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The Fair Debt Collection Practices Act

Thu, 06 Nov 2008 20:45:53 GMT

From time to time, many well meaning borrowers fall behind on their bill payments. It may be that the borrower has lost his or her job, has run into unexpected expenses or has simply borrowed more money than he or she can afford to repay. Whatever the reason, many borrowers who fall behind in their payments begin to receive phone calls from persistent debt collectors. Often, these calls come at inopportune times and can feel like harassment because the debt collectors can be very assertive.

The law recognizes that creditors need to be repaid the money which they are owed by borrowers and does not erase the debt. However, the law does recognize that the borrower should be treated fairly. In order to help ensure that borrowers are treated fairly, the Fair Debt Collection Practices Act was enacted.

What is Covered by the Fair Debt Collection Practices Act?

The Act applies to all personal household debts such as car loans, medical bills and, credit card bills. It does not apply to business debts.

Which Methods of Debt Collection are Regulated by the Act?

The Act allows a debt collector to contact a borrower by any method including telephone, fax, mail or in person. However, the debt collector cannot call you at inconvenient times or places. An inconvenient time is defined as before 8 am or after 9 pm. An inconvenient place could be a person’s place of employment if the debt collector knows that an employer would be unhappy with such contact.

You can also limit how a debt collector contacts you by writing the collector a letter. If you write a letter stating that you do not want the debt collector to contact you any further then the debt collector may send you one more letter acknowledging receipt of your letter and informing you of how he or she intends to proceed. For example, the letter might state that they intend to file a lawsuit against you for the money owed.

A debt collector may not discuss your debts with anyone other than you or your attorney. A collector could contact your friends or family to try and find out your whereabouts and how to contact you but a collector may not disclosure the fact that you owe money.

Most importantly, a debt collector may not harass you by threatening violence, using profanity or threatening to publicize your debt. Likewise, a debt collector may not be untruthful with you in an effort to collect money by claiming that you will be arrested or by sending you papers that appear to be from a court or government agency that are not in fact from one of those entities.

What Can You Do if You Believe the Act Has Been Violated?

You have several options available to you if you believe a debt collector has violated the law. You can report any alleged violations to your state’s Attorney General’s office or to the Federal Trade Commission. Either office can help you determine if the actions that you describe by the debt collector are against the law and will allow you to file a complaint against a debt collector.

You also have the right to sue a debt collector in court for alleged violations of the Act. You can do this individually or as part of a class action group against a particular debt collector.

It can be very stressful to owe money. Debt collectors have a legitimate role in trying to collect on a debt for a creditor who is legally entitled to the money that was lent. However, the Fair Debt Collection Practices Act makes sure that the debt collector’s actions are free from harassment, intimidation and illegal practices to protect the rights of the borrower.

What are my obligations if I co-sign a loan for another person?

Thu, 15 Jan 2009 02:21:39 GMT

What should you do if your twenty-something son asks you to co-sign his car loan? While you love your son, you’re not sure if he will be able to make the loan payments. What happens if you co-sign the loan, but your son doesn’t make the payments? Will you have to make the payments for your son?

These all too common questions that parents and grandparents face when their sons, granddaughters, and/or random relatives who are down on their luck come to them to co-sign loans, whether it be for a car, an engagement ring, or just some quick cash. Before you agree to co-sign another person’s loan, however, you need to be aware of your rights and responsibilities for that loan.

The bottom line is that if your son doesn’t make the loan payments as agreed, then you are responsible for making the payments due on the loan. Can you really afford to make an extra $250.00 car payment each month? If not, then you might think twice before co-signing that car loan.

Does it matter that you weren’t the one who needed the loan, or that you’re not the one driving the car? The short answer is no. You are liable for the loan. In some states, the bank or lender can come after you for the loan payments even without first going after the primary person on the loan. The bank can refer you to a collection agency, report you to the credit bureau, sue you, and have your wages garnished, just as if you had originally taken out the loan yourself. Plus, if you pledge your property, such as real estate, a car, or furniture in order to secure the loan, you could lose that property if the loan payments are not made as ordered.

Keep in mind that if your son requires a co-signer on his or her loan, it is because the bank won’t lend him money alone because it is too risky. If the bank won’t risk allowing your son to take out a loan, should you really risk trusting your son to pay the loan that you co-sign for him?

But what if you really want to help your son get back on his feet by co-signing a car loan for him? If you do decide to co-sign his loan, make sure that you take some basic steps to protect yourself. For instance, get a copy of all of the paperwork that you and your son sign so that you are clear on your rights and responsibilities under the loan, as well as the consequences if the payments are not made. Ask the bank to guarantee, in writing, that you will receive notice if your son misses a payment. This will keep you informed about the status of the loan, and help you deal with problems as quickly as possible. Also, check your state laws, which may provide you with additional rights and/or protections as a co-signer of a loan.

Loan Default Litigation: How to Collect on a Defaulted Loan

Wed, 24 Jun 2009 18:28:21 GMT

It can be both frustrating and bad for business when you lend money to an individual or another business and they default on their loan payments. Many lenders experience frustration and are fearful that a borrower who stops repaying a loan will never repay a loan. That is not always the case, however, and there are different ways that lenders can legally encourage borrowers to pay their debts.

First Steps: Invoices and Phone Calls

Most businesses send multiple invoices and make personal phone calls when a borrower stops making his loan payments on time. If a buyer had a temporary problem such as a short furlough from work or an illness then this approach may work and the problem may be solved. Unfortunately, this is only true for a small percentage of borrowers and often borrowers are not making regular payments on their loan because they simply do not have enough money to do so. In that case, multiple invoices and phone calls are not likely to be effective.

Loan Workout

After the phone calls have been made and the invoices sent, it may be beneficial to consider a loan workout or modification. A loan workout is a modification to the original loan that is negotiated and agreed upon by both the lender and the borrower. It can include any terms agreed to by both parties such as a lower interest rate, a longer repayment period or forgiveness of part of the principal.

Litigation and Foreclosure

Sometimes the measures described above are not enough and lenders need to pursue more formal avenues of collecting on their defaulted loans. This often involves filing a lawsuit against the debtor to collect the money owed or taking part in the debtor’s bankruptcy proceedings to ensure that your loan is given the priority which it is due in the bankruptcy plan.

If you file a lawsuit against a debtor then the Court may order that the debtor repay his debt to you according to a specific timetable and using money from a particular source. For example, the Court could require the debtor to sell specific property and to pay his or her debt to you with those funds. Alternatively, the Court could require the debtor to use a certain amount of his weekly or monthly paycheck to repay the loan to you. If the loan document upon which you are collecting payment was well drafted then it likely contained a provision for attorney’s fees. That means that if you prevail in your lawsuit that the debtor will need to pay your attorney’s fees.

Usually the same attorney who represents you in your lawsuit against a debtor can help you protect your claims if the debtor files for bankruptcy. It is especially important that you have representation in a bankruptcy proceeding because once the bankruptcy is discharged you will likely no longer have any right to collect money against the debtor beyond what is included in the bankruptcy settlement agreement.

Sometimes creditors must go to Court to collect on a defaulted loan. If you have not been paid money that is owed to you then you should consult with a collections attorney in your state to discuss your options.

Lien Priorities: Who Gets Paid First?

Wed, 24 Jun 2009 18:29:07 GMT

For many Americans, the purchase of property is among the most important and most expensive purchases that they make. Most property owners borrow money in order to buy real estate. In order to protect their purchase, it is important for property owners, and those who lend them money that is secured by the property, to understand the importance of recording liens and title according to the laws of the state where the property is located.

Recording Statutes

Almost every jurisdiction has a system for recording real estate transactions and liens. The recording systems exist so that potential lenders can determine what liens are outstanding on the property and the priority of those liens if the buyer were to default on his or her repayment obligations. The recording systems also allow potential buyers to determine who owns the property and with what restrictions, if any.

While the purpose of the recording system is the same from state to state, the system of recording and determining priority is different among the states. There are three general types of recording laws that are used in the United States. They include:

· Notice Jurisdictions: in jurisdictions with notice statutes, a subsequent purchaser or lender has priority if s/he had no notice of prior claims. Prior purchasers or lenders can protect themselves by recording their documents according to state law. If they do so then all subsequent purchasers and lenders are deemed to have notice. If they do not do so then they may have failed to provide the required notice and lose their priority claim.

· Race Jurisdictions: under a race statute, it is literally a race to the recording office. Whoever records a lien or deed first has priority. This is true regardless of who executed their document first and regardless of whether the parties to the second transaction knew about the prior transaction.

· Race – Notice Jurisdictions: race notice jurisdictions follow the general “first to file, has priority” rule as in pure race jurisdictions. However, if parties to subsequent transactions had notice of the prior transactions then they are prevented from recording their transaction and claiming priority.

Who Gets Paid First?

In general, the first one to execute a legal transaction has a priority claim. This is often referred to as the first in time first in right rule. However, in the event of a sale or loan default, the recording statutes become very important. If the parties to the first transaction did not follow the recording statutes in their jurisdiction they may no longer have the priority that they otherwise would have been entitled to if they had complied with the recording statutes.

Real estate is a big investment and the recording statutes provide lenders with a way to secure their place in the line of lien priorities on the property. That way, if a borrower becomes unable to repay the loans that are secured by the property the lenders have a clear idea of where they stand in the line to be repaid by any foreclosure money collected or other collection attempts on the property.

Repossession and Foreclosure of Personal Property

Wed, 24 Jun 2009 18:30:26 GMT

In today’s age of high prices for everything from cars to furniture, from flat screen TVs to washing machines, many businesses find it necessary to allow their customers to buy things on credit. Some businesses choose not to offer credit cards or credit lines but instead allow a customer to purchase a particular item on credit which allows the business to keep a security interest in the item.

Creditors May Benefit from Having a Security Interest in Personal Property

That security interest in the item can become very valuable to the creditor if the customer defaults on the loan. If a creditor has a security interest in a personal piece of property then:

· The creditor has a priority claim to that piece of property in a bankruptcy proceeding. Typically, in a bankruptcy proceeding, secured loans are satisfied prior to unsecured loans. That means that if your company made a loan to a consumer so that the consumer could buy a large flat screen TV and the loan is secured by that TV then the bankruptcy court cannot require the debtor to sell the TV and distribute the proceeds to all of the creditors. Instead, you have a priority interest in the TV and you may either repossess the TV or the debtor may be ordered to sell the TV and to satisfy his or her loan to you before using any of the proceeds to satisfy other claims.

· The creditor can repossess the property if the loan is not repaid according to the terms of the contract. Often, the situation presents itself where the debtor does not file bankruptcy but is also not paying the debt he owes to you. In that case, you may be able to repossess the property that secures the loan. Your loan documents should specify when and how a repossession can take place.

When Can the Property be Repossessed?

The answer to that question is dependent on the terms of the loan contract. Some contracts have a grace period that allows borrowers a certain amount of time to pay the creditor past due amounts before a repossession can take place. Some contracts also have specific exceptions for health problems or accidents which prevent the borrower from making regular payments.

How Can the Property be Repossessed?

It is important to follow both state law and the terms of your contract if you want to repossess personal property. For example, you typically cannot enter the debtor’s home without permission unless you have a court document that allows you to do so. Also, you typically must provide the debtor with advance written notice of your intention to repossess the property. If you do not provide the required notice then the debtor may be provided with an opportunity to get the property back from you in exchange for the money that is owed.

Property repossession is not the goal of creditors. They are in business to sell goods for money; not to repossess the very good which they sold. However, if a buyer cannot meet his or her obligations to repay his debt then often a creditor has no choice but to repossess the property in an effort to regain some of his or her financial loss.

Charging Off a Bad Debt: How, When and Why to Do It

Wed, 24 Jun 2009 18:31:12 GMT

For many creditors, the frustrating reality is that it costs money and it takes time to recover the money that is legally owed to them if a borrower stops repaying a loan. The costs of debt recovery can be significant. Foreclosure, for example, can be expensive and take over a year to complete in some states. Therefore, many businesses choose to write off their bad business debts in exchange for the tax benefits provided by the IRS.

What is a Business Bad Debt?

According to the IRS Publication 535 on Business Bad Debts, bad business debts are primarily incurred when a good or service is sold to a consumer and the consumer does not pay for the good. For example, a consumer may default on a car loan or a consumer may fail to pay for the services provided by his or her physician. When a problem like this occurs, the IRS requires businesses to try to collect the amount due for a reasonable period of time. If the business is unsuccessful then the amount owed to the business becomes a business bad debt.

Bad business debts can also be incurred in other situations such as when loans to clients or suppliers are not repaid or when a partnership dissolves and one partner does not repay money that is owed. The other partner may be able to claim a bad business debt or the amount that he paid over his fair pro rata share of the debts.

When Can a Business Charge Off a Bad Debt?

A business can charge off a bad debt, as defined above, if:

The debt owed to the business was previously included in your gross income. That means that your business must have counted the money owed to it as income when the good or service was provided to the customer. This method of accounting is known as the accrual method. If, instead, your business uses the cash method of accounting where only amounts received by the business are considered income then you cannot charge off a bad debt for income that was never received because you never considered the money owed to you as income.
You liquidate your business and the accounts receivable become worthless; or
You sell your business but maintain ownership of the receivables and a receivable is not paid.

There is no need to wait until the time that the debt is due to claim that it is worthless and will not be repaid. Nor do you have to go to Court and get a judgment prior to deciding that a debt is worthless. Instead, you need to have documentation that the debt is worthless and that despite your reasonable efforts to collect on it you will not be able to do so.

The Benefits of Charging Off a Bad Debt

Generally, business who counted the debt as income may take a tax deduction for specific bad debts that become partially or wholly worthless during the tax year. While the deduction does not fully make up for the income lost by not receiving the money owed, it provides some financial benefit to the business. Therefore, businesses should be aware of the circumstances pursuant to which they can claim a bad debt and they should know how to do it when the time comes.

Loan Default: Workout, Litigate or Foreclose?

Wed, 24 Jun 2009 18:31:45 GMT

Creditors are often faced with a difficult decision when a borrower defaults on a loan. In order to stay in business, creditors must collect on as many loans as possible. However, there are different ways to collect on loans and different factors that determine which way is the best way to try to collect the money owed in a given situation. Primarily, creditors have three options. They can enter a loan workout, they can initiate litigation or they can foreclose or repossess the property that secures the loan.

Loan Workout

Loan workouts, also known as debt restructure, involves the creditor and borrower working together to come up with revised loan terms. The parties could agree, for example, to extend the repayment period in order to lower monthly payments, lower the interest rate, or they could agree to reduce the total amount of money that needs to be repaid.

At first glance, it might seem like a loan workout unfairly benefits the borrower and that such an arrangement would not be in the best interest of the creditor. However, in many situations it is in the best interest of the creditor for the following reasons:

The creditor avoids the costs, and risks, associated with litigation or foreclosure. While it is advisable for a creditor to consult with an attorney prior to making any significant changes to a legally binding loan agreement, the legal costs associated with a loan workout agreement are often much less than the costs associated with litigation or foreclosure. Also, the creditor retains control and can decide whether or not to approve a loan workout. The creditor is not bound to an agreement imposed by a judge or an amount imposed by a foreclosure sale.
The creditor retains legal rights to pursue litigation or foreclosure in the future. This is an important part of any loan workout agreement. If the borrower does not make the payments required by the new loan workout agreement then the creditor has the right to pursue action against the borrower in order to recover the money that is owed.

Other Options for Collecting on Debts: Litigation and Foreclosure

In many cases, it makes sense to pursue a loan workout prior to pursuing other methods to collect on a loan that is not being repaid according to schedule. However, sometimes loan workout negotiations do not result in an agreement. In those cases, the creditor may pursue the money that is owed according to the collection procedures set forth in the original loan document. Often, those procedures include litigation and / or foreclosure. Creditors who pursue litigation or foreclosure should contact an attorney who specializes in debt collection to assist them.

Loan workouts provide many benefits to both creditors and debtors. While creditors want to be repaid according to the original loan documents, most creditors, especially in today’s economy, understand that adjusting the terms of the loan through a loan workout agreement is preferable to other methods of loan collection or to not being paid at all.

Property That is Exempt From Bankruptcy

Wed, 24 Jun 2009 18:32:35 GMT

Has one of your borrowers filed for bankruptcy? Are you concerned about recovering the money that you loaned to the borrower? Many creditors are concerned and rightly so. Often, a borrower who is filing for bankruptcy protection has several debtors who need to be paid from a finite amount of assets and not all of a borrower’s assets can be used to satisfy his or her debts in bankruptcy.

Historically, state law provided the property exemptions available to those seeking bankruptcy protection. However, the bankruptcy code now allows states to choose between the federal exemptions provided in the bankruptcy code or the exemptions provided in state law. Many states have chosen to continue to follow their state law exemptions but a minority of states have decided to adopt the federal exemptions instead.

Common Bankruptcy Exemptions

Some common types of property that are exempt from bankruptcy proceedings include:

· The Debtor’s Home. This is known as the homestead protection. Federal and state exemption laws allow a debtor to protect the his or her home from creditors in bankruptcy up to a certain dollar amount. The amount that is protected varies widely from state to state.

· The Debtor’s Car. Bankruptcy law recognizes that many debtors need a car in order to maintain a job and meet their financial obligations. Therefore, a bankruptcy exemption exists for the debtor’s car. The exemption does not allow a debtor to spend his or her money to drive an expensive car while not repaying his or her financial obligations, however. The exemption is limited to a specific dollar amount.

· Household Goods. Bankruptcy law sets a maximum exemption amount for all of the debtor’s household goods and a maximum amount per individual item. Often, a bankruptcy trustee recognizes that there is little value in used household goods and these items are not used to satisfy debts even if they are cumulatively worth more than the maximum amount. Household goods can include things such as pots and pans, bedding and decorative items.

· Personal Items. Some personal items such as reasonably necessary clothing are exempt. Jewelry, up to a certain amount, may also be exempt.

· Retirement Savings. The vast majority of retirement savings are protected by the bankruptcy code including pensions, stock bonus plans, Individual Retirement Accounts (IRAS), 401ks and other employer sponsored retirement plans. While this can be reassuring to a debtor it is often frustrating to a creditor since retirement savings may be among the most valuable of the debtor’s assets.

· Awards in personal injury cases are typically exempt from bankruptcy proceedings.

· Tools of the trade are exempt up to certain dollar amounts established by law. For example, a professional photographer may be able to keep expensive cameras and processing equipment that an amateur photographer would need to sell in order to satisfy his or her debts.

Despite the above list of exempt property, creditors should not be discouraged and should actively pursue their claims if a debtor who owes them money files for bankruptcy protection. The bankruptcy trustee will use the debtor’s non-exempt assets to satisfy creditor claims in order of their legal priority.

What to Do if You Cant Pay Your Bills

Sat, 01 Aug 2009 18:40:17 GMT

If you have lost your job, had unanticipated medical bills or simply taken on more creditors than you can afford to repay then you may be having difficulty paying the bills. Many people who are in this situation feel overwhelmed and unsure about how to proceed. While you may feel like there is nothing that you can do to help yourself, doing nothing is the worst mistake that you can make. Instead, it is important to follow the steps outlined below to minimize the damage that will be done if you can’t afford to pay your bills. Specifically, you should:

Contact Your Creditors: the first thing that you should do is to contact the creditors that you cannot pay on time and let them know what is happening. While some creditors are more forgiving than others, many creditors will try to work with you to develop a repayment plan that meets both your needs. You may feel like you have no room to negotiate since you are the one who owes the money. However, it costs creditors money to collect on debts and it might be in the creditor’s best interest to extend the life of your loan, decrease your interest or forgive part of the principle amount of the loan. Any of these factors would decrease your monthly payment amount.
Prioritize Your Bills: Make a list of all of your outstanding bills and prioritize them according to the consequences of not paying them on time. For example, court ordered payments, insurance bills and your mortgage or rent payments should be at the top of your list. If you do not pay your insurance bills on time then your policies will lapse. If you do not pay your housing bills on time then you may be required to move. If you do not pay court ordered payments, such as alimony or child support on time, then you may end up back in court. After those types of bills have been prioritized, your next group of bills should be any loans that you have that are secured by specific pieces of property, such as car loans. If you default on secured loans then it is relatively easy and inexpensive for your creditor to repossess the property and you could lose your car or other possession. Finally, it is important to think about your unsecured loans such as credit card loans. These creditors are often most willing to work with you because it is expensive and time consuming for them to collect on their debts and they want to keep you from entering bankruptcy where they are less likely to recover their money.
Make Written Agreements with Your Creditors: Enter a written agreement with any creditor who is willing to negotiate with you. These agreements, if properly executed will likely be enforceable in court.
Seek the Advice of a Bankruptcy Attorney: If the above tactics do not work and you are considering filing for bankruptcy then you should contact a bankruptcy attorney who can advise you about the benefits and consequences of bankruptcy and other methods of managing your debts.

Above all else, remember to take control and figure out a solution to your problem. Do not ignore your bills or your creditors. Instead, try to renegotiate the terms of your loans and prioritize your loans so that you have a manageable plan to get back on the right financial track.

What You Can Do When Your Customers Dont Pay Their Invoices

Mon, 12 Oct 2009 14:06:06 GMT

Almost every business owner has faced the same problem at one time or another. The business provides a product or service to a customer, the business invoices the customer for payment and the business never receives payment. This situation is frustrating at best and a threat to the business’s profitability and continued existence at worst.

However, if you provided a product or service to a customer with the agreement that you would receive payment in return then you are legally entitled to payment and there are steps that you can take when faced with this challenging situation. It is important to understand what you can legally do, and what you cannot do, if you have a customer who doesn’t pay you. In order to protect your business from nonpaying customers, you might consider:

· Creating your First Invoice Carefully. Your invoice is a contract and should carefully explain the required terms of payment. Most invoices include a payment due date. After that, you may charge appropriate late fees or interest on the uncollected amount due. Your invoice should specify what the late penalties are and include a phone number for your business in case the customer needs to discuss payment terms with you.

· Sending Follow up Invoices. If you do not receive payment within the required time frame then you may send a follow up invoice. If the bill was not paid because of an honest mistake, for instance if it got misfiled or never arrived, then a second invoice will likely result in a payment received. Make sure to mark the invoice as Second Invoice (or something similar) and include the date of the first invoice so that the customer knows that the bill needs to be paid upon receipt.

· Making Follow up Phone calls. Assertive phone calls are often an effective way to receive payment. However, you must make sure that you are following state and federal laws when you make the calls. As general rules, you should only contact the person who owes the debt and not a relative or employer of such person, you should only call the person between 9 am and 8 pm, you should always be truthful in your discussions and you should never be threatening to the customer.

· Using a Collection Agency. A collection agency can take over the collection attempts for you so that you and your employees have the time to devote to the other work of the business. If you decide to hire a collection agency it is important to thoroughly review the agency by requesting references and checking for complaints with your state attorney general’s office or local better business bureau office. Your contract with the collection agency should be explicit in terms of what the agency is authorized to do on your behalf and what the agency will be paid.

· Hiring a lawyer. Your lawyer can help you negotiate with the customer and represent you in any legal proceedings attempting to collect money from the customer.

· Considering Tax Implication. If you already counted the amount invoiced as taxable income then you may be able to deduct unpaid invoices that you decide to forgive rather than collect.

Unpaid invoices are a big problem for all businesses, especially small businesses. If you have any questions about collecting monies owed to you then it is important to contact a business law attorney in your state for more information.

Free Wage Garnishment Articles

Sun, 29 Nov 2009 21:03:16 GMT

Free Wage Garnishment Articles

Free Collections-Creditors Rights Articles | Free Collections-Creditors Rights Legal Articles

The Fair Debt Collection Practices Act

What are my obligations if I co-sign a loan for another person?

Loan Default Litigation: How to Collect on a Defaulted Loan

Lien Priorities: Who Gets Paid First?

Repossession and Foreclosure of Personal Property

Charging Off a Bad Debt: How, When and Why to Do It

Loan Default: Workout, Litigate or Foreclose?

Property That is Exempt From Bankruptcy

What to Do if You Cant Pay Your Bills

What You Can Do When Your Customers Dont Pay Their Invoices

Free Wage Garnishment Articles

What to Do if You Cant Pay Your Bills

What You Can Do When Your Customers Dont Pay Their Invoices