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No one wants to declare bankruptcy, but sometimes that is your only option. It is also the option that credit counseling agencies don't mention. What we have done is gathered information about what bankruptcy is, the different types of bankruptcy, and where you can go for help. There are strict rules people need to follow, so this guide will help you get the process started. If you can still get your finances in order, there is also help available so you can avoid bankruptcy. No one wants to start from scratch, but what we have heard time and time again is that you need to seek help when you see trouble on the horizon. Don't wait! That is when trouble hits.
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Personal bankruptcy generally is considered the debt management option of last resort because the results are long-lasting and far-reaching. A bankruptcy stays on your credit report for 10 years, and can make it difficult to obtain credit, buy a home, get life insurance, or sometimes get a job. Still, it is a legal procedure that offers a fresh start for people who can't satisfy their debts. People who follow the bankruptcy rules receive a discharge - a court order that says they don't have to repay certain debts.
The consequences of bankruptcy are significant and require careful consideration. Other factors to think about: Effective October 2005, Congress made sweeping changes to the bankruptcy laws. The net effect of these changes is to give consumers more incentive to seek bankruptcy relief under Chapter 13 rather than Chapter 7. Chapter 13 allows you, if you have a steady income, to keep property, such as a mortgaged house or car, that you might otherwise lose. In Chapter 13, the court approves a repayment plan that allows you to use your future income to pay off your debts during a three-to-five-year period, rather than surrender any property. After you have made all the payments under the plan, you receive a discharge of your debts.
Chapter 7, known as straight bankruptcy, involves the sale of all assets that are not exempt. Exempt property may include cars, work-related tools, and basic household furnishings. Some of your property may be sold by a court-appointed official - a trustee - or turned over to your creditors. The new bankruptcy laws have changed the time period during which you can receive a discharge through Chapter 7. You now must wait eight years after receiving a discharge in Chapter 7 before you can file again under that chapter. The Chapter 13 waiting period is much shorter and can be as little as two years between filings.
Both types of bankruptcy may get rid of unsecured debts and stop foreclosures, repossessions, garnishments, utility shut-offs, and debt collection activities. Both also provide exemptions that allow you to keep certain assets, although exemption amounts vary by state. Personal bankruptcy usually does not erase child support, alimony, fines, taxes, and some student loan obligations. Also, unless you have an acceptable plan to catch up on your debt under Chapter 13, bankruptcy usually does not allow you to keep property when your creditor has an unpaid mortgage or security lien on it.
Another major change to the bankruptcy laws involves certain hurdles that you must clear before even filing for bankruptcy, no matter what the chapter. You must get credit counseling from a government-approved organization within six months before you file for any bankruptcy relief. You can find a state-by-state list of government-approved organizations at http://www.usdoj.gov/ust/eo/bapcpa/ccde/cc_approved.htm
That is the website of the U.S. Trustee Program, the organization within the U.S. Department of Justice that supervises bankruptcy cases and trustees. Also, before you file a Chapter 7 bankruptcy case, you must satisfy a "means test." This test requires you to confirm that your income does not exceed a certain amount. The amount varies by state and is publicized by the U.S. Trustee Program at usdoj.gov/ust. As a rule, pre-bankruptcy credit counseling and pre-discharge debtor education may not be provided at the same time. Credit counseling must take place before you file for bankruptcy; debtor education must take place after you file. In general, you must file a certificate of credit counseling completion when you file for bankruptcy, and evidence of completion of debtor education after you file for bankruptcy - but before your debts are discharged. Only credit counseling organizations and debtor education course providers that have been approved by the U.S. Trustee Program may issue these certificates. To protect against fraud, the certificates are produced through a central automated system and are numbered.
For more information, see Before You File for Personal Bankruptcy: Information About Credit Counseling and Debtor Education, Knee Deep in Debt, and Fiscal Fitness: Choosing a Credit Counselor at ftc.gov/credit or contact them at Federal Trade Commission, Consumer Response Center, 600 Pennsylvania Avenue, NW, Washington, DC 20580; 877-FTC-HELP; http://www.ftc.gov
You can choose the kind of bankruptcy that best meets your needs (provided you meet certain qualifications):
Chapter 7 - A trustee is appointed to take over your property. Any property of value will be sold or turned into money to pay your creditors. You may be able to keep some personal items and possibly real estate depending on the law of the State where you live and applicable federal laws.
Chapter 13 - You can usually keep your property, but you must earn wages or have some other source of regular income and you must agree to pay part of your income to your creditors. The court must approve your repayment plan and your budget. A trustee is appointed and will collect the payments from you, pay your creditors, and make sure you live up to the terms of your repayment plan.
Chapter 12 - Like chapter 13, but it is only for family farmers and family fishermen.
Chapter 11 - This is used mostly by businesses. In chapter 11, you may continue to operate your business, but your creditors and the court must approve a plan to repay your debts. There is no trustee unless the judge decides that one is necessary; if a trustee is appointed, the trustee takes control of your business and property.
If you have already filed bankruptcy under chapter 7, you may be able to change your case to another chapter. Your bankruptcy may be reported on your credit record for as long as ten years. It can affect your ability to receive credit in the future. For more information contact Executive Office for U.S. Trustees, 20 Massachusetts Avenue, NW, Suite 8000, Washington, DC 20530; 202-514-4100; http://www.usdoj.gov/ust/
One of the reasons people file bankruptcy is to get a "discharge." A discharge is a court order which states that you do not have to pay most of your debts. Some debts cannot be discharged. For example, you cannot discharge debts for:
*most taxes;*child support;*alimony;*most student loans;*court fines and criminal restitution; and*personal injury caused by driving drunk or under the influence of drugs.
The discharge only applies to debts that arose before the date you filed. Also, if the judge finds that you received money or property by fraud, that debt may not be discharged.It is important to list all your property and debts in your bankruptcy schedules. If you do not list a debt, for example, it is possible the debt will not be discharged. The judge can also deny your discharge if you do something dishonest in connection with your bankruptcy case, such as destroy or hide property, falsify records, or lie, or if you disobey a court order.
You can only receive a chapter 7 discharge once every eight years. Other rules may apply if you previously received a discharge in a chapter 13 case. No one can make you pay a debt that has been discharged, but you can voluntarily pay any debt you wish to pay. You do not have to sign a reaffirmation agreement (see below) or any other kind of document to do this.
Some creditors hold a secured claim (for example, the bank that holds the mortgage on your house or the loan company that has a lien on your car). You do not have to pay a secured claim if the debt is discharged, but the creditor can still take the property. For more information contact Executive Office for U.S. Trustees, 20 Massachusetts Avenue, NW, Suite 8000, Washington, DC 20530; 202-514-4100; http://www.usdoj.gov/ust/
Even if a debt can be discharged, you may have special reasons why you want to promise to pay it. For example, you may want to work out a plan with the bank to keep your car. To promise to pay that debt, you must sign and file a reaffirmation agreement with the court. Reaffirmation agreements are under special rules and are voluntary. They are not required by bankruptcy law or by any other law. Reaffirmation agreements:
*must be voluntary;*must not place too heavy a burden on you or your family;*must be in your best interest; and*can be canceled anytime before the court issues your discharge or within 60 days *after the agreement is filed with the court, whichever gives you the most time.
If you are an individual and you are not represented by an attorney, the court must hold a hearing to decide whether to approve the reaffirmation agreement. The agreement will not be legally binding until the court approves it. If you reaffirm a debt and then fail to pay it, you owe the debt the same as though there was no bankruptcy. The debt will not be discharged and the creditor can take action to recover any property on which it has a lien or mortgage. The creditor can also take legal action to recover a judgment against you. For more information contact Executive Office for U.S. Trustees, 20 Massachusetts Avenue, NW, Suite 8000, Washington, DC 20530; 202-514-4100; http://www.usdoj.gov/ust/
The procedural aspects of the bankruptcy process are governed by the Federal Rules of Bankruptcy Procedure (often called the "Bankruptcy Rules") and local rules of each bankruptcy court. The Bankruptcy Rules contain a set of official forms for use in bankruptcy cases. There is a bankruptcy court for each judicial district in the country. Each state has one or more districts. There are 90 bankruptcy districts across the country. The bankruptcy courts generally have their own clerk's offices.
The court official with decision-making power over federal bankruptcy cases is the United States bankruptcy judge, a judicial officer of the United States district court. The bankruptcy judge may decide any matter connected with a bankruptcy case, such as eligibility to file or whether a debtor should receive a discharge of debts. Much of the bankruptcy process is administrative, however, and is conducted away from the courthouse. In cases under chapters 7, 12, or 13, and sometimes in chapter 11 cases, this administrative process is carried out by a trustee who is appointed to oversee the case. A debtor's involvement with the bankruptcy judge is usually very limited. A typical chapter 7 debtor will not appear in court and will not see the bankruptcy judge unless an objection is raised in the case. A chapter 13 debtor may only have to appear before the bankruptcy judge at a plan confirmation hearing. Usually, the only formal proceeding at which a debtor must appear is the meeting of creditors, which is usually held at the offices of the U.S. trustee. This meeting is informally called a "341 meeting" because section 341 of the Bankruptcy Code requires that the debtor attend this meeting so that creditors can question the debtor about debts and property.
A fundamental goal of the federal bankruptcy laws enacted by Congress is to give debtors a financial "fresh start" from burdensome debts. For more information check out the link on the U.S. Court's website: http://www.uscourts.gov/bankruptcycourts/bankruptcybasics.html
A pre-bankruptcy counseling session with an approved credit counseling organization should include an evaluation of your personal financial situation, a discussion of alternatives to bankruptcy, and a personal budget plan. A typical counseling session should last about 60 to 90 minutes, and can take place in person, on the phone, or online. The counseling organization is required to provide the counseling free of charge for those consumers who cannot afford to pay. If you cannot afford to pay a fee for credit counseling, you should request a fee waiver from the counseling organization before the session begins. Otherwise, you may be charged a fee for the counseling, which will generally be about $50, depending on where you live, the types of services you receive, and other factors. The counseling organization is required to discuss any fees with you before starting the counseling session.
Once you have completed the required counseling, you must get a certificate as proof. Check the U.S. Trustee's website to be sure that you receive the certificate from a counseling organization that is approved in the judicial district where you are filing bankruptcy. Credit counseling organizations may not charge an extra fee for the certificate. For more information contact Executive Office for U.S. Trustees, 20 Massachusetts Avenue, NW, Suite 8000, Washington, DC 20530; 202-514-4100; http://www.usdoj.gov/ust/
A debtor education course by an approved provider should include information on developing a budget, managing money, using credit wisely, and other resources. Like pre-filing counseling, debtor education may be provided in person, on the phone, or online. The debtor education session might last longer than the pre-filing counseling - about two hours - and the typical fee is between $50 and $100. As with pre-filing counseling, if you are unable to pay the session fee, you should seek a fee waiver from the debtor education provider. Check the list of approved debtor education providers at www.usdoj.gov/ust/eo/bapcpa/ccde/de_approved.htm or at the bankruptcy clerk's office in your district.
Once you have completed the required debtor education course, you should receive a certificate as proof. This certificate is separate from the certificate you received after completing your pre-filing credit counseling. Check the U.S. Trustee's website to be sure that you receive the certificate from a debtor education provider that is approved in the judicial district where you filed bankruptcy. Unless they have disclosed a charge to you before the counseling session begins, debtor education providers may not charge an extra fee for the certificate. For more information contact Executive Office for U.S. Trustees, 20 Massachusetts Avenue, NW, Suite 8000, Washington, DC 20530; 202-514-4100; http://www.usdoj.gov/ust/
It's wise to do some research when choosing a credit counseling organization. If you are in search of credit counseling to fulfill the bankruptcy law requirements, make sure you receive services only from approved providers for your judicial district. Check the list at www.usdoj.gov/ust/eo/bapcpa/ccde/cc_approved.htm or at the bankruptcy clerk's office for the district where you will file. Once you have the list of approved organizations in your judicial district, call several to gather information before you make your choice. Some key questions to ask are:
*What services do you offer? *Will you help me develop a plan for avoiding problems in the future? *What are your fees? *What if I can't afford to pay your fees? *What qualifications do your counselors have? Are they accredited or certified by an outside organization? What training do they receive? *What do you do to keep information about me (including my address, phone number, and financial information) confidential and secure? *How are your employees paid? Are they paid more if I sign up for certain services, if I pay a fee, or if I make a contribution to your organization?
For more information contact Executive Office for U.S. Trustees, 20 Massachusetts Avenue, NW, Suite 8000, Washington, DC 20530; 202-514-4100; http://www.usdoj.gov/ust/
The three nationwide consumer reporting companies are using one website, one toll-free telephone number, and one mailing address for consumers to order their free annual report. To order, click on https://www.annualcreditreport.com/cra/index.jsp, call 1-877-322-8228, or complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. You can print the form from http://ftc.gov/freereports Do not contact the three nationwide consumer reporting companies individually. You may order your free annual reports from each of the consumer reporting companies at the same time, or you can order them one at a time. The law allows you to order one free copy from each of the nationwide consumer reporting companies every 12 months. For more information contact Federal Trade Commission, Consumer Response Center, 600 Pennsylvania Avenue, NW, Washington, DC 20580; 877-FTC-HELP; http://www.ftc.gov
Under federal law, you're entitled to a free report if a company takes adverse action against you, such as denying your application for credit, insurance, or employment, and you ask for your report within 60 days of receiving notice of the action. The notice will give you the name, address, and phone number of the consumer reporting company. You're also entitled to one free report a year if you're unemployed and plan to look for a job within 60 days; if you're on welfare; or if your report is inaccurate because of fraud, including identity theft. Otherwise, any of the three consumer reporting companies may charge you up to $10.50 for another copy of your report within a 12-month period. To buy a copy of your report, contact: Equifax, 800-685-111; http://www.equifax.com/home/; Experian, 888-397-3742; http://www.experian.com/; TransUnion, 800-916-8800; http://www.transunion.com/ For more information contact Federal Trade Commission, Consumer Response Center, 600 Pennsylvania Avenue, NW, Washington, DC 20580; 877-FTC-HELP; http://www.ftc.gov
Under the Fair Credit Reporting Act, both the consumer reporting company and the information provider (the person, company, or organization that provides information about you to a consumer reporting company) are responsible for correcting inaccurate or incomplete information in your report. To take advantage of all your rights under the FCRA, contact the consumer reporting company and the information provider if you see inaccurate or incomplete information.
Tell the consumer reporting company, in writing, what information you think is inaccurate. Include copies (NOT originals) of documents that support your position. In addition to providing your complete name and address, your letter should clearly identify each item in your report that you dispute, state the facts and explain why you dispute the information, and request that the information be deleted or corrected. You may want to enclose a copy of your report with the items in question circled. Send your letter by certified mail, return receipt requested, so you can document what the consumer reporting company received. Keep copies of your dispute letter and enclosures.
Consumer reporting companies must investigate the items in question - usually within 30 days - unless they consider your dispute frivolous. They also must forward all the relevant data you provide about the inaccuracy to the organization that provided the information. After the information provider receives notice of a dispute from the consumer reporting company, it must investigate, review the relevant information, and report the results back to the consumer reporting company. If the information provider finds the disputed information is inaccurate, it must notify all three nationwide consumer reporting companies so they can correct the information in your file.
When the investigation is complete, the consumer reporting company must give you the written results and a free copy of your report if the dispute results in a change. (This free report does not count as your annual free report under the FACT Act.) If an item is changed or deleted, the consumer reporting company cannot put the disputed information back in your file unless the information provider verifies that the information is, indeed, accurate and complete. The consumer reporting company also must send you written notice that includes the name, address, and phone number of the information provider.
If you request, the consumer reporting company must send notices of any correction to anyone who received your report in the past six months. A corrected copy of your report can be sent to anyone who received a copy during the past two years for employment purposes.
If an investigation doesn't resolve your dispute with the consumer reporting company, you can ask that a statement of the dispute be included in your file and in future reports. You also can ask the consumer reporting company to provide your statement to anyone who received a copy of your report in the recent past. Expect to pay a fee for this service. For more information contact Federal Trade Commission, Consumer Response Center, 600 Pennsylvania Avenue, NW, Washington, DC 20580; 877-FTC-HELP; http://www.ftc.gov
When negative information in your report is accurate, only the passage of time can assure its removal. A consumer reporting company can report most accurate negative information for seven years and bankruptcy information for 10 years. Information about an unpaid judgment against you can be reported for seven years or until the statute of limitations runs out, whichever is longer. There is no time limit on reporting information about criminal convictions; information reported in response to your application for a job that pays more than $75,000 a year; and information reported because you've applied for more than $150,000 worth of credit or life insurance. There is a standard method for calculating the seven-year reporting period. Generally, the period runs from the date that the event took place. For more information contact Federal Trade Commission, Consumer Response Center, 600 Pennsylvania Avenue, NW, Washington, DC 20580; 877-FTC-HELP; http://www.ftc.gov
The first step toward taking control of your financial situation is to do a realistic assessment of how much money you take in and how much money you spend. Start by listing your income from all sources. Then, list your "fixed" expenses - those that are the same each month - like mortgage payments or rent, car payments, and insurance premiums. Next, list the expenses that vary - like entertainment, recreation, and clothing. Writing down all your expenses, even those that seem insignificant, is a helpful way to track your spending patterns, identify necessary expenses, and prioritize the rest. The goal is to make sure you can make ends meet on the basics: housing, food, health care, insurance, and education.
Contact your creditors immediately if you're having trouble making ends meet. Tell them why it's difficult for you, and try to work out a modified payment plan that reduces your payments to a more manageable level. Don't wait until your accounts have been turned over to a debt collector. At that point, your creditors have given up on you.
The Fair Debt Collection Practices Act is the federal law that dictates how and when a debt collector may contact you. A debt collector may not call you before 8 a.m., after 9 p.m., or while you're at work if the collector knows that your employer doesn't approve of the calls. Collectors may not harass you, lie, or use unfair practices when they try to collect a debt. And they must honor a written request from you to stop further contact. For more information contact Federal Trade Commission, Consumer Response Center, 600 Pennsylvania Avenue, NW, Washington, DC 20580; 877-FTC-HELP; http://www.ftc.gov
If you're not disciplined enough to create a workable budget and stick to it, can't work out a repayment plan with your creditors, or can't keep track of mounting bills, consider contacting a credit counseling organization. Many credit counseling organizations are nonprofits and work with you to solve your financial problems. But be aware that just because an organization says it's "nonprofit," there's no guarantee that its services are free, affordable, or even legitimate. In fact, some credit counseling organizations charge high fees, which may be hidden, or pressure consumers to make large "voluntary" contributions that can cause more debt.
Most credit counselors offer services through local offices, the Internet, or on the telephone. If possible, find an organization that offers in-person counseling. Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate nonprofit credit counseling programs. Your financial institution, local consumer protection agency, and friends and family also may be good sources of information and referrals.
Reputable credit counseling organizations can advise you on managing your money and debts, help you develop a budget, and offer free educational materials and workshops. Their counselors are certified and trained in the areas of consumer credit, money and debt management, and budgeting. Counselors discuss your entire financial situation with you, and help you develop a personalized plan to solve your money problems. An initial counseling session typically lasts an hour, with an offer of follow-up sessions. Some credit counseling agencies include those offered through the U.S. Department of Housing and Urban Development at 800-569-4287; http://www.hud.gov/offices/hsg/sfh/hcc/hcc_home.cfm For more information contact Federal Trade Commission, Consumer Response Center, 600 Pennsylvania Avenue, NW, Washington, DC 20580; 877-FTC-HELP; http://www.ftc.gov
Your debts can be secured or unsecured. Secured debts usually are tied to an asset, like your car for a car loan, or your house for a mortgage. If you stop making payments, lenders can repossess your car or foreclose on your house. Unsecured debts are not tied to any asset, and include most credit card debt, bills for medical care, signature loans, and debts for other types of services.
Most automobile financing agreements allow a creditor to repossess your car any time you're in default. No notice is required. If your car is repossessed, you may have to pay the balance due on the loan, as well as towing and storage costs, to get it back. If you can't do this, the creditor may sell the car. If you see default approaching, you may be better off selling the car yourself and paying off the debt: You'll avoid the added costs of repossession and a negative entry on your credit report.
If you fall behind on your mortgage, contact your lender immediately to avoid foreclosure. Most lenders are willing to work with you if they believe you're acting in good faith and the situation is temporary. Some lenders may reduce or suspend your payments for a short time. When you resume regular payments, though, you may have to pay an additional amount toward the past due total. Other lenders may agree to change the terms of the mortgage by extending the repayment period to reduce the monthly debt. Ask whether additional fees would be assessed for these changes, and calculate how much they total in the long term.
If you and your lender cannot work out a plan, contact a housing counseling agency. Some agencies limit their counseling services to homeowners with FHA mortgages, but many offer free help to any homeowner who's having trouble making mortgage payments. Call the local office of the Department of Housing and Urban Development or the housing authority in your state, city, or county for help in finding a legitimate housing counseling agency near you, or U.S. Department of Housing and Urban Development at 800-569-4287; http://www.hud.gov/offices/hsg/sfh/hcc/hcc_home.cfm . For more information contact Federal Trade Commission, Consumer Response Center, 600 Pennsylvania Avenue, NW, Washington, DC 20580; 877-FTC-HELP; http://www.ftc.gov
An identity thief is someone who obtains some piece of your sensitive information, like your Social Security number, date of birth, address, and phone number, and uses it without your knowledge to commit fraud or theft. Skilled identity thieves use a variety of methods to gain access to your personal information. For example, they may: get information from businesses or other institutions by:
*stealing records or information while they're on the job *bribing an employee who has access to these records *hacking these records *conning information out of employees *rummage through your trash, the trash of businesses, or public trash dumps in a practice known as "dumpster diving" *get your credit reports by abusing their employers' authorized access to them, or by posing as a landlord, employer, or someone else who may have a legal right to access your report *steal your credit or debit card numbers by capturing the information in a data storage device in a practice known as "skimming." They may swipe your card for an actual purchase, or attach the device to an ATM machine where you may enter or swipe your card. *steal wallets and purses containing identification and credit and bank cards*steal mail, including bank and credit card statements, new checks, or tax information *complete a "change of address form" to divert your mail to another location *steal personal information from your home *scam information from you by posing as a legitimate business person or government official
Once identity thieves have your personal information, they may go on spending sprees using your credit and debit card account numbers to buy "big-ticket" items like computers that they can easily sell ; open a new credit card account, using your name, date of birth, and Social Security number. But when they don't pay the bills, the delinquent account is reported on your credit report. They may change the address on the new credit card so it will take you awhile to realize there's a problem. They also can take out auto loans in your name, open bank accounts, and more.
You can protect yourself by keeping an eye on your purse or wallet, never carry your Social Security card, and don't share personal information with people you don't know. Report any suspicious activity on your accounts and tear up or shred documents before you put them in the trash.
You can tell if you are a victim of identity theft if you see unexplained charges on your account; you don't receive a bill; you receive credit cards you didn't apply for; or if debt collectors start to call.
If you are a victim you must call and send a certified letter to all consumer reporting companies. Place a fraud alert on your credit reports and review these reports carefully. Equifax: 1-800-525-6285; equifax.comExperian: 1-888-EXPERIAN (397-3742); experian.comTransUnion: 1-800-680-7289; transunion.com
Make sure you close all accounts you believe have been tampered with, and call and write a certified letter to the company notifying them of the fact. Also file a report with your local police department, as well as file a complaint with the Federal Trade Commission. You can file a complaint online at www.ftc.gov/idtheft. If you don't have Internet access, call the FTC's Identity Theft Hotline, toll-free: 1-877-IDTHEFT (438-4338); TTY: 1-866-653-4261; or write: Identity Theft Clearinghouse, Federal Trade Commission, 600 Pennsylvania Avenue, NW, Washington, DC 20580.For more information, see ID Theft: What's It All About or Take Charge: Fighting Back Against Identity Theft at www.ftc.gov//idtheft.
If you fall behind in repaying your creditors, you may be contacted by a debt collector. These collectors must follow strict rules and guidelines. Any debts, such as personal family, household, automobile, medical care, and charge accounts are covered under the Fair Debt Collection Practices Act. A collector may contact you by phone, in person, by telegram, or fax. But they may not do so before 8 a.m. or after 9 p.m. without your permission. The collector is also not allowed to contact you at your place of work if your employer disapproves. You can stop the debt collector from contacting you by sending a note to the debt collector asking them to stop. The collector can then only notify you that they are stopping or what specific action will be taken on your account (such as suing you). The collector can contact others about you to find out where you live, but they may not tell people you owe them money. Within five days after you are first contacted, the collector must send you a written notice telling you the amount of money you owe; the name of the creditor to whom you owe the money; and what action to take if you believe you do not owe the money. Collectors are prohibited from harassment, such as threats of violence or use of foul language. They may not imply that they are attorneys or government representatives. Also they cannot tell you that you will be arrested if you do not pay your debt, and send you an official looking document from a court or government agency when it is not. You can actually sue a collector if they have violated the law and when up to $1,000 plus damages and attorney fees. Report any problems to your state Attorney General's Office and the Federal Trade Commission. To learn more contact the Federal Trade Commission at 877-FTC-HELP and you can file a complaint on the FTC website at https://www.ftccomplaintassistant.gov/ You can also see publications on Debt at http://www.ftc.gov/bcp/menus/consumer/credit/debt.shtm
When you finance a car, whoever loans you the money holds the title until the last payment has been made. If you are late on a car payment, the creditor can repossess your car without warning or any court action. They can even sell your contract to someone else and they can take your car. But some states have rules that limit the ways a creditor can repossess and sell a vehicle to reduce or eliminate your debt. If any of the rules are violated, the creditor may be required to pay you damages.
Once you default on your loan your creditor has legal authority to seize your vehicle. Read your contract carefully to find out what constitutes default. If your creditor agrees to change your payment date or other contractual obligations, get it in writing. Your original contract might possibly no longer apply. Creditors are allowed on your property to repossess your car, but they may not commit a breach of peace. Sometimes going into a closed garage is considered a breach of peace.
If your car is repossessed, it can be sold, but in some states you must be notified of the sale. You may be able to buy back your car by paying the amount owed plus any expenses. Some states say that creditors may not sell person property found inside the car. If you car is not sold for an amount that completely covers your obligations, you can be sued for the remaining money owed.
Make sure to talk to your creditor if you are going to be late on a payment. They may be willing to work with you. If you know you cannot afford the payments, you may reduce your creditor's expenses if you voluntarily agree to repossession. To learn more go to the Federal Trade Commission's website at http://ftc.gov/bcp/menus/consumer/autos.shtm To file a complaint against a creditor go to https://www.ftccomplaintassistant.gov/ For more information contact Federal Trade Commission, Consumer Response Center, 600 Pennsylvania Avenue, NW, Washington, DC 20580; 877-FTC-HELP; http://www.ftc.gov
Turning to a business that offers help in solving debt problems may seem like a reasonable solution when your bills become unmanageable. Be cautious. Before you do business with any company, check it out with your local consumer protection agency or the Better Business Bureau in the company's location. Whether your debt dilemma is the result of an illness, unemployment, or overspending, it can seem overwhelming. In your effort to get solvent, be on the alert for advertisements that offer seemingly quick fixes. And read between the lines when faced with ads in newspapers, magazines, or even telephone directories.
While the ads pitch the promise of debt relief, they rarely say relief may be spelled b-a-n-k-r-u-p-t-c-y. And although bankruptcy is one option to deal with financial problems, it's generally considered the option of last resort. The reason: it has a long-term negative impact on your creditworthiness. A bankruptcy stays on your credit report for 10 years, and can hinder your ability to get credit, a job, insurance, or even a place to live. What's more, it can cost you attorneys' fees. For more information contact Federal Trade Commission, Consumer Response Center, 600 Pennsylvania Avenue, NW, Washington, DC 20580; 877-FTC-HELP; http://www.ftc.gov
Living paycheck to paycheck? Worried about debt collectors? Can't seem to develop a workable budget, let alone save money for retirement? If this sounds familiar, you may want to consider the services of a credit counselor. Many credit counseling organizations are nonprofit and work with you to solve your financial problems. But beware - just because an organization says it is "nonprofit" doesn't guarantee that its services are free or affordable, or that its services are legitimate. In fact, some credit counseling organizations charge high fees, some of which may be hidden, or urge consumers to make "voluntary" contributions that cause them to fall deeper into debt.
Reputable credit counseling organizations advise you on managing your money and debts, help you develop a budget, and usually offer free educational materials and workshops. Their counselors are certified and trained in the areas of consumer credit, money and debt management, and budgeting. Counselors discuss your entire financial situation with you, and help you develop a personalized plan to solve your money problems. An initial counseling session typically lasts an hour, with an offer of follow-up sessions.
A reputable credit counseling agency should send you free information about itself and the services it provides without requiring you to provide any details about your situation. If a firm doesn't do that, consider it a red flag and go elsewhere for help.
Once you've developed a list of potential counseling agencies, check them out with your state Attorney General, local consumer protection agency, and Better Business Bureau. They can tell you if consumers have filed complaints about them. (But even if there are no complaints about them, it's not a guarantee that they're legitimate.) The United States Trustee Program also keeps a list of credit counseling agencies that have been approved to provide pre-bankruptcy counseling. After you've done your background investigation, it's time for the most important research - you should interview the final "candidates."
Here are some questions to ask to help you find the best counselor for you.
What services do you offer? Look for an organization that offers a range of services, including budget counseling, and savings and debt management classes. Avoid organizations that push a debt management plan (DMP) as your only option before they spend a significant amount of time analyzing your financial situation.
Do you offer information? Are educational materials available for free? Avoid organizations that charge for information.
In addition to helping me solve my immediate problem, will you help me develop a plan for avoiding problems in the future?
What are your fees? Are there set-up and/or monthly fees? Get a specific price quote in writing.
What if I can't afford to pay your fees or make contributions? If an organization won't help you because you can't afford to pay, look elsewhere for help.
Will I have a formal written agreement or contract with you? Don't sign anything without reading it first. Make sure all verbal promises are in writing.
Are you licensed to offer your services in my state?
What are the qualifications of your counselors? Are they accredited or certified by an outside organization? If so, by whom? If not, how are they trained? Try to use an organization whose counselors are trained by a non-affiliated party.
What assurance do I have that information about me (including my address, phone number, and financial information) will be kept confidential and secure?
How are your employees compensated? Are they paid more if I sign up for certain services, if I pay a fee, or if I make a contribution to your organization? If the answer is yes, consider it a red flag and go elsewhere for help.
If your financial problems stem from too much debt or your inability to repay your debts, a credit counseling agency may recommend that you enroll in a debt management plan. A DMP alone is not credit counseling, and DMPs are not for everyone. Consider signing on for one of these plans only after a certified credit counselor has spent time thoroughly reviewing your financial situation, and has offered you customized advice on managing your money. Even if a DMP is appropriate for you, a reputable credit counseling organization still will help you create a budget and teach you money management skills.
You deposit money each month with the credit counseling organization. The organization uses your deposits to pay your unsecured debts, like credit card bills, student loans, and medical bills, according to a payment schedule the counselor develops with you and your creditors. Your creditors may agree to lower your interest rates and waive certain fees, but check with all your creditors to be sure that they offer the concessions that a credit counseling organization describes to you. A successful DMP requires you to make regular, timely payments, and could take 48 months or longer to complete. Ask the credit counselor to estimate how long it will take for you to complete the plan. You also may have to agree not to apply for - or use - any additional credit while you're participating in the plan.
Is a DMP Right For You? In addition to the questions already listed, here are some other important ones to ask if you're considering enrolling in a DMP.
Is a DMP the only option you can give me? Will you provide me with on-going budgeting advice, regardless of whether I enroll in a DMP? If an organization offers only DMPs, find another credit counseling organization that also will help you create a budget and teach you money management skills.
How does your DMP work? How will you make sure that all my creditors will be paid by the applicable due dates and in the correct billing cycle? If a DMP is appropriate, sign up for one that allows all your creditors to be paid before your payment due dates and within the correct billing cycle.
How is the amount of my payment determined? What if the amount is more than I can afford? Don't sign up for a DMP if you can't afford the monthly payment.
How often can I get status reports on my accounts? Can I get access to my accounts online or by phone? Make sure that the organization you sign up with is willing to provide regular, detailed statements about your account.
Can you get my creditors to lower or eliminate interest and finance charges, or waive late fees? If yes, contact your creditors to verify this, and ask them how long you have to be on the plan before the benefits kick in.
What debts aren't included in the DMP? This is important because you'll have to pay those bills on your own.
Do I have to make any payments to my creditors before they will accept the proposed payment plan? Some creditors require a payment to the credit counselor before accepting you into a DMP. If a credit counselor tells you this is so, call your creditors to verify this information before you send money to the credit counseling agency.
How will enrolling in a DMP affect my credit? Beware of any organization that tells you it can remove accurate negative information from your credit report. Legally, it can't be done. Accurate negative information may stay on your credit report for up to seven years.
Can you get my creditors to "re-age" my accounts - that is, to make my accounts current? If so, how many payments will I have to make before my creditors will do so? Even if your accounts are "re-aged," negative information from past delinquencies or late payments will remain on your credit report.
The following steps will help you benefit from a DMP, and avoid falling further into debt.
Debt negotiation is not the same thing as credit counseling or a DMP. It can be very risky and have a long term negative impact on your credit report and, in turn, your ability to get credit. That's why many states have laws regulating debt negotiation companies and the services they offer.
Debt negotiation firms may claim they're nonprofit. They also may claim that they can arrange for your unsecured debt - typically, credit card debt - to be paid off for anywhere from 10 to 50 percent of the balance owed. For example, if you owe $10,000 on a credit card, a debt negotiation firm may claim it can arrange for you to pay off the debt with a lesser amount, say $4,000.
The firms often pitch their services as an alternative to bankruptcy. They may claim that using their services will have little or no negative impact on your ability to get credit in the future, or that any negative information can be removed from your credit report when you complete the debt negotiation program. The firms usually tell you to stop making payments to your creditors and instead, send your payments to the debt negotiation company. The firms may promise to hold your funds in a special account and pay the creditors on your behalf.
Just because a debt negotiation company describes itself as a "nonprofit" organization, there's no guarantee that the services they offer are legitimate. There also is no guarantee that a creditor will accept partial payment of a legitimate debt. In fact, if you stop making payments on a credit card, late fees and interest usually are added to the debt each month. If you exceed your credit limit, additional fees and charges also can be added. All this can quickly cause a consumer's original debt to double or triple. What's more, most debt negotiation companies charge consumers substantial fees for their services, including a fee to establish the account with the debt negotiator, a monthly service fee, and a final fee of a percentage of the money you've supposedly saved.
While creditors have no obligation to agree to negotiate the amount a consumer owes, they have a legal obligation to provide accurate information to the credit reporting agencies, including your failure to make monthly payments. That can result in a negative entry on your credit report. And in certain situations, creditors may have the right to sue you to recover the money you owe. In some instances, when creditors win a lawsuit, they have the right to garnish your wages or put a lien on your home. Finally, the Internal Revenue Service may consider any amount of forgiven debt to be taxable income.
Steer clear of debt negotiation companies that:
- guarantee they can remove your unsecured debt - promise that unsecured debts can be paid off with pennies on the dollar - require substantial monthly service fees - demand payment of a percentage of savings - tell you to stop making payments to or communicating with your creditor require you to make monthly payments to them, rather than with your creditor - claim that creditors never sue consumers for non-payment of unsecured debt - promise that using their system will have no negative impact on your credit report- claim that they can remove accurate negative information from your credit report. If you decide to work with a debt negotiation company, be sure to check it out with your state Attorney General, local consumer protection agency, and the Better Business Bureau. They can tell you if any consumer complaints are on file about the firm you're considering doing business with. Also, ask your state Attorney General if the company is required to be licensed to work in your state and, if so, whether it is.