Debt Avoidance

 

When the phone is ringing day and night and you cannot make your payments on your unsecured debts, you may be tempted to do nothing. After all, the entire end result does seem out of your hands. We have all been there, one time or another. The fear and lack of information can freeze your ability to correctly address the problem. Let’s look at the list of what happens when you do nothing.

Creditor Calls-

At first you will get a call from your original creditor. The collections department of the credit card company or the doctor’s office will call you in the first 30 days of missed payment. If you cannot make a payment then your original creditor will attempt to make payment arrangements with you.

If you cannot make those new arranged payments, your original creditor will sell your debt. Now when they sell your debt, they sell it to a collection agency. These agencies buy your debt for approximately 20 cents on the dollar. The collection agency makes their money on the ‘spread’, which is the difference of what they paid for your debt, and the new total of your debt. The collection agencies make their money by calling you and getting your promise to pay your debt. By this time your debt has changed hands and accrued interest and penalties. In addition the new holder of your debt can be registered on your credit report.

This is when you start to screen all calls and dread the sound of your phone ringing. And why do you dread it? The collector will sound anywhere from a friend who will listen to your story of woe, only to back you into some unrealistic repayment plan, to a crazed insulting lunatic who will try to scare you into an unrealistic repayment plan. How do I know? I have lived it.

These are some of the guidelines the FTC, Federal Trade Commission, require collection agencies to adhere: (ftc.gov) http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre27.pdf
Use this link to read the guidelines.

The next Step  is – Law Suits

Oh, I just cringe when I have to even say the word. I have had clients who were planning to do ‘something’ about their debt; in the New Year, after their birthday, when they are planning to make a purchase, only to be served with a lawsuit. Some may take that chance, after all only a small percentage of debts are served. That is fine as long as the small percentage is not you.

The process of being served is not very straightforward. You might open the door to an unexpected pizza delivery only to open the box and be served with a lawsuit. Process Servers, those who hand you the papers, watch and learn your patterns of entering and leaving your home, place of business and any other frequented location. Process Servers are only paid with the number of papers they can serve, so their motivation is very high to find you!

In a lawsuit for your debt, if you fail to appear in court the creditor receives a default judgment against you. If you come to court the judge asks you if you owe the debt. The court is only concerned with the material fact that you do owe the debt. No discussion occurs whether or not you can pay the debt. In the courts view if you were able to pay your debt you would not be in front of a judge in the courtroom. That gives proper due process of law and a judgment will be ordered against you. This judgment will be recorded by the creditor in your credit score files at 1 or all 3 of the credit reporting companies: Experian, TransUnion and Equifax. Since you do owe the debt, the creditor receives the judgment against you. An attorney is not necessary to bring to court with you. However, if you chose to bring an attorney, the rate across the county is anywhere from $1,500 to $3,000 for representation. What if your debt is only $3,000 to the creditor who sued you? I had a potential client in that very spot. She owed Capital One $3,000, asked an attorney to take the case in Arizona where she resides and the attorney asked for a retainer of $3,000. Now she just doubled her debt load, without any plan to repay the debt. In addition my potential client could not qualify to place that debt in a program since she had been served with a lawsuit for the debt.

The third step – Wage Garnishment

Wage Garnishment – is an automatic sum that is deducted from your wage before you receive your wages. In other words the creditor who sues you gets first in line for your wage. The wage garnishment can be between 20% and 25% of your wage. The wage garnishment continues until the entire debt is paid.
Now your choices have become severely limited by the courts. And now that your first creditor has found you, others creditors will be able to locate you and get in line for wage garnishment. Can you live on 20% – 25% less income than you are currently earning?

See how the do nothing plan is really doing something? In the “Do Nothing Plan” you will not be the one in charge of what is done to you!

Every debt load is unique, feel free to call me for a free consultation. 512-919-2123.

This entry was posted on Thursday, June 17th, 2010 at 5:53 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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