fair Debt Collections Practices Act. Yes, it dictates that they can’t call before 8am or after 9pm.
But you can bet your last nickel (I don’t recommend it) that they’ll start calling at 8:01am and stop at 8:59pm.
Hopefully, you’ve got more than a nickel laying around.
In our case, we’ve had some days where we didn’t. Like I’ve said before, we didn’t intend to get behind. We certainly haven’t skipped paying bills on purpose. It just happened.
But the nonstop phone calls can be enough to drive you batty. It’s as though each time the phone rings, it’s talking to you. It tells you that you’re a failure. It says, “See there? You’re not going to make it.”
Well… do yourself a favor. Unplug the darn phone. You’re not going to answer it anyway. Just unplug it. After all, it doesn’t matter if you just talked to Capital One yesterday… they want to talk to you again today. Citi, Chase, WaMu, Wells Fargo, American Express… they’re all the same way. You’re on the dialer. The person you’re talking to can’t stop it. It’s some other department. They’re in India. You need to talk to someone in America. You have to do it in writing. Just pay your bill… did you ever think of that? Believe me… I’ve heard it all.
If they would just listen to what you said and stop the dialers, it would be OK. But they don’t. The dialers are set up to call you until you pay.
What’s worse is that they have attorneys who decide just exactly how frequently they can call before it would be considered “harassing.” And they have money to pay those attorneys. You don’t. Otherwise, you’d pay your bill, right?
There are a few things I’ve found that can help. Which one(s) you choose to use will depend upon your situation. Are you considering filing bankruptcy? Do you think you’ll be caught up soon? Do you think you can at least work out a payment plan? Well… all of those are factors.
No sense pissing off one of your creditors to the point that they file a lawsuit and try to win a judgment against you… particularly if you can avoid it.
And by the way… with so many mortgages defaulting and so many people out of work… right now is a great time to call up your creditors and negotiate. They’ll try to push you into a cash settlement. But if you had cash, you’d have paid that payment, right? Who knows what they’re thinking. In any event, there’s a trained negotiator on the other end of the phone trying to sell you the solution that earns them the best commission. You need to keep pushing until you get a better arrangement.
What if you aren’t in a position to work out a deal?
More to come.
By Average Joe
November 10th, 2008 at 01:55pm
Under Financial Stress
In the words of the inimitable Forrest Gump, “It Happens.” I, like so many others, got in over my head with my creditors.
I’m embarrassed about it, humiliated by it, and have gone for months or possibly even years feeling the stress of it. Somehow my marriage hasn’t collapsed (thank God), and overall my health is good, but let me tell you something… it hasn’t been fun.
Let me make something clear right up front. My purpose with this site isn’t to help people cheat their creditors. I have no respect for people who maliciously borrow money knowing full well that they can never repay it. From what I’ve learned, there are ways to game the system and I, for one, want no part of that.
But… I feel the need to tell my story. I’m guessing that you or someone you know (wink wink) may need to hear it. Call it cathartic or therapeutic or whatever you want, but I am compelled to write about my experience. My hope is that you’ll find it helpful.
Over the course of the next few hours, days, weeks, months, or whatever it turns out to be, I’m going to fill you in on my experience in getting completely overwhelmed with debt. At some point in time, maybe I’ll just shut the site off or maybe I’ll get out of the shell of anonymity and tell you who I am.
But for now… I just want to be incognito and let you hear the story.
We — my family and I — found a way out.
No… I don’t have a “get rich quick” scheme. Nor do I have a secret way to fix your credit score or to wipe out legitimate debt with some fancy technique.
But… the recent foreclosure summons we received brought a whole bunch of stuff to a head. It became time for us to do something.
I hope it doesn’t happen to you… I hope you never need to use the information I’ve learned recently.
But if you do… let me just say this: I know what it feels like. I’ve always been somebody who paid my bills and handled my creditors properly. I actually had a really great credit score. My wife did, too.
What’s funny is… it doesn’t matter if you do everything right for 20 years. If one day you find yourself in a jam — through no fault of your own, even — the system turns on you. All that 20 years amounts to nothing.
“What have you done for me lately?” That’s the name of the game.
So… I felt the need to let it out. I hope you find it helpful. If not, then there are plenty of other places to go on the web… this we know.
More soon.
By Average Joe
