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How Has The Mortgage Meltdown Affected The Debt Collection Industry?

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How Has The Mortgage Meltdown Affected The Debt Collection Industry?

The debt collection industry has been on an increasing growth pattern for several years. In the past, junk debt buyers could easily raise money to start up a business. However, the current mortgage meltdown may be affecting their ability to do so.
Are there more junk debt buyers operating in the system now?
That’s the question we posed to Bud Hibbs, a debt collection consumer advocate and consultant for over 25 years who has written several books, is approved to teach CLE courses through the State Bar of Texas and has appeared in numerous radio and television programs including the Oprah Winfrey Show in a recent interview. Here’s what he told us:
Well, there were up until the mortgage meltdown. It’s the proverbial Catch 22, though. Like the mortgage portfolios that they were buying, there was a day when a lot of companies said, ‘Wait a minute, we’re not buying these anymore. They’re not what you’re stating that they are. They’re not the quality that you said they were.’
We also have a similar problem in the credit card industry. A lot of companies trade over the counter on Wall Street and what happens – let’s go back to the Citibank account – if a company wants to go in and buy a portfolio for say, $50 or $100 million, they could approach Wall Street to raise the money and they could offer Wall Street, sometimes double, even triple what government rates were for treasury bonds, for example. They would get the money. They were able to collect the debt and once they paid off the lender, the Wall Street firm that loaned them the money, anything beyond that point was very, very profitable.
Debt collection is widespread in America
Hibbs says that the problem with debt collection in America today is very, very widespread and that debt collectors who are more egregious and more threatening are going to make a lot more money than the ones who aren’t. If you are being harassed by a debt collector, contact an attorney whose practice focuses on issues relating to the Fair Debt Collection Practices Act (FDCPA) to discuss your situation. Consultations are free, without obligation and are strictly confidential. Click here to contact an experienced debtor’s rights lawyer. We may be able to help.

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What other collection remedies are available?

Collection Child Support

What other collection remedies are available?

The following are other alternative courses of action:

Government: Many states have empowered local government agencies (such as the Office of District Attorney) to collect child support for an obligee parent. Under law, the local agency may (or must) take action to collect outstanding child support arrearage. Resources, such as parent locator services, and a staff of attorneys/clerks, are available to local agencies to assist in collecting court ordered child support.

Tax refund intercepts: Local agencies have the authority to follow a procedure to “intercept” federal or state tax refunds which otherwise would be paid to the obligor parent. Also, local agencies can provide information about child support arrearage to consumer credit reporting agencies who are then required include such information in the agency’s report. Although local child support enforcement agencies can be slow, because of the additional resources available to them, their assistance should be requested as part of the overall effort to collect a child support arrearage.

Real estate liens: A “judgment lien” based on child support arrearage can be recorded against real estate owned by the obligor parent in the county in which the property is located. When such a lien is recorded, the real property becomes security for the payment of the judgment. A judgment lien for child support is then paid from the proceeds of the sale when the property is sold. A judgment lien against real property should be established whenever an obligor parent owns real property that has an equity value (that is, the amount of all outstanding liens, including mortgages, is less than the fair market value of the property).

Civil contempt of court: A more complex proceeding is an action for contempt. Since payment of child support is a direct order by a court to pay, failure to pay is treated as a contempt of a court order. In this proceeding, which is quasi-criminal in nature, the obligee parent must prove to the court that the obligor parent had the income from which support could have been paid. Although a contempt proceeding is complex, it certain to gain the attention of the obligor parent.

Since collection of child support can be difficult, professional assistance is often needed. Child support judgments can easily reach many thousands of dollars a year, and the cost of professional assistance is justified, since those who are familiar with collection procedures often obtain favorable results.

Who gets paid first in a business bankruptcy?

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Who gets paid first in a business bankruptcy?

The order in which payments are made is fixed by Federal statute. The general rule is that the persons who take the least risk are paid first.

First priority usually goes to persons who become creditors AFTER the company files for bankruptcy. The purpose of this is to enable the company to continue its operations and/or to effectively wind down its affairs.

Secured creditors, such as a bank lending money backed by a mortgage on real estate, typically bargained for taking less risk. Assets of the company usually back the credit that they extend. They know they should get paid very early on the list if the company declares bankruptcy.

General creditors, such as suppliers of goods and services, and other lenders and bondholders, have a greater potential for recovering their losses than stockholders, because bonds represent the debt of the company and the company has agreed to pay bondholders interest and to return their principal.

Stockholders own the company, and take greater risk. They could make more money if the company does well, but they could lose money if the company does poorly. The owners are last in line to be repaid if the company fails. Bankruptcy laws determine the order of payment.

Unsecured creditors are last in line.

(Reviewed 11.10.08)

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What are some pluses and minuses to a chapter 7 and 13 filing?

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What are some pluses and minuses to a chapter 7 and 13 filing?

Chapter 7 asset distribution

Advantages to a Chapter 7 filing:

(1) The amount of debt you can erase is not limited.

(2) Unpaid balances due after assets are distributed are erased (“discharged” in bankruptcy language).

(3) Wages you earn and property you acquire (except for inheritances) after the bankruptcy filing date are yours, not the creditors or bankruptcy court.

(4) There is no minimum amount of debt required.

(5) Your case is often over in about 3-6 months, enabling you to get out from under the burden of debt quicker.

Disadvantages to a Chapter 7 filing:

(1) You lose your non-exempt property which is sold by the trustee.

(2) Some debts survive and can be collected after your case is closed (e.g., mortgage liens).

(3) If facing foreclosure on your home, lender’s efforts are only temporarily stalled by filing.

(4) Co-signors of a loan can be stuck with your debt unless they file for similar protection.

(5) You can file this type of bankruptcy only once every eight years.

(5) Bankruptcy damages your credit rating.

(6) It is difficult to withdraw from a Chapter 7 filing.

Chapter 13 repayment plan

Advantages to a Chapter 13 payment plan:

(1) You keep all your property, exempt and non-exempt.

(2) You have a longer period of time to pay the debt.

(3) The debts that are not canceled in a Chapter 7 discharge can be reduced in a Chapter 13 payment.

(4) You have protection against creditor’s collection efforts and wage garnishment.

(5) Any co-signers are immune from the creditor’s efforts so long as the Chapter 13 plan provides for full payment.

(6) You have protection against foreclosure by your lender of your home.

(7) You can file a Chapter 13 after your Chapter 7 discharge to pay off any remaining liens.

(8) You can file repeatedly.

(9) You can separate your creditors by class. Different classes of creditors receive different percentages of payment. This enables you to treat debts where there is a co-debtor involved on a different basis than debts incurred on your own.

Disadvantages to a Chapter 13 payment plan:

(1) You pay your debts out of your disposable (post-bankruptcy) income. This ties up your cash over the repayment period.

(2) Some debts will survive after your bankruptcy is closed and you must continue paying.

(3) Legal fees are higher since a Chapter 13 filing is more complex.

(4) Your debt must be under $1,000,000 (e.g., unsecured debts are less than $250,000 and secured debts less than $750,000).

(5) Your debt can linger for years, burdening future income.

(6) Stockbrokers, and commodity brokers cannot file a Chapter 13 bankruptcy petition.

(Reviewed 11.10.08)

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Are Home Equity Loans and Home Equity Lines Of Credit A Good Idea?

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Are Home Equity Loans and Home Equity Lines Of Credit A Good Idea?

When your debts have gotten way ahead of your ability to pay them off, tapping your burgeoning equity in your home seems like an easy (and compelling) solution.
But is it? Here’s one more area where you need good advice. This kind of loan is a fast and obvious way to get a large amount of cash at a relatively low cost. But be careful. Borrowing against your home means you could lose your home if you can’t repay the loan as promised.
The equity in your home is the difference between what you owe on your mortgage and the current market value of the home. For example, if you owe $150,000 on a home with a current market value of $250,000, your equity is $100,000. That means you could borrow $100,000 based on your equity. In fact, some lenders might even give you more. The thing to remember here is that you are borrowing, and you are going to have to pay it back-or sell your home if you can’t.
Using your equity is quick and easy. It can be done one of two ways, either as a home equity loan, which is like taking out a second mortgage, or as a home equity line of credit, which works more like a credit card with a fixed amount you can draw upon as needed. Both are attractive because interest rates are low, lower than the average credit card rate, and interest is tax deductible, just like the interest on your mortgage.
This is such a popular quick fix that you have to pay careful attention to the fine print. Even though in theory the money is yours-or would be if you sold your home-you do have to pay the loan back, with interest, or risk losing your home.
Lenders have devised a variety of options to make home equity loans and lines of credit attractive. An interest only loan, with the promise of a low rate and low monthly payments, is one popular offering. The catch is the “balloon” payment required to repay the entire amount at the end of the loan. This kind of loan only makes sense if you plan to sell your home before the loan matures. If you can’t make the final payment, you may be forced to sell anyway.
You also need to beware of the variable rate approach, especially if an artificially low rate was what attracted you in the first place. You need to understand how and when the rate will be adjusted so you won’t be surprised if your monthly payments increase suddenly. If interest rates are rising, you may want to consider a fixed rate instead of a variable rate. That way you can at least be sure of what your payments and commitments will be for the duration of the loan.
Other items to watch are the fees and charges, since you will probably be paying an application fee, the costs of an appraisal, various closing costs, possibly points and a maintenance and/or transaction fee. Some home equity lines of credit even impose an inactivity fee if you don’t use the credit. All of these can add to your costs, and payments.
You also need to recognize that by using the equity in your home you are taking away from what, for most people, is a major investment, their home, and exchanging long term debt, your mortgage, for short term debt, your overworked credit cards. Even if the value of your house declines, the amount you borrowed on your equity stays the same. Say the value of your $250,000 home declines to $200,000 and you had borrowed $100,000. Even if you sell the home, you will have to come up with another $50,000 to repay your loan.
An even bigger risk, say experienced financial counselors, is that with an easy source of cash, debtors may not learn a lesson and, failing to curb their spending, will get into the debt trap again-this time without a home equity loan to rescue them.

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Debt Consolidation: An Assessment of Your Debt Picture

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Debt Consolidation: An Assessment of Your Debt Picture

Debt consolidation needs no definition. The name says it all. Debt consolidation simply means bundling together all debts, then taking out one loan to pay them off. This new loan should offer a lower interest rate and the convenience of a single payment.
Debt consolidation sounds good when you can’t pay your monthly bills, debt collectors are assaulting your phone, and you worry about losing your car or your home.
But don’t be lulled into thinking of debt consolidation as a quick fix for financial woes. It is not. Despite the flood of promises that come daily by mail, TV, radio, the Internet, and newspaper ads, getting out of debt is not easy. Think of it this way: it is more like going on a diet. You didn’t gain the weight overnight, so you won’t lose it-and keep it off-overnight, either. The same is true of debt.
Any offer to get you out of debt should be approached with caution-and careful attention to the fine print-no matter how good it sounds. And beware, too, that debt consolidation only treats symptoms-those accumulating monthly payments that cause such trouble– but does nothing about the cause of debt, which, basically, is spending more than you can afford to pay.
People get into debt for any number of reasons, maybe a lost job, mortgage payments that balloon, unexpected medical bills, or simply buying things they don’t need because credit is so easy, especially with a pocketful of credit cards. But the overall problem is the same: You owe more than you can pay.
Debt consolidation is one solution, but there are others, starting with credit counseling and ending with bankruptcy as a last resort.
The first step needs to be a sharp, and critical, look at your finances. You need to know how much money you have to spend, where and how you spend it.
The second step is a look at what you owe, also known as your liabilities. This means the entire picture, not just the obvious housing, transportation and food expenses, but clothing, medical and dental, education, gifts, utilities, taxes, entertainment, vacations, any and all other expenses, (including the daily lattes) as well.
Some is good debt (mortgages, college, some car loans) often looked at as investments for the future, some bad (over-loaded credit cards), and some the kind that can’t be avoided (taxes, utilities), but it adds up. Debt figures and statistics are usually out of date, sometimes inaccurate, and often misleading. But the important figure is not what other people owe or even what the “average” American owes. It is what you owe, and, even more important, what you can do to cut it back.
Consulting a financial advisor or credit counselor can help. This step also comes with cautions, so choose wisely, don’t listen to or believe the ads, and be wary of anyone who asks for money up front. Be sure to check first with the Better Business Bureau, your state attorney’s general office for consumer affairs, or some other reliable source to be sure you are not going to add to your debt problems.
And always bear in mind the time-honored words of wisdom: “If it sounds too good to be true, it probably is.”

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How To Keep Your Debt Under Control

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How To Keep Your Debt Under Control

The surest way to keep your debt under control is not to spend more than you can afford. But to do that, you need to know how much you have to spend and where your money goes.
In other words, you need a budget, or if you prefer, a spending plan.
Most people don’t like budgets. Budgets are constricting. They take spontaneity out of spending and make you pay attention to where your money goes. But without a budget, or a plan, you don’t know how much you have to spend or where you are spending it, so get started.
Even if you seek help, you have to do the basics:
List your expenses. All of them. Do it daily, as you spend. Be sure to include the daily double lattes, the cleaning, the stamps used to pay bills, the newspaper, the gasoline, the bus fare. Everything. Add up the daily expenses so you know what you spend each week. Add in your mortgage, utility, phone, credit card and loan payments so you know what you spend each month. Precisely, not just an estimate.
Analyze what you spent by category: good debt (mortgage and student loans), bad debt (much of your credit card spending falls in that category), and things you can’t avoid (taxes, utilities, food and other cost of living expenses).
Figure out what you owe and what it costs you. This means listing everything from mortgage and car loan to each credit card by balance and interest rate.
That exercise, done honestly-and if you don’t, you re only fooling yourself-should show you where you can begin cutting back on what you spend, freeing up some money to start paying down the debt. Little things add up. The $4 lattes cost $80 or more a month, the daily $5 (if you’re lucky) sandwich another $100.
It should also be a guide for your budget, or, if you prefer, spending plan. If you need help, now is a good time, whether from a financial advisor or consultant (and be sure to check out the credentials and fees ahead of time) or one of the many books available from your local library.

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Credit Card Debt: Some Repayment Strategies to Avoid

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Credit Card Debt: Some Repayment Strategies to Avoid

For most people, credit card debt is a symptom of a much larger problem, a total lack of restraint when it comes to buying. That piece of plastic simply makes it easier to spend without thinking about the consequences.
But getting out of credit card debt is not as easy as getting into it. Most advisors tell you to put away your cards and pay off what you can, starting with the cards that have the highest interest rate first. Other strategies include transferring your balances to a card with lower interest rate and getting a debt consolidation loan.
Advisors also will tell you these are only temporary measures to ease the symptom. They won’t solve the underlying problem unless you stop spending more than you can afford. Simply put, pay off the debt, then figure out exactly what you can spend and stay within that limit.
Advisors may also warn you not to turn to any of the widely touted repayment schemes that look tempting on the surface, but can create more problems than they solve.
One such temptation is a home equity loan. These often come with points, fees and other hidden costs, even though they are easier to obtain than a home mortgage loan. Many advisors tell you not to put your home in jeopardy-which is what you do if you don’t meet your payments-to pay off your credit card debt. This kind of loan, with its unexpected costs and real downside, won’t solve the problem of undisciplined spending. It merely makes it easier for you to lose your home.
Dipping into your retirement savings is also a bad idea, not only because you will face a 10 percent early withdrawal penalty but also because you will be taxed at a normal rate for any funds you withdraw. That means you are paying a huge penalty to pay off your credit card debt and also robbing yourself of funds you may need for your retirement.
Taking a cash advance on one credit card to pay off the debt on another is also a bad and potentially costly idea. Cash advances come with a fee, often about 3 percent of the amount advanced, and high interest rates that start immediately
Yet another bad idea is taking an advance, or loan, against your next paycheck. Finance companies make these loans easy and with good reason. Both fees and interest are high. This is no solution to your credit card debt, only one that perpetuates the problem and makes it worse, especially if you get into a cycle of borrowing against each next paycheck.

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Credit Card Debt: Easy to Get In, Hard to Get Out

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Credit Card Debt: Easy to Get In, Hard to Get Out

If millions of Americans have learned how easy it is to get into credit card debt, they have also discovered how hard it can be to get rid of that debt. Credit card debt has become so widespread that countless financial advisors and their firms have turned their strategies for consolidating and paying off credit card debt into profitable businesses.
But that doesn’t mean you can’t start trying to get out of debt on your own. Before consulting an advisor or debt consolidation manager, you might take these steps first.
The most obvious one is to stop using your credit cards so you won’t add to the debt. Put them away so you won’t be tempted, though you should keep one card handy, preferably the one with the lowest interest rate, but only for emergency use.
The next step is basic: Record your expenses, all of them-everything from your coffee and newspaper to the mortgage and car payments-for a month. Then compare what you spent to your income.
Then list all your debts, not just the mortgage and car payments, but the amount owed on every credit and charge card, along with the interest rate, the dates payments are due, the late fee penalty and the grace period before new purchases start piling on interest.
Study the lists. Do you spend more than you earn? Figure out what you can change.
Pay careful attention to the interest you pay on your credit cards. If interest is piling on and you only make minimum payments, call your lenders and ask for a lower rate. It may not work, but credit card companies want your business. They also want you to be able to keep paying so they may be willing to negotiate, especially if it means you can keep payments coming.
Shop around for a better credit card rate. This is easier than it sounds. A number of web sites do the work for you, comparing interest rates, fees, methods of payment and other data for dozens of credit card offerings. But check before signing up to be sure the information is current and that you qualify for the advertised rates and fees.
Transferring the balances from your higher rate cards to one with a lower rate can cut your interest payments, and plenty of credit card companies offer this service. But be careful before accepting an invitation to transfer to a card with zero or low percent interest rates, no matter how tempting it seems. The number of low interest offers in the mail and in advertisements should warn you that credit card debt consolidation has become big business. You need to read the fine print very carefully and be sure you understand all the potential pitfalls.
Most low rates are good for a limited time and apply only to the amount you transfer, not to anything additional you may purchase. That amount may be subject to a much higher rate. Unless you can pay off what you transfer within that time, your interest rate on the unpaid balance may soar. If that’s the case, you might be better off with a fixed, but lower, rate. And since anything you pay goes to that transferred amount, you probably shouldn’t use the card for purchases until that debt is repaid.
Too, that low rate may vanish if you are late with a payment. You also need to be aware of other possible fees. Some credit card companies charge a transfer fee. This may be a flat rate, typically $25 to $50, or it may be a percentage of the amount that you transfer. If the initial transfer comes without a fee, subsequent transfers may be considered cash advances and subject to that fee, usually higher than the interest rate.
If you can’t handle your credit card debt by negotiating lower interest rates or transferring to a lower interest rate credit card, which you can pay off, consult a financial advisor or a debt consolidation expert. Again, beware. Check with the local Better Business Bureau or some reliable source to be sure you are dealing with someone, or group, who is reputable and will work to help you solve your credit card debt problems, not add to your financial woes.

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When, Why, and Why Not, Should You Consider Bankruptcy?

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When, Why, and Why Not, Should You Consider Bankruptcy?

The idea of declaring bankruptcy, wiping out certain debts or repaying them over time with court protection-no more hassles or nasty phone calls from menacing creditors–and then moving on more or less debt free has undeniable appeal to anyone faced with overwhelming debt.
But be careful. Compelling as it may sound, bankruptcy has a lingering and far-reaching impact that touches every aspect of life. Bankruptcy ruins credit, makes it difficult, if not impossible, to keep bank accounts and credit cards, can take some valued, and valuable, possessions, and makes it difficult to get on with necessities of life such as buying or renting a home or car, getting insurance and finding a job.
In fact, most financial advisors look at bankruptcy as a desperate last resort, when budgeting, credit counseling and other efforts to get out of debt have failed, and then only with the advice and guidance of an experienced bankruptcy attorney.
There are two basic types of personal bankruptcy, Chapter 13. Each must be filed in federal bankruptcy court, but certain conditions must be met before filing for bankruptcy under either chapter. The moment you file a bankruptcy case, an immediate automatic restraining order kicks in and gives you protection from the relentless creditor.
You must get credit counseling at your own expense from a government-approved organization (list available at http://www.usdoj.gov/ust/eo/bapcpa/ccde/de_approved.htm) within six months before you file and you must satisfy a “means test” to confirm that your income does not exceed a specified amount. That amount differs by state (also available at http://www.usdoj.gov/ust/eo/bapcpa/meanstesting.htm).
The world of bankruptcy under the Code was overhauled drastically in late 2005 to encourage people with a steady income to use Chapter 13 instead of Chapter 7. Chapter 13 allows those with a steady income to keep certain property, like a home with a mortgage or a car that might be lost during the bankruptcy process. Under Chapter 13, the court approves a repayment plan where you give up part of your future anticipated income to pay some or all of what you owe, rather than surrendering property. In return, certain debts must be repaid. These include overdue school loans, child support, taxes, car loans, and home mortgage payments and, in some cases, all of your debts.
Chapter 7 allows you to “discharge,” in effect to erase almost all of your debts. A trustee is appointed to collect non-exempt property, sell it, and dole out the proceeds to your creditors. This is not an absolute solution: certain debts, among them past due child and spousal support, may not be excused; you risk losing your property; and, if you had transferred property to avoid the loss, some transfers can be undone. Unlike Chapter 13, there is no filing of a repayment plan with the court
Chapter 7 and Chapter 13 filings are administered by someone known as a trustee. The bankruptcy trustee, appointed by the US Department of Justice, investigates the financial affairs of each debtor, can sell non-exempt assets, and convenes a “meeting of creditors” about a month after a case is filed. Each bankruptcy case is assigned a judge who makes rulings if called upon. Lawyers are not required, but you may want an seasoned bankruptcy lawyer to advise you about when to file and to guide you through the complex, heavy-paperwork process.
Chapter 7 usually takes about three months to complete but the case stays on your credit report for 10 years. Chapter 13 lasts from three to five years, depending on your circumstances, and remains on your credit record for seven years. Before discharge of the case under either chapter, you must receive certification for a completed course in financial management from an approved counseling agency.

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