Posted: January 19th, 2010 | Author: Joe | Filed under: Debt | Tags: Debt, debt collection, debt settlement | 2 Comments »
WalletPop had a post yesterday about the dirty tricks of debt collectors.
The article highlights an experience of Ken Golde, who harassed by debt collectors after his business partner died unexpectedly, leaving him to deal with more than $200,000 in debt.
This may be an unusual case, be it show how some debt collectors have no decency and will stop at nothing to get their pound of flesh, or in this case their payment.
The article details some of the tactics that deb collectors aren’t supposed to use, after the passage of the Fair Debt Collection Practices Act (FDCPA). But, of course, some collectors still use those tactics.
The article is mostly a collection of vignettes of people unfortunate enough to have been targeted by unscrupulous debt collection agencies, and lists some web sites to visit if you too are being harassed by collectors.
If you want to try a few things on your own, before contacting a 3rd party for help, you may want to read 4 Options for Bills in Collections, 3 Tips For When Collectors Come Calling, and 7 Ways To Beat Back Debt Collectors/.
Those articles won’t cost you anything, and they may give you some background before you need to deal with another collector.
You can read the full WalletPop article here.
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Posted: January 5th, 2010 | Author: Joe | Filed under: Debt, Tips | Tags: Debt, debt consolidation, debt management, debt settlement | 3 Comments »
Many people realize too late that they have a problem managing their money. This epiphany usually comes when a 5 figure credit card bill is staring them in the face. It happened to me, and it can happen to you. I was lucky in that mine was a low 5 figure amount, and I had the income to pay it off myself with some belt tightening and 0% balance transfer offers from another credit card company.
But not everyone is so fortunate.
Many people have no where else to turn but to a debt management agency. The main problem with doing so is that they end up going to a debt settlement agency instead.
What’s the difference between debt settlement and debt management?
Ah, a fine question – and as it turns out, a very important one to ask.
A debt management company will begin making payments directly to your creditors immediately upon hiring them, while working with you to develop a budget to affordably pay back the entire amount you owe.
A good debt settlement company will work with your creditors to forgive a certain amount of your outstanding debt and work with you to pay off the remainder over time through regular payments you can afford.
A bad debt settlement company will charge you excessive fees, while placing your income and assets at legal risk and leave you owing almost as much in the end as you did in the beginning. Here’s how…
They tell you not to contact your creditors, while taking your payments.
This is a sneaky way to get their up front fee. They tell you to make 6 months of payments before they start sending money to your creditors. This is the same thing as you not paying your creditors for 6 months. This will irritate the creditors, most likely to the point where they will pursue legal action against you. Depending on the state you live in, the creditor could begin garnishing your wages.
This could lead to you still owing your creditors AND being out the money you sent to the debt settlement agency.
A good debt settlement company will work with an attorney and notify your creditors to send all communication through him.
You will probably owe uncle same a chunk of change also.
Assuming your creditors don’t sue you and garnish your wages, and that the debt settlement company does what they say they will, you could still end up owing a sizable amount to the IRS.
Once some amount of the debt has been forgiven, and the rest has been paid off you should get a Form 1099 from your creditors reporting to the IRS the amount forgiven on your debts as income.
You read right – as income.
The IRS considers any forgiven debt to be income for you, and depending on the amount forgiven and your tax bracket, that could be a lot.
For example, if you owe $45,000 and manage to settle the debt with a $25,000 forgiven and you’re in the 25% income tax bracket then you would owe an additional $6,250 in federal taxes – not counting any state income tax!
The lesson is clear – carefully read any agreement and be sure you understand it fully before signing!
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Posted: December 31st, 2009 | Author: Joe | Filed under: Debt, Tips | Tags: Debt, debt management, debt settlement, Reverse Mortgage | 1 Comment »
What can you do when you don’t have health insurance and you can’t pay your medical bills that have been sent to a collections agency?
Well, that’s the question recently fielded by Bankrate.com’s Justin Harelik.
The reader’s mother has been dealing with bills for her open-heart surgery that were sent to collection in 1996! She worked with the collectors to lower the monthly payments to something she could afford on her social security payments, but now the agency is expecting her to pay the full $20,000 outstanding balance. This seems incredibly unfair, since she’s paying them in good faith and they are cashing the checks, but apparently it is perfectly legal for them to do.
Here are the 4 options laid out by Mr. Harelik:
Negotiate a settlement with the collection agency.
The upside: She could get a significant amount of the debt eliminated.
The downside: The agency would likely demand a large lump sum payment that she probably doesn’t have.
File for bankruptcy.
The upside: It would eliminate the debt obligation completely.
The downside: It would cause some damage to her credit history and she may need to hire an attorney, depending on what assets she may have.
Take out a reverse mortgage.
The upside: She gets monthly payments based on the current value of her home, and can make larger payments to the collections agency.
The downside: She would have to own her home outright (with no current mortgage), it could be a costly and time consuming process to put in place to meet the requirements of the collectors. A reverse mortgage would also decrease the amount she could make by selling the property, and leave less to bequeath to relatives upon her death..
Hire a law firm to protect her Social Security checks.
The upside: She doesn’t have to worry about the collection agency placing a levy on her bank account and taking the payments before she has had the chance to spend the money on heat and food bills.
The downside: It will cost a lawyer’s fee and she will still have to make monthly payments to the collection agency to pay off the debt.
Given the list with the pros and cons, it’s easy to see why Mr. Harelik recommended option 4. 
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Posted: December 24th, 2009 | Author: Joe | Filed under: Credit, Debt, Tips | Tags: debt collector, debt management, Debt Negotiation, debt settlement, getting out of debt | 3 Comments »
If you find yourself in a tough financial situation and are considering seeking the help of a professional credit counselor, there may be good news for you.
Since the credit crunch of 2008, and the current recession have led to historic bankruptcy and foreclosure rates, help is a little easier to come by. That’s the good part of this financial mess we are in – the social stigma has been removed. It’s now easier than ever to talk about money problems because it seems like everyone has them.
Here are 10 tips to help you talk to your credit counselor.
1. Determine what services you need.
Terms like credit counseling and debt counseling cover a wide range of services, but they can be broken down into 2 broad categories: 1. counseling and education, 2. debt reduction or negotiation. Credit counselors typically offer the counseling and education services, while debt management and debt settlement agencies offer the latter. You also need to be more wary when dealing with debt management and debt settlement agencies in general as they can harm your credit score and often simply don’t work
2. Make sure the counselor meets the legal requirements.
If you’re filing chapter 7 or 13 bankruptcy, a 2005 law requires you to complete an instructional course in personal finance management before your debts can be discharged. Before you sign on with a credit counseling agency, be sure they’re on the approved list of agencies to cover the legal requirements.
3. Verify they are the right kind of nonprofit status.
The term “nonprofit” is a bit like the term “organic” – everyone has an idea of what it means to them, but there are loose (if any) restrictions on who can use the term. Make sure your nonprofit counseling agency is listed under Section 501(c)(3) of the Internal Revenue Service Code. You can check the listing at the IRS charities website.
4. Verify their accreditation.
The term “accredited” is a lot like organic and nonprofit (see above). Make sure the counselor is accredited with the National Foundation for Credit Counseling, or the Better Business Bureau.
5. Are all the counselors trained and certified?
An old, but effective trick in advertising is to imply that all members of an organization are professionally trained and certified while it may only be a small subset of those employed. Ask the pointed question: “Are all the counselors trained and certified?”, followed by “and what kind of training and certification is that?”
6. Get (and check) references.
Be sure to ask the agency directly, but also check on the Better Business Bureau website.
7. Find out how this will affect your credit score.
The truth of the matter is that your credit has already been hit by late payments and the like, but what you’re looking for from the counselor is an honest commitment to help you make the most of your current situation. If they promise to guarantee to clean your credit history, or make an everything for nothing kind of promise – run.
8. Know the costs.
It should be a simple, straightforward cost. If they start down a complex road of “possibilities” or a menu of fees and percentages – run. If they say they will hold your payments, and that you should stop paying your creditor yourself – run.
Legitimate nonprofit counselors will charge something less than $100 per hour for counseling, and some may be free! But if things seem too good to be true, it probably isn’t true.
9. If the price $0, or close to it – find out why.
Sometimes credit card and mortgage companies provide funding to counselors. This can be ok, but you should be made aware of it if this is the case. The important thing is that the counseling agency is working for you. If they seem to be giving advice that helps your creditors at your expense, then there may be a conflict of interest.
10. Make sure the service is what works for you.
Whether the counseling is done in person, over the phone or on the Internet doesn’t matter as long as it’s what works for you.
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WalletPop had a post yesterday about the dirty tricks of debt collectors.
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