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CONSUMER ISSUES

May 5, 2009 - Beware of Debt Negotiators

With so many Americans out of work and finding it impossible to keep up with their credit card bills, there has been a proliferation of debt negotiators out peddling their services.

Some of these debt negotiators are honest and sincere but many are not. Either way it is highly unlikely that they will be able to formulate a workable plan for many reasons. First if a consumer can't afford the minimum payments on his credit cards they won't have cash for discounted settlements nor will they be able to spare any income for long term payouts. Often debt negotiators will be overly optimistic and lead consumers into a plan that is totally unrealistic and only exacerbates their perilous situation.

The truth is many of these debt negotiators care little about the consumers they claim to be helping. Some are interested only in the nice fat fee they ask for upfront, others are funded by the credit card industry itself, and others have unrealistic expectations from the consumers they represent.

In my experience when you find yourself buried in debt there are only three options. One is to drastically increase your income. This is possible by getting a better job or taking on a second one. This isn't usually a realistic solution. A second option is to quit paying the debt and hiding from creditors. Many consumers take this second option, however, it isn't very satisfactory either as creditors will try to make their lives a living hell. The only sensible option for most is bankruptcy.

Many people delay filing bankruptcy hoping for a miracle. This delay usually only makes matters worse and subjects them to unnecessary stress and anxiety. Long term stress of this type can result in divorce and even suicide.

Bottom line, if a consumer is overhead in debt they should avoid debt negotiators and file bankruptcy without delay before their financial predicament scars them for life.

April 26, 2009 - Debt Collector Put Out of Business In Texas

It was a good week, we put a predatory debt collector out of business in Texas...

The court enjoined the collector from engaging in business in the State of Texas until they posted a bond with the secretary of state. In Texas, as is probably the case in many other states, a debt collector must register with the secretary of state and post a bond in order to do business in the state. In this particular instance the debt collector was trying to collect a debt that had been discharged in bankruptcy. This is not uncommon, as delinquent debts are traded in the marketplace like stocks and bonds. Creditors package a large number of debts and then sell them to debt buyers for pennies on the dollar. For instance, in a recent case I was involved in the debt buyers paid approximately $750,000 for 17 million dollars in debt.

The buyers are supposed to scrub the accounts to make sure the debtors haven't filed bankruptcy, but they don't always do it. Typically the debt buyers then hire collection agencies to collect the debt. These collection agencies have a duty to scrub the account for bankruptcies too, but often don't or ignore the result. If the collector doesn't collect the debt within a reasonable time the debtor buyer takes it back and sends it out to another collector.

The problem for consumers is a debt may change hands four or five times without notice such and each one may send it to a different collection agency! That's why they don't recognize the account when the collector starts calling them or sending letters. Frustrated consumers often pay discharged debt just to get relief or to improve their credit score so they can get a car or a house loan.


To make matters worse many of these collection agencies will report the debt on the consumers credit report. When the account is returned to the debt buyer they don't always report the transfer. If the next collection agency reports the debt the result is two blights on the consumers credit for the same debt. This could go on and on. I have seen the same debt reported three or four times on a debt that wasn't even collectible.

This kind of behavior is in violation of the bankruptcy discharge injunction as well as many state consumer statutes like the Texas Finance Code. Offenders can be sued by consumers in the bankruptcy court or under state law and recovery damages. Damages can include mental distress, loss of time, statutory damages as well as punitive damages if the action will willful or intentional.

March 13, 2009 - Bankruptcy May Improve Your Credit

Believe it or not, filing bankruptcy may actually improve your credit...
 
One of the misconceptions about filing bankruptcy is the belief that it will destroy the filer's credit. The truth is filing bankruptcy often will improve a persons credit and certainly, in the long run, be very beneficial to your credit score. Typically the bankruptcy filer will already have bad credit. Credit cards, medical bills, and installments loans are often behind or the debtor has quit making payments altogether. If nothing is done his credit will not improve for at least 10 years, and often longer since the ten years that adverse credit can remain on a credit report only starts when the customer quits making payments. Bankruptcy, however, often will be the beginning of a healing process. After much of a person's debt has been discharged, the person becomes a much better credit risk and his or her credit score will begin to improve, assuming the person is employed and doesn't run up a bunch of new debt after the bankruptcy. 
 
This improvement in the bankruptcy filer's credit will only happen, however, if the creditors properly report the debtor's credit. Unfortunately, often this isn't the case. It's important to check your credit after bankruptcy to be sure the debt is listed as "discharged in bankruptcy" and a balance of "zero."  If this isn't the case not only will the adverse impact of a bankruptcy be on your credit, but also all of your old blemishes that should have been removed. A consumer can dispute adverse credit themselves, but often creditors don't correct the adverse reporting. Your best bet is get professional help in the beginning. This shouldn't cost you any money as the law provides that attorney's fees are recoverable if it becomes necessary to sue a credit to force compliance with the credit laws.