November 24, 2017

Don’t Fall Prey to Illegal and Immoral Behavior by Debt Buyers

debt buyerIf you have never heard the term “debt buyer,” you might be amazed to learn that large companies exist solely for the purpose of buying and selling consumer debt. These companies buy and sell billions of dollars of debt. Some are part of public companies that trade shares of stock on stock exchanges.

In other words, credit card companies, hospitals, personal loan companies, banks and other lenders regularly sell and resell debt – and this may include debt owed by you.

Here’s how it works. Let’s say that you open a Mastercard or Visa account with a local bank. Over the years you may start running a balance – perhaps $2,000 or $3,000. You are able to make the minimum monthly payment but the balance grows slowly. At some point, you find yourself with a problem – you miss one or two monthly payments and your account becomes two or three months past due. The credit card company cancels your account and starts sending you collection letters.

At that point, the credit card company may decide that it would rather sell your delinquent debt for cash before it gets too much older. Depending on how delinquent the debt is, a debt buyer may pay only 4 or 5 cents on the dollar. Your 2 month delinquent debt of $3,000 will be packaged along with other similar debt and sold in bulk to a debt buyer at this discounted rate.

The debt buyer may attempt to collect the debt by dunning you (calling repeatedly) or the buyer may retain a lawyer and sue you. [Read more…]

Alternatives to Bankruptcy if Your Debt is Less than $20,000

On a fairly regular basis, I get calls from potential bankruptcy clients who don’t really have enough debt to justify the time and expense of bankruptcy.  For example, if your only debt is a delinquent $7,500 credit card bill, it hardly makes sense to spend $1,500 to $2,000 for a Chapter 7 case.  Similarly, it makes no sense to spend $3,500 to $4,000 for a Chapter 13, especially if you would end up paying back 100% of the debt anyway.

What, then, are your alternatives?

Debt negotiation is one alternative.  Someone once told me that "everything is negotiable" and that is especially true when it comes to credit card lenders.  My experience, however, has been that you will find it difficult to convince a credit card lender to negotiate if you are current with your account.   When you get to three or four months delinquent, you may find that the credit card lender will talk to you seriously about a reduced lump sum payoff or some type of payment plan.  The problem with this, of course, is that your credit score will take a major hit and you will have to deal with those harassing phone calls.

Another problem – who is going to do the negotiation?  You can certainly try to negotiate your own account, but this can be difficult as you are the subject of the negotiation and you are emotionally involved therein.  There are vendors out there who say that they will do debt negotiation, but I think you need to be careful there too.  I have met with several clients over the years who have tried this route, all with very mixed results.  Several of these companies have been sued by the attorneys general in several states. 

Consumer Credit Counseling is not really a negotiation service – they are funded by the credit card companies and my sense is that their goal is primarily to take some of the heat off while you enter into a payment plan that pretty much pays back everyone 100%.

Recently I have noted that several law firms (none in Georgia, to my knowledge) have added debt negotiation to their menu of services.  For example, the Michigan law firm of Thav, Gross, Steinway and Bennett has a separate law firm called StopCreditorCalls.com and has posted several compelling videos on YouTube discussing their negotiation services. 

An Alabama consumer law firm, The Watts Law Group and M. Stan Herring, publishes a very informative blog about consumer protection.  Recently, Attorneys Watts and Herring have written a series of blog posts about the Fair Debt Collection Practices Act and have identified common types of violations.  In the case of FDCPA violations, it may be that a negotiation over a relatively small credit card debt may turn into an FDCPA claim – it would not surprise me if a settlement of an FDCPA claim involved a reduction in the outstanding balance or favorable terms for the debtor.

So, if you have a relatively small amount of debt (less than $20,000 of unsecured debt) I think it is wise to strongly consider non-bankruptcy alternatives as a more cost effective solution.

However, I am still looking for specific solutions.  If you were able to work out a resolution of your credit card debt outside of bankruptcy, or if you are a lawyer who can speak about non-bankruptcy alternatives, I’d love to hear from you.

Social Security Benefit Checks are Exempt from Garnishment, but….

My husband has been given benefits but we are being advise a judgement will be placed for medical procedures that insurance should have covered but didn’t. The facilty was subcontracted out by the doctor and was never given our insurance information to file on. Upon calling that insurance company, they have said that the claims is now too old for them to pay on. Can the attorney take my husbands social security benefits for the judgement.

Jonathan Ginsberg responds:  Social Security benefits cannot be garnished by this type of civil judgment creditor.  However, if you are using direct deposit and the Social Security funds are going into an account where you keep other money, your bank may inadvertantly honor a fi fa on the judgment.

I would consider sending a letter to the lawyer who is representing the judgment creditor to advise him that your husband’s sole source of income is Social Security and therefore exempt from garnishment.
Be aware, however, that other assets – his house, other bank accounts, other assets – can still be at risk.

Another point to consider – does this creditor have a legal right to sue?   Claims for breach of contract are subject to statutes of limitations.  If this debt is ten years old, for example, it may be “stale” and no longer actionable.  Recently, I have heard about a number of lawsuits filed on stale debt – if the defendant does not raise this issue, you could be stuck with judgments even when the underlying claim is bogus.  There is a remedy to challenge this type of judgment called a “collateral attack on the judgment” but collateral attacks are expensive and time consuming.

If you receive a lawsuit on a debt that seems unusually old, it would probably be worth the time to run the case by a lawyer.  My colleague Bill McLeod of Boston, regularly writes about Fair Debt Collection Practice horror stories.  If you are under any illusion that collection agencies are trustworthy entities, some of the examples Bill cites of egregious actions by bill collectors will open your eyes.

If you have other assets at risk, and the judgment is large enough, a bankruptcy might be something to consider.  As a rule, you are better off filing bankruptcy before a judgment is issued, but there is a procedure in bankruptcy practice called “avoiding the lien” where a judgment lien can be stripped and made into an unsecured debt.

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