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C r e d I t E d u c a t I o n U p d a t e |
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Early this month we reported on the absolute necessity of getting out of debt in order to raise your credit scores. Removing a negative account from your credit report DOES NOT remove the debt behind it. Unsettled debts and collections will be reported if you do not pay them. Furthermore, the account will be updated once you pay it to show as “Paid;” therefore, it is very important that you pay off or settle these accounts BEFORE any of them are deleted from your credit report. It is not uncommon for individuals to find themselves in a situation in which they are in so far over their heads that debt settlement and/or bankruptcy is the only option. This issue of Credit Education Update will cover the ins and outs of both debt settlement and bankruptcy. Although the information provided will answer many questions and give you the power to settle some debts yourself, Citizens Credit Bureau does offer debt settlement to clients and we invite you to take advantage of these services. A professional will often carry more weight with creditors than a consumer thus enabling them to better negotiate a removal of late fees and accumulated interest as well as much lower settlements for only a percent of each dollar owed. The decision to declare bankruptcy should never be made lightly. It requires a great deal of consideration as well as professional consultation. Not only will it destroy your credit rating, you will be missing out on the satisfaction of honestly paying what you owe. Settling debts holds similar consequences. Please contact Member Services for more information on debt settlement and/or local lawyers that may be able to help you decide if bankruptcy is the right decision for you. |
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March 10, 2005 Volume 1 Issue 3 |
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The creditor and/or collector with whom you settle is also the person that will be reporting the debt and settlement to the credit bureaus. If you are dealing with the original creditor, insist that the debt be reported as “Paid as Agreed” or “Pain in Full.” Otherwise, it will show as a settled debt which will have a further negative impact on your FICO® scores. If you are dealing with a debt collector, insist that they remove the collection account from your report. Although certain collection agencies may have agreements with the bureaus to not remove settlement information from reports, they do have the power to correct erroneous information; therefore, they can remove a collection account from your credit report by stating that the information was incorrect. Since collection agencies only benefit from acquiring money from you and not from you having a negative credit rating, if they believe that repayment hinges on them removing the collection account, they will do it. When speaking to a creditor or debt collector, never reveal where you work or bank. If they ask, tell them “no comment.” Send any payments via money order in order to protect the name and location of your bank. The only real way to obtain a successful settlement is to keep good records and demand that all settlement conditions be in writing before you will make a payment. You may owe taxes on a debt write off if it is of $600 or more as that money is now considered income. The creditor/collector should send you a 1099-C form at the end of the year. |
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Bankruptcy Basics |
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It’s important to first establish that not all debts can be settled. This includes those incurred through the government such as student loans and taxes. Nor can these debts be included in bankruptcy. You simply have to pay them. You cannot settle secured debts such as those created by the purchase of a home, car, furniture, etc as any payment default will result in the repossession of the property that originally incurred the debt. Even though all unsecured debt such as credit cards, medical bills, personal loans, store/gas cards, and bounced checks can be settled, it’s not always wise to do so. First of all, the debt will be reported as settled on your credit report which will lower your score. Secondly, most creditors won’t settle a debt unless it is already seriously delinquent. They need significant reason to believe that settlement is in their best interest. When it appears that their only option of obtaining any amount of repayment is through settlement, then and only then will they be willing to work with you, hence why a professional can generally settle for less. Going through a professional exhibits that the consumer feels helpless on their own and imposes a subconscious threat of potential bankruptcy. Creditors may also resist debt settlement if they believe you have significant assets should they file suit against you. |
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It’s important for consumers to realize that the Government has established means of protection for those who find themselves in debt delinquencies. Creditors and debt collectors by law are not allowed to harass you or your relatives, regardless of the amount you owe them. Harassment has been defined as calling at unusual times or places, using abusive language or threats, advertising your situation to another party including relatives, and can even include speaking with anyone other than yourself more than once unless they have reason to believe that person has new contact information for you. Unusual times have been defined as between the hours of 9:00 pm and 8:00 am. Unusual places include your work as well as the homes of friends and relatives. It may seem obviously absurd to call a person’s friend or relative in relation to their personal finances but even I have experience with debt collectors calling me looking for a relative. When communicating via mail there should be no indication of the nature of the letter such as language and symbols on the outer envelope. If you have retained the services of an attorney in relation to your debt, the creditor/collector may no longer contact you except to acquire the contact information of your representation. |
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Rates above are courtesy of www.myfico.com and are based on a fixed-rate, $150,000, 30-year mortgage. |
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“Improving your Quality of Life by raising your credit scores” |
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The Fair Debt Collection Practices Act |
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Settling Debts to Settle Your Mind |
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Should you believe that debt settlement is in fact your only option and that you would like to try it yourself, you should keep the following in mind. Creditors and debt collectors are aiming to collect the original debt, therefore they will be most willing to bend on interest, penalties and late fees. Attempt to negotiate these first. The more time that has passed since the debt became delinquent, the more likely you will be able to negotiate a good settlement. Settlement must be in the creditor’s/collector’s best interest; therefore, they must believe that you do not a have enough assets to make a lawsuit profitable and that settlement is the only means by which to obtain repayment. The more eager you are to settle, the less likely they will agree to settle. Appearing too eager includes accepting their first offer or contacting them first. The threat of bankruptcy is generally an effective means of making settlement appear to be the only option. |
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· Send all correspondence via registered mail (about $2 a letter). · Keep a copy of every letter you send. · If you call, keep a log of when you spoke to the agencies, and who you spoke with. Ask for the name of the supervisor of the person you spoke to, as the turnover rate at collections agencies is high. · Send a letter via registered mail to confirm the content of every telephone conversation. |
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Any citizen of the United States may file either a Chapter 7 or a Chapter 13 Bankruptcy. A Chapter 7 is a liquidation proceeding in which “the debtor turns over all non-exempt property to the bankruptcy trustee who then converts it to cash for distribution to the creditors. The debtor receives a discharge of all dischargeable debts.” (http://www.creditinfocenter.com/bankruptcy/bkfaq.shtml#1) A Chapter 13 is more of a repayment plan in which you allowed to keep property that would otherwise be liquidated under a Chapter 7. Because there are so many varied situations in which it would be appropriate to seek financial relief through bankruptcy, it will suffice me to mention some circumstances in which bankruptcy would not be an option. You may file a Chapter 7 only if you have not previously filed and completed repayment of a Chapter 13 or already filed for a Chapter 7 within the last six years. Child support, alimony, student loans, judgments resulting from intoxicated driving, taxes and debts incurred in relation to fraud, larceny, embezzlement, &c may not be included in a Chapter 7 Bankruptcy. Before even considering bankruptcy, it would be wise to get a professional opinion concerning your specific financial situation. Please contact Member Services if you need to discuss bankruptcy options. |
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Keeping Good Records |
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Should you, your spouse, your legal guardian, &c refuse to pay the debt in collection, you must notify the creditor/collector in writing after which point they are only allowed to contact you to notify you of the termination of their debt collection efforts, the consequences of not paying the debt, and/or the remedy they intend to invoke. This act contains a great deal of other information regarding validation of debts, multiple debts, legal action by debt creditors, &c. Should you have experienced harassment by a creditor and/or collector, this act specifically states what civil action you may take as well as the liabilities for the credit and/or debt collector. For more information on the Fair Debt Collection Practices Act please visit the |
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Kristina Pardue. “Bankruptcy of Purse…” oil and paper collage on dry wall, 18” X 19”, 1997 |
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Nothing can compensate for poor credit scores. Millions of individuals everywhere are losing thousands of dollars a year in interest and insurance rates not to mention other setbacks in finding employment and qualifying for loans. Help us give you the best service possible by sending current credit reports at least once every 90 days to Citizens Credit Bureau Credit Report Department PO Box 150 Wellington, UT 84542 Have you been denied credit in the last 60 days? If so, and you would like free credit reports, please mail a copy of your denial letter to Citizens Credit Bureau Credit Denial Department PO Box 150 Wellington, UT 84542 All documents may be faxed to 1-800-258-4283 |
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FICO® is a registered trademark of Fair Isaac Corporation. |
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Photo courtesy Bradshaw, Fowler, Proctor & Fairgrave, P.C. |
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Diane Fenster “Bankruptcy” Photo Illustration for INC Magazine, 1998 |
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In celebration of the Midwestern States new found ability to review their “credit file disclosures” (aka credit reports) once a year as of this month, we have chosen to spotlight www.AnnualCreditReport.com. Sponsored by Experian, Trans Union, and Equifax, this site is the only official website which provides a free annual credit report to consumers under a recent amendment to the Fair Credit Report Act. Established by the Fair and Accurate Credit Transactions Act, this free credit report program allows for reports to be requested via internet, mail, or telephone. By September of this year, consumers in all 50 states will be able to request and review their credit report every 12 months. To find out when your state becomes eligible, visit www.AnnualCreditReport.com |
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R e c o m m e n d e d f o r M a r c h 2 0 0 5 |
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www.AnnualCreditReport.com |
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When All Else Fails |
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They are available on the web at www.ftc.gov/os/statutes/fdcpa/fdcpact.htm |
