Mitchell & Culp » Credit Card Debt Counseling

The Do Not Call Registry: Can It Stop Creditor Calls?

Heather Culp — Wed, 26 May 2010 17:39:07 +0000

Last week I wrote about creditors that text collections messages to debtors’ cell phones. We had a question from a reader about the legality of creditors using cell phones in light of the federal Do Not Call Registry. Specifically, if you place your cell phone on the Registry, are creditors prohibited from calling you?

The short answer is “no.”

Handling calls from creditors

When the National Do Not Call Registry was established it didn’t include any of the following:

Calls from businesses that you already have a relationship with
Calls for which you’ve already given written permission
Calls that aren’t commercial and don’t include unsolicited advertisements
Calls made by or on behalf of non-profit organizations

I know of no lenders or credit card companies that extend credit without the debtor granting permission for the creditor to use a third-party collector to collect any delinquent debt . So, ultimately, you gave permission for the collectors to call you when you got your loan or credit card. This means signing up for the national do not call list won’t stop calls from debt collectors.

Cease and desist

If you wish to stop debt collector calls, you should send a written cease and desist letter to the collector stating that you no longer wish to be contacted. Aside from paying the debt, or hiring an attorney to assist you, that’s the only way to try to get a debt collector to stop calling you.

Under both the federal and North Carolina versions of the Fair Debt Collections Practices Act (FDCPA), once a debtor has informed a creditor/collector that they do not wish to be contacted about a debt (by sending what’s commonly known as “cease and desist letter”), the creditor/collector may not continue to contact the debtor unless it’s to tell the debtor that some specific action is going to be taken.

Sometimes these work, sometimes they don’t. Violations of FDCPA do not constitute a defense to a valid debt owed, but they can be brought by way of counterclaim for separate damages, which are minimal (often just $1000.00 plus attorney’s fees).

If you are struggling to pay your debts, call a qualified bankruptcy attorney for a credit card counseling session or bankruptcy evaluation. Cease and desist letters are often band-aids for financial circumstances that require expertise.

Settle Debts or File For Bankruptcy Protection?

Heather Culp — Mon, 10 May 2010 11:27:23 +0000

Sometimes I think people read our blog and wonder if everything we say is designed to get people to stop trying to pay their debts and just file for bankruptcy protection. Then I come across a story like this about the downside of trying to settle debts either with or without involving a “debt settlement” company.

The article tells an all-too-familiar tale of spending money with a debt settlement company and then having to do the work yourself that you paid them to do on your behalf.

Debt settlement is a process in which a creditor agrees to accept less than the full amount owed and to consider the balance as paid. Regulators and others warn that if borrowers get involved with the wrong outfit, they could end up losing thousands of dollars, ruin their credit, and find themselves hounded and even sued by creditors and possibly forced into bankruptcy.

State regulators in Michigan, who are trying to get tougher laws enacted covering debt settlement firms, have warned that in some cases such companies have taken outrageously high upfront fees and just disappeared.

We always warn clients that companies and individuals offering debt settlement are often running afoul of the law — they are interested in making money off you, not actually giving you relief.

We always disclose to clients that debt settlements often give rise to debt forgiveness income, and that income can be taxable. Credit card settlements almost always give rise to debt forgiveness income; the credit card company will inform the IRS of the amount of the debt forgiven. Factor in the tax consequences of settling when considering debt settlement. If you cannot pay the taxes you will incur with the settlement, we do not recommend you enter into an agreement.

Credit card companies typically require a lump sum settlement paid in no more than four monthly installments, so debtors hoping to settle need to have a pile of cash at the ready. We NEVER advise clients to take money from retirement plans to settle their debts, a point which is also reinforced by the Star-Telegram article.

If you are unsure which direction is best for your given financial circumstances, call a qualified bankruptcy attorney for a credit card debt counseling or a bankruptcy counseling session.

I’ll Just Ignore the Certified Letters

Heather Culp — Fri, 16 Apr 2010 11:49:29 +0000

Some people think they can tie their creditors’ hands by ignoring requests for payment or by contesting their debts with a credit bureau. They also call our offices for help cleaning up their credit reports, which is not a service we offer.

If you wish to dispute an entry to your credit report, we suggest you use this letter guide, provided courtesy of the Consumer Credit Counseling Service of Orange County.

We advise sending the letter to all three bureaus (Equifax, TransUnion, and Experian), by certified mail, return receipt requested, and including your SSN and full legal name in the re: line.

These letters are the first step in trying to remove inaccurate information in a credit report. These letters will not result in the removal of accurate but negative information in a credit report; there is no procedure for such removal. ”Credit repair” and “credit clean-up” offers are that are commonly seen online, on the radio, on TV, etc. are scams.

Further, the mere sending of these letters, without any response from the creditor, does not constitute a defense to action by the creditor to seek payment for a valid debt that the borrower owes. We’ve had a few clients in recent months who incorrectly believe that sending these letters somehow cuts off their liability for a valid debt. This is incorrect.

If you have doubts about your liability for a debt or wish to approach your creditors to modify your debts, contact our offices or the offices of a qualified advisor for a credit card debt or bankruptcy counseling session.

Credit Report Disputes

Heather Culp — Fri, 19 Feb 2010 12:16:59 +0000

People often call our offices for help cleaning up their credit reports. We suggest they use this letter, provided courtesy of the Consumer Credit Counseling Service of Orange County.

We advise sending the letter to all three bureaus (Equifax, TransUnion, and Experian), by certified mail, return receipt requested, and including their SSN and full legal name in the re: line.

Sample Credit Report Dispute Letter

Today’s Date
Name of Credit Bureau
Mailing Address of Credit Bureau
City, State, Zip
Attention: Consumer Relations
I recently obtained a copy of my credit report from your service and have found the
following items to be in error.
EXAMPLES
Item #1: I dispute ABC National Bank account #12345. I have never been late on
this account.
Item #2: I dispute ABC Financial Services account #4545. This account was not a
charge-off, please delete.
According to Section 611 of the Fair Credit Reporting Act, I am requesting that you
re-investigate those items indicated, and promptly delete any unverifiable, inaccurate,
or outdated information from my credit report.
In addition, I am requesting a description of how the investigation was conducted
along with the name, address, and telephone number of anyone contacted for
information. Furthermore, if there is a change in my credit history resulting
from your investigation, I am requesting that an updated report be sent to those
who received my report, within the last two years for employment purposes, or
within the last one year for any other purpose.
My full name is:_______________________________________________________
My Social Security # is:_________________________________________________
My date of birth is:_____________________________________________________
My home phone number is:______________________________________________
My address is:__________________________ (Ave., St., etc.) APT:____________
City: ______________________________ State:_______ Zip Code:_____________
Please send me an updated copy of my report, and notification that items have been
deleted. I will consider 30 days a reasonable time for your re-verification of
these items.
Thank you for your prompt attention in this matter.
Sincerely,
Signature: ______________________________

This information is general and thus incomplete, and the reader should seek legal counsel for specific legal problems or questions.

Who Defaults, and Why?

Heather Culp — Fri, 18 Dec 2009 12:48:17 +0000

This month we’ve run a series for distressed homeowners and published NC foreclosure data. To round out our coverage on the topic I want to discuss a paper written by James E. Rogers of the University of Arizona’s College of Law because it runs counter to what people generally believe is happening with people “walking away” from their mortgages.

Professor Rogers says most homeowners continue to make their payments even when they are significantly underwater and suggests that most homeowners choose not to strategically default as a result of two emotional forces:

1) the desire to avoid the shame and guilt of foreclosure

2) exaggerated anxiety over foreclosure’s perceived consequences

Who’s walking away?

While reading that article, I recalled several news items detailing studies tending to show that borrowers with super-prime credit, and borrowers with larger mortgage balances, are far more likely to strategically default on a mortgage than either borrowers with lower credit scores or lower mortgage balances. For example, this article in the LA Times from September 2009:

The number of strategic defaults is far beyond most industry estimates — 588,000 nationwide during 2008, more than double the total in 2007. They represented 18% of all serious delinquencies that extended for more than 60 days in last year’s fourth quarter.
Strategic defaulters often go straight from perfect payment histories to no mortgage payments at all. This is in stark contrast with most financially distressed borrowers, who try to keep paying on their mortgage even after they’ve fallen behind on other accounts.
Strategic defaults are heavily concentrated in negative-equity markets where home values zoomed during the boom and have cratered since 2006. In California last year, the number of strategic defaults was 68 times higher than it was in 2005. In Florida it was 46 times higher. In most other parts of the country, defaults were about nine times higher in 2008 than in 2005.
Two-thirds of strategic defaulters have only one mortgage — the one they’re walking away from on their primary homes. Individuals who have mortgages on multiple houses also have a higher likelihood of strategic default, but researchers believe that many of these walkaways are from investment properties or second homes.
Homeowners with large mortgage balances generally are more likely to pull the plug than those with lower balances. Similarly, people with credit ratings in the two highest categories measured by VantageScore — a joint scoring venture created by Experian and the two other national credit bureaus, Equifax and TransUnion — are far more likely to default strategically than people in lower score categories.
People who default strategically and lose their houses appear to understand the consequences of what they’re doing. Piyush Tantia, an Oliver Wyman partner and a principal researcher on the study, said strategic defaulters “are clearly sophisticated,” based on the patterns of selective payments observable in their credit files. For example, they tend not to default on home equity lines of credit until after they bail out on their main mortgages, sometimes to draw down more cash on the equity line.

Tugging the heartstrings

Professor Rogers of Arizona says that the government and other social control agents actively cultivate the social and moral norms related to the honoring of financial obligations, which leads homeowners to ignore market and legal norms which might indicate that strategic default is both viable and the wisest financial decision. On the other hand, the norms governing lenders drive them to maximize profits or minimize losses irrespective of concerns of morality or social responsibility.

End result? Individual homeowners, not corporate entities, shoulder a disproportionate burden from the housing collapse.

Strategic Defaulting in North Carolina & South Carolina

The conclusion we draw from these studies and anecdotes, and from our own experiences, is that strategic defaulters tend to be more sophisticated and better educated about the consequences of strategic default — they do so with eyes wide open. We often see high earners with a high debt to income ratio, seeking advice now because they know an interest-only loan or other artificially low mortgage payment will reset within the next 18 months, resulting in a mortgage payment that they may not be able to afford.

In contrast, borrowers with lower credit scores and/or lower mortgage balances may tend to muddle through for longer, hoping that something will change.

When consulting with a bankruptcy attorney or financial advisor be sure to tell them how you FEEL about the options they lay before you. That level of candor is necessary to choose the best option among the many.

Surviving USAirways Layoffs & Furloughs

Heather Culp — Thu, 19 Nov 2009 17:39:30 +0000

Charlotte has fared better than other cities at the hands of USAirways, but it hasn’t been easy for those who’ve been laid off, furloughed or left doing the work of their former coworkers.

CEO Doug Parker says analysts predict the airline will lose $600 million this year and obviously such losses are untenable. Management will continue to explore ways to cut costs and grow revenues.

Seek Sound Advice

Our offices have seen an uptick in the number of USAirways employees seeking bankruptcy counseling, help negotiating with creditors and advice on short sales of their homes.

If you’re an employed airline employee in Charlotte, our advice is to walk a conservative financial path. Although management claims the Charlotte hub is a focus, the only sure things in life are death and taxes. These are extraordinary times for us all.

If you are laid off or furloughed, and are like 90% of Americans who are unaccustomed to budgeting, investigate a budgeting and money management course.

Get Control of Your Assets

If you have no idea how you are going to pay your mortgage and other debts in the short or long run, call our offices immediately. We will counsel you on your legal rights and, if appropriate, provide you with asset planning and protection strategies to implement while you look for another job or restructure your financial life. People too often consult us much later than they should, which limits their options.

We know how much you’re resisting calling a “bankruptcy lawyer.” The earlier you call, the more options you have to avoid bankruptcy.

Credit Score News

Heather Culp — Fri, 25 Sep 2009 02:47:28 +0000

This week’s USAToday ran a helpful story analyzing changes in credit scoring in the face of developments in this Great Recession. Highlights:

Lenders are closing credit card accounts and lowering credit limits for millions of consumers and business owners who have never paid late. Some lenders are reporting mortgage modifications in a way that dings consumers’ scores, dealing a setback to those trying to get their finances on track.
More lenders also are adopting a new scoring model the financial industry believes is better at predicting risk — but that could move consumers’ scores more than 20 points up or down.
Lenders say they’re taking steps to reduce their risk in a difficult economy. Some admit they’re concerned about the impact of their actions on consumers’ credit scores but say they have no control over how scores are determined. But consumer advocates say regulators and Congress need to address lender actions that are unintentionally hurting credit scores. They say that as underwriting standards tighten, even a small change in a credit score could affect what rate consumers get on a loan — if they get one at all. Some analysts also say the fact that consumers’ credit scores can fall even if they’ve never missed a payment or exceeded their credit limits raises questions about the score’s usefulness.

If you are struggling with your debts, call us for a Credit Card Debt Counseling session before agreeing to a debt settlement proposed by your lenders.

Credit Card Regulations Changed

Heather Culp — Mon, 24 Aug 2009 16:08:56 +0000

Immediately, several new federal regulations on credit card issuers become effective, including:

Creditors will be allowed to avoid future interest-rate increases and pay off any outstanding balance over time under the original rate terms.
Bills must be mailed at least 21 days before their due dates and provide at least 45 days’ notice before making a significant change to their rates or fees. Currently, banks are generally required to mail billing statements at least 14 days in advance and provide a 15-day notice of altered fees or rates.
Banks no longer allowed to increase fees and rates without warning when a consumer misses a payment or exceeds a credit limit.

NOTE: To work around these changes, credit card issuers such as Bank of America Corp., J.P. Morgan Chase & Co.’s Chase Card Services and Discover Financial Services, recently converted customers’ fixed rates to variable ones. This makes it easier to increase rates without notifying customers.

According to the Wall Street Journal, “The bulk of the legislation’s key provisions will take effect in February 2010, including limits on interest-rate increases on existing balances. The following July will see the introduction of new disclosure rules, drafted and approved by the Federal Reserve Board and other banking regulators.”

If you are struggling to pay your credit cards (or any debts) consider a credit card/debt counseling session with myself or my law partner, Rick Mitchell.

Small Businesses and Credit Cards

Heather Culp — Mon, 17 Aug 2009 16:54:37 +0000

Since our firm is a member of the Better Business Bureau, I read the BBB’s weekly updates. This week the BBB recommended an article on small businesses and credit cards that got my attention because it mirrors what we see with our small business clients who come in for credit card counseling and bankruptcy counseling.

Wisdom from the Kauffman Foundation

According to a study released by the Kauffman Foundation, every $1,000 increase in credit card debt increases the probability a firm will close by 2.2 percent.

This is not to say that using a credit card to start a business means it will fail, since about 58 percent of the firms in the survey sample used credit cards in their first year of operations.

“Credit card debt alone doesn’t determine how stable a business will be, but it does appear to be a significant influencer in the company’s probability of survival.”

Bringing it home to your small business

At a time when small business lending has decreased, many small businesses have nowhere to turn but credit cards.

If you are facing difficulty paying your credit cards on time or in full, call our offices for advice on how to proceed. We understand all aspects of credit law and will guide you in making the right decisions, whether that entails negotiating on your behalf with creditors, restructuring your business or confirming for you that the path you’re on makes the best sense.

Business owners with accurate information always make better decisions than those who listen to the advice of their creditors.

I want to file a “medical bankruptcy”

Heather Culp — Wed, 05 Aug 2009 01:58:06 +0000

We get calls asking for a “medical bankruptcy” nearly every day.

There is no such thing.

Medical bills are similar to credit cards — unsecured debt

When you file for bankruptcy protection, your medical creditors are in your filing alongside all the others, including credit cards, vehicles, real estate, business loans you guaranteed, etc.

That said, medical bills are often a factor in the decision to file for bankruptcy protection.

Harvard Medical & Law Schools’ joint findings

The average out-of-pocket medical debt for those who filed for bankruptcy was $12,000.
68 % of those who filed for bankruptcy had health insurance. 50% of all bankruptcy filings were partly the result of medical expenses.
Every 30 seconds in the United States someone files for bankruptcy in the aftermath of a serious health problem.
More than 90% of medically related bankruptcies were caused by high medical bills directly or medical costs that were so high the family was forced to mortgage their home. The remaining 8% went bankrupt because a medical problem caused them to lose income.
A 2007 study found that, of low- and middle-income households with credit-card debt, 29% used their plastic to pay off medical expenses

If you have unmanageable debts, call us before you liquidate your savings

Indeed, call us before you refinance your home, liquidate your 401-k or take any measures to pay unsecured debt. That includes credit cards and medical bills.

You need legal guidance to make financial decisions during an emotionally distressed time in your life. If you rely on creditors for legal advice you will be ill-informed. And offers of “free credit counseling” are often a fraudulent way to lure you into more debt.

Call our office for an initial appointment. You’ll get the benefit of our 40+ years of legal experience and you’ll deal with either Mitchell or Culp, no rookie lawyer learning the ropes.