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
January 17th, 2010 at 08:11am
Under Consumer Debt
If you read enough of what I’ve written around here, you probably know that I now have a complete and total hatred for being in debt. I think this whole system of credit, FICO scores, easy transactions using your VISA, MasterCard, American Express, or Discover is a pile of dog doo. It has led to dramatic increases in irresponsible behaviors, people becoming chained to jobs (even careers!) they hate, and the destruction of relationships. I hate it, I hate it, I hate it.
If we all learn our lesson, we’ll never borrow another penny again.
That being said, if you were going to get caught owing people a lot of money, this is a great time for it. I’m sure as heck not saying you should run out and apply for a bunch of credit cards… I’m simply saying that of all times (at least in most of our lifetimes) to find yourself buried in debt, this is a great time for it.
Why?
Well… partly because it’s happened to so many people. So many, in fact, that the credit card industry can’t keep up with the collections efforts. Sure… they have their automatic dialers pounding away at our phones. But they are so slammed with people who have fallen behind that they don’t have time to fry the small fish.
So… unless you owe an enormous sum of money to one company, you’re not likely to end up actually getting sued, for example.
In my case, we have a pile of accounts that are past due. Some of which, we haven’t made a payment on in over a year. Others, we got ourselves onto little miniature payment plans (small payments for 6 months while we tried to get our crap together) which expired months and months ago.
Aside from the phone ringing, there’s been nothing. Most of them have stopped sending us crap in the mail. A few days ago I got a nifty settlement offer from one of them which would save me 40 or 60 percent (I forget which) if I’d just fork over a buncha cash.
Here’s a clue: if I haven’t made a $60 payment in 6 months, chances are I’m not turning over a 4-figure sum to you today just to make you go away.
My wife and I are actually close to having a plan to get all of this straightened out. And we’ve had plenty of time to do so. And that’s my point: if this had happened to us 6 or 7 years ago (and actually we hit a rough patch back then that we got straightened out), we’d have been sued by everybody and their brother by now.
But since it happened to us at the same time it happened to everybody else… it really hasn’t been so bad.
There. I said it.
Look… I’m not recommending this. It’s stressful, painful, stretching, annoying, harassing, and just about every other negative adjective you can think of to throw at it. We’ve been through marriage counseling, any number of arguments, spats and fights, and much more that I’m not going to write about here.
Thankfully, we were committed to each other. Otherwise, this would’ve all ended badly before now.
But… my point is simply this: if you’re in a jam, it’s a great time for it. Be thankful that you’re in the company of lots and lots of other debtors. And let the advantages of the timing work in your favor.
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
