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Understand the debt relief tools available to you.

Debt Relief? We’ve all seen the television commercials and internet advertisements promising to slash your credit card debt or medical bills in half or even repair your credit rating. You might be wondering if this is really possible? Well, it is indeed possible but it should be understood that not everybody can have their debt “settled” or their credit instantly repaired. While some people do benefit from such forms of immediate debt relief, others must engage in a slower more deliberate process that might take some time to achieve. Each person’s circumstances are unique and should be reviewed in detail before any proposed remedies can be identified. In that spirit, debt settlement services who promise quick savings without ever speaking to your creditors or without reviewing your financial situation should be avoided. See FTC Caution (Debt Settlement Services). Likewise, credit repair companies who make bold promises to remove negative credit reporting should also be avoided; only inaccurate or unsubstantiated information can be removed immediately from your credit report. See FTC Caution (Credit Repair Services). For those who don’t qualify for such forms of immediate relief don’t fret, credit repair and debt elimination can still be achieved through a variety of debt relief tools including credit counseling, debt management plans, debt validation, loan consolidation, refinancing, or bankruptcy. Before embarking upon any of these debt relief options you should consult with an attorney or educate yourself about your legal rights. Similarly, you should be aware that certain debt relief practices can be risky lead to late fees, higher interest rates, negative credit ratings, taxes, arbitrations, repossessions, foreclosures, or lawsuits.

Stop Debt Collectors! One form of immediate relief available to every consumer is the right to stop collection calls and letters, regardless of how much money you owe or how many payments you are behind. § 805(c) of the Federal Fair Debt Collection Practices Act. Indeed the Federal Government enacted the Fair Debt Collection Practices Act ("FDCPA") to protect people from harassment and abuse by creditors and collection agents. The Federal government recognizes that abusive debt collection practices contribute to the number of personal bankruptcies, to marital instability, to the loss of jobs, and to invasions of individual privacy. To combat unfair and deceptive collection practices, the government makes it illegal for debt collectors to do certain things. Essentially, a debt collector may not engage in any conduct which harasses, oppresses, or abuses any person in connection with the collection of a debt. Examples of such illegal conduct include the following and carry a potential $1,000 penalty:

  • Informing others that you owe a debt
  • Communicating by post card
  • Indicating on an envelope that mail is from a debt collector
  • Communicating directly with a person known to be represented by an attorney
  • Telephoning you at inconvenient times (e.g. before 8am or after 9pm)
  • Calling your workplace if you had instructed them not to call you there
  • Contacting you if you had already stated that you refuse to pay the debt
  • Contacting you if you had asked the debt collector to no longer contact you
  • Threatening violence, physical harm, harm to reputation, or harm to property
  • Using obscene or profane language
  • Causing a telephone to ring or engaging any person in telephone conversation repeatedly or continuously with intent to annoy, abuse, or harass you
  • Failing to identify the callers identity
  • Making false representations concerning the amount of debt or the legal status of the debt
  • Implying that the debt collector is an attorney when they are not
  • Implying that the debt collector is with the government when they are not
  • Suggesting that you could be arrested or sent to prison

 How Do You Stop Debt Collectors From Contacting You? Many people wrongfully assume that collection calls and letters are a necessary part of the debt process. Some people may even believe that they deserve to be harassed by debt collectors simply because they are behind in their payments. Nobody should be subjected to unwanted calls and letters nor do they need to be. Federal Laws exist to stop unwanted communications by debt collectors, regardless of how much money you owe or how many payments you’ve missed. If you notify a debt collector (in writing) that either: 1) you refuse to pay a debt or 2) you want the debt collector to cease further communication attempts; that debt collector is required by law to stop all communications with you except to notify inform you if they plan to take any further action (e.g., file a lawsuit or arbitration). § 805(c) of the Fair Debt Collection Practices Act. Essentially, the FDCPA does not allow debt collectors to bother you if you ask them in writing to leave you alone. Another layer of protection from debt collectors can be achieved by hiring an attorney. Once a debt collector is notified that you have hired an attorney, that debt collector is forbidden from communicating directly with you again; instead they must now speak with your attorney. § 805(a)(2) ofthe Fair Debt Collection Practices Act. On that same note, if you advise a debt collector that your employer does not allow you to receive collections communications at your place of work, the debt collector is prohibited from contacting you there. § 805(a)(3) of the Fair Debt Collection Practices Act. If a debt collector ignores any of these privacy laws and continues to call you or send you letters, they can held responsible for any damages caused to you (including your attorney’s fees) plus they can be fined up to $1,000 per infraction. Some Courts have even punished violators by eliminating the entire balance of the debt they were trying to recover. It is important to note, stopping debt collectors from contacting you will not by itself eliminate your debt nor improve your credit, it does however provide you with privacy and peace of mind at home and work so that your financial problems do not overtake your life.

Why Hire a Debt Relief Attorney? You may be thinking that lawyers are useful only for car accidents and bad jokes. You may also be thinking that you can’t afford an attorney or that you can’t possibly justify adding yet another expense to the growing list of bills that threaten to drown you month after month. A debt relief attorney can be more affordable then you realize and oftentimes will offer a variety of payment options. Some attorneys charge a flat fee, others charge an hourly rate. Still other debt relief attorneys offer what is called a reverse contingent fee where they earn a percentage of whatever debt is successfully eliminated (i.e. you don’t pay them unless they save you money). Not only can a debt relief attorney negotiate settlements with creditors and fight bill collectors, but the attorney can also provide you with invaluable counseling, advising you of your legal rights and identifying any potential risks with your debt relief plan. When selecting an attorney, be sure to find out whether or not that attorney charges a fee for initial consultations, you will find that many attorneys offer free consultations. At a time when your life is being overtaken by bills and bill collectors, a debt relief attorney can be considered an investment in your financial freedom rather than another expense.

What is A Debt Management Plan? It is important to understand your debt to income ratio and develop a realistic goal to reduce or eliminate your debt. A debt management plan is a debt relief tool that helps realize that goal. Generally, a debt management plan is a formal arrangement with your creditors to pay down your debt over a fixed period of time. Oftentimes, creditors will agree to a lower interest rate or term out the debt with no interest to help realize that goal. Why would a creditor agree to this you might ask, because the alternative could be bankruptcy where the creditor receives pennies on the dollar if anything at all. Many debt relief agencies not only negotiate debt relief plans with your creditors, but also serve as the middle man in making your monthly payments allowing you centralize those payments with one entity each month rather than paying a number of bills to various creditors. If you select this service, be sure to periodically track your account balance with the creditors to ensure that the debt relief agency is performing their duties. A debt management plan is also an effective tool to understanding and regulating how your debt came into existence in the first place. The first step to developing a debt management plan is to inventory of all of your bills. Make a list of everyone you owe (including their account numbers and contact information), how much money you still owe, when your payments are due, what interest and late fees you are charged, and how much credit is still available (if any). It is also important to identify your spending tendencies; obtain a copy of your bank records over the last 18 months. Next, identify any assets you have available (e.g., income, real estate equity, retirement plans, social security or disability payments, alimony or child support payments, unemployment compensation, welfare, insurance policies, bank accounts, settlements, tax returns, etc.). Gather all documentation you have concerning these debts and assets, especially any written agreements you have with the creditors themselves. Organization and awareness of your debt is one of the principles of a sound debt management plan.

How Does Debt Settlement Work? Debt Settlement is a complicated process with a number of different aspects. Most commonly, debt settlement is accomplished by an agreement with your creditors to eliminate your debt for a certain amount of money paid at once rather than paid over an extended period of time. For example, if you owe $10,000 in credit card or medical bills, you might be able to eliminate that debt by making a one-time payment of $4,000 (i.e. 40%). Strangely enough, collecting 40% at once might be more profitable to a creditor then trying to collect 100% over an extended period of time. This is due in part to a principle called the Time Value of Money. Still other reasons that influence a creditor to settle debt rather than try to receive 100% over time include: 1) overhead reduction (i.e. the creditor will not have to pay someone to process payments month after month) and 2) risk reduction (i.e. there is always a chance that you could become incapable of making payments in the future). Debt settlement pay off percentages will vary from creditor to creditor, some might settle for as low as 40% of the total debt while others demand as high as 80%. Still other creditors might not agree to settle at all, insisting instead on collecting the full 100%. Aside from convincing your creditors to agree to the settlement, the second major difficulty with debt settlement is identifying a source of funding to satisfy the debt payoff figure. If you own a home, an equity line of credit might be a perfect resource for the debt settlement. In appropriate circumstances, it might be advisable to cash in a retirement plan or transfer your debt to another source of credit. Another form of debt settlement is achieved by consolidation, combining multiple (higher interest) debts into fewer accounts at lower interest rates. With consolidation, you benefit not only by the lower interest rates (which translates into lower monthly payments) but you also have less bills to manage each month meaning you are less likely to skip a payment or incur a late fee. A debt relief attorney can work with your finances to help identify reliable and safe sources of funding for debt settlement and consolidation. A debt relief attorney can also point out the risks involved with debt settlement and consolidation such as tax consequences or negative credit reporting.

What Does Debt Validation Mean? Debt validation is the process of verifying that you do indeed owe a particular debt. It can be a powerful weapon in fighting creditors and their collection agents. Within five days of its first communication to you, the debt collector is responsible for sending you a debt validation notice; informing you of the right to dispute the validity of the debt. § 809 of the Fair Debt Collection Practices Act. Should you elect to dispute a particular debt (or any portion of it) and send a written debt validation request to a debt collector, the collection agency must send you proof that it owns or has been assigned the debt by the original creditor. The form of verification required to establish that you owe the debt includes an accurate accounting of the amount of that debt. It also requires documentation from original creditor. It is not enough for the collection agency to simply send you a printout of the amount owed. If the debt collector does not verify the debt within 30 days, it is not allowed to continue collecting the debt from you nor can it list the debt on your credit report. Should the debt collector list the debt on your credit report, you can dispute the debt with the credit bureau by sending the credit bureau a copy of your debt validation letter along with the certified and return receipts. See Credit Debt Management Article. Another way to validate the legitimacy of a debt collection attempt is to see if the debt collector has complied with all licensing and bonding requirements within your state. If they have not, their collection attempts might not be authorized and could violate the Fair Debt Collection Practices Act. Similarly, if the debt collector is pursuing a debt that he or she is not legally capable of collecting (e.g., the statute of limitations has expired) collection attempts might not be authorized. Validation embodies all of these concepts, it not only ensures the legitimacy and accuracy of a debt itself but also keeps the collection practice honest

Why You Shouldn’t Fear Bankruptcy? Debt collectors (as well as some debt relief services) will routinely scare you away from filing bankruptcy citing the fact that it could damage your credit rating for several years. Unfortunately, if you are behind on your bills and swimming in debt, chances are good that your credit rating may already be damaged. Bankruptcy will probably not make things any worse. The fact that you filed bankruptcy, if properly explained, may be less damaging than a history of unpaid accounts. The fact that you have filed a bankruptcy will appear on your credit record for ten years. But since bankruptcy wipes out your old debts, you are likely to be in a better position to pay your current bills, and you may be able to build new credit. Under the federal bankruptcy statute, a “discharge” is a release of the debtor from responsibility for certain types of debts. In other words, you are no longer required by law to pay any debts that are discharged. Generally, two types of personal bankruptcy filings exist (i.e. Chapter 7 or Chapter 13). People file chapter 7 bankruptcy if they have a large amount of unsecured debt such as credit card debt or medical expenses that they are no longer able to pay. Often unemployment, unexpected medical expenses, or divorce prompts the debtor to seek protection from creditors by filing chapter 7 bankruptcy. Chapter13 filing, on the other hand is designed for people who have valuable assets that they wish to keep (e.g. a car or a home). Essentially, it is a plan showing how you will pay off some of your past-due and current debts over a period of three to five years. Bankruptcy is not the solution for everybody, a debt relief attorney can help provide guidance on whether or not bankruptcy might be an option for you. As noted above, a host of non-bankruptcy debt relief options are also available

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Crawford Law Firm
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