Debt Relief Services
If you are struggling to pay off a large debt on your credit card, but can not agree on a payment plan with your creditors, consider using a debt relief service, such as that offered by credit counseling agencies. credit or debt negotiation programs. Depending on the type of service you hire, you will receive advice on how to deal with your endless bills or how to make a plan to pay your creditors.
Before hiring any type of debt relief service, check with your state attorney general and your local consumer protection agency. Both one and the other can inform you if the company whose services you intend to hire has a complaint record from a client. Check with your state attorney general if that company needs a license to operate in your state and, if so, ask if you have one.
If you are thinking of seeking help to balance your financial situation, inform yourself properly first. Find out what kind of services each company offers, the cost of those services and the time it takes for the promised results. Do not trust verbal promises. Request everything in writing and read each contract carefully.
Advice on Credits
There are recognized credit counseling agencies that can advise you on how to manage your money and deal with your debts, help you plan a budget and even offer training materials and seminars. They have certified and trained counselors in personal loans, money management and debt management, and budget planning. These advisers analyze your financial situation with you and help you structure a personalized plan to solve your financial problems. The first counseling session usually lasts one hour and then other follow-up sessions are offered.
Most reputable advisors work nonprofit and offer their services through local offices, online or by phone. If possible, look for an organization whose advisors offer their services in person. Many universities, military bases, savings and credit cooperatives, housing entities and branches of the Cooperative Extension Service administer non-profit credit counseling programs. The financial institution in which you have an account, the local consumer protection agency and even your friends and family can provide useful information and resources.
But be careful: the fact that these organizations work for non-profit does not mean that their services are free, economic or legitimate. In fact, some of these credit counseling agencies charge high fees, which may be hidden, or pressure their clients to make "voluntary" contributions, which only translates into greater debt.
Debt Management Plans
If your financial problems arise from an excess of debts or from your inability to pay off your debts, your credit counseling agency may recommend that you sign up for a debt management plan (DMP). A DMP is not, by itself, a credit counseling service and also, DMPs are not for everyone. Do not enroll in one of these plans unless, and until, a certified credit counselor has carefully analyzed your financial situation and provided you with personalized advice on how to manage your money. Even if there is an appropriate DMP for you, you can turn to a trusted credit counseling agency to help you plan your budget and teach you how to manage your money.
When you enroll in a DMP, you must deposit money monthly with the credit counseling agency that is in charge of your finances. The agency uses the money deposited to pay your unsecured bills, such as your credit card statements, student loans and health care bills, and does so by following a payment schedule that you previously plan together with you and your creditors. Your creditors may agree to lower your interest rates or exempt you from certain charges. However, it is worth noting with your creditors that they actually offer you the concessions that your credit counseling agency told you about. For a DMP to succeed as a measure, it is necessary that regular payments are made, in a timely manner; It could take 48 months or more to complete a DMP. Ask your credit counselor what is the approximate time for you to complete the plan. You may have to agree not to request, or make use of, any other credit during the term in which you are enrolled in this plan.
The Federal Trade Commission (FTC) works to prevent unfair, deceptive and fraudulent business practices in the market and to provide information that helps consumers detect, stop and avoid them.
The FTC has found that some organizations that offer debt management plans have deceived and defrauded consumers; therefore, it recommends that consumers monitor their bills to ensure that the organization delivers on its promises.
For information on debt management plans, visit FTC Data for Consumers.
Debt Negotiation Program
In general terms, debt negotiation programs are offered by for-profit companies and involve these companies negotiating with creditors that you have to reach an "agreement" that allows you to settle the debt, that is, the payment of a lump sum less than the total amount you owe. In order for you to pay this lump sum, the program requires you to set aside a certain amount of money every month, as a saving. Generally, the companies that offer debt negotiation services request that you transfer this amount monthly to an account similar to a trust, in which you save the money necessary to settle any amount that has been agreed upon as liquidation of the debt. debt. Moreover, these programs often give their clients precise instructions to stop making any kind of monthly payment to their creditors.
The Negotiation of Debts Has Its Risks
Although companies that offer debt negotiation services can negotiate one or more of their debts, the programs they provide carry certain risks that you should know before opting for their services:
In general terms, these programs require you to deposit money in a special savings account for 36 months or more, before all your debts are negotiated. Many people have difficulty depositing this money during the necessary time so that all (or only some) of their debts can be negotiated, so that, eventually, they end up abandoning the program. Before enrolling in a debt negotiation program, carefully evaluate your budget to make sure your income allows you to set aside the sums of money the program demands for the entire term of the program.
Your creditors are not required to accept a negotiation of the amount you owe. For this reason, there is a possibility that the company in charge of negotiating your debts will not be able to reach an agreement with your creditors, even if you separate monthly the amounts required by the program. In addition, the companies that offer these services tend to focus first on the negotiation of the smaller debts, which translates into the accumulation of interest and charges on the larger debts.
Since debt negotiation programs often require those who enroll in them to stop paying their creditors, they can have a negative impact on your credit report and lead to other serious consequences. For example, your debts may continue to accrue surcharges and fines for late payments, which can hurt you even more. It can also happen that your creditors or debt collectors call you to request payment of the amount owed. They can even sue you to pay the debt. In some cases, for example when a creditor claims the debtor and wins the judgment, the creditor has the right to seize his salary or his house.
Scams in the Area of Negotiation and Debt Settlement
Some of the companies that offer debt negotiation programs may not keep the promises they make, such as the "guarantee" of reaching an agreement with their creditors to pay off the debt for 30 to 60 percent of the amount what should There are other companies that may try to charge you before negotiating any of your debts. According to the FTC's Telemarketing Sales Regulation, companies that offer telephone debt negotiation services or other types of services to settle debts are prohibited from charging any fees before negotiating or reducing the amount of a certain debt. Certain companies may not expose the risks involved in their programs, some of which are: that many (or most) of their clients leave the program without negotiating their debts, that their clients' credit reports look harmed or that the debt collectors keep calling them.
Inform yourself before enrolling in a debt negotiation program. Remember that this is a big decision, which involves spending a large part of your money in reducing your debt. Enter the name of the company along with the term "complaints" in a search engine. Read other people's opinions about the company whose services you plan to hire and see if it has been sued by a state or federal regulatory agency for deceptive or illegal practices.
If you hire the services of a debt negotiation company, you are likely to have to deposit money in a particular account within a financial institution, which will be managed by a third party. Since the funds are yours, you have the right to receive the interest that the account accrues. It is likely that the administrator of the aforementioned account will charge you a certain fee for the maintenance of the same and that person is responsible for transferring funds from your account to pay your creditors and the company in charge of negotiating the debt, once the finish the negotiation.
Requirements related to the disclosure of information
Before hiring the services of a company specialized in negotiating debts, said company must provide you with the following information about the program offered:
Price and terms: the company must specify its rates and the conditions of its services.
Results: The company must inform you how long it will take to give you answers, that is, how many months or years will pass before you make an offer to each of your creditors to reach an agreement on what is owed.
Offers: the company must inform you how much money, or what percentage of each active debt, you should save before they make, on your behalf, an offer to each of your creditors.
Interruption of payments: if the company tells you that you should interrupt payments to your creditors, or if the program in which you have registered has as a condition that you stop making payments to your creditors, that company has the obligation to inform you about the possible negative consequences of such action.
In addition, the company that negotiates your debt must give you the following information:
the funds deposited in the account are yours, for which you are entitled to accrued interest;
the administrator of the account is not related to the provider of the debt relief services, so that he does not receive any payment for recommendations; Y
You have the right to withdraw your money at any time without incurring a fine.
Consequences at the tax level
There may be tax consequences for the forgiveness of debts. In case your debt is forgiven by the creditor, depending on your financial situation, any savings you get from debt relief services can be considered income and, consequently, be subject to taxation. Both the credit card company and any other company with which you have had debt can inform the IRS about the debts already negotiated, which the IRS qualifies as income, unless you are "insolvent". It is considered that a person is insolvent when the total amount of his debts is higher than the normal commercial value of the total of his assets. Insolvency can be difficult to establish. It may be convenient to consult with a lawyer or a tax advisor to learn how debt forgiveness can affect your federal income tax. To receive information on the subject of the canceled debt report, visit the IRS website.
Be Cautious When Hiring Debt Relief Services
When choosing a company that provides debt relief services, whether it offers credit counseling, debt negotiation or any other kind of service aimed at liquidating debts, avoid hiring companies that:
charge any type of charge before negotiating your debts or enrolling you in a DMP plan;
press him to make "voluntary contributions," which is an alternative term for charges;
promote a "new government program" to get rid of debts acquired with the credit card;
they guarantee that they can make disappear their debts without guarantee;
tell you that you should stop having contact with your creditors, but do not explain the serious consequences that this may bring;
guarantee you that you can stop any demand and end the calls of the debt collectors;
guarantee you that your unsecured debts can be settled with a minimum amount;
refuse to send you free information about the services they offer unless you first send them personal information about your financial situation, such as numbers relating to your credit card account and balance information;
try to enroll it in a debt relief program without analyzing, together with you, your financial situation;
offer to enroll you in a DMP plan without first providing you with training on budget planning and money management; or
You are required to pay for a DMP plan before your creditors have agreed to participate in the program.
You can lower your credit expenses by consolidating your debt, which involves resorting to a second mortgage or a line of credit on the property. However, this type of loan requires you to put your house under warranty. So if you can not make the corresponding payments, or if you fall behind in payments, you could lose your home. Even more, consolidation loans have costs. In addition to the interest, you may have to pay the so-called "points," each of which equals one percent of the loan amount. Even so, these loans can offer certain advantages at the tax level that other types of credit do not provide.
Filing for bankruptcy is another option, although this measure has long-term and high-impact consequences. People who follow the rules of bankruptcy procedure receive a referral, that is, a court order that states that they do not have to write off certain debts. However, all the information related to the bankruptcy (both the date of the filing of the bankruptcy and the later date of the cancellation) appears in the credit report of the person for 10 years, which can make it difficult to obtain a credit, the purchase of a home, the acquisition of life insurance and even, in some cases, obtaining a job. Even so, bankruptcy is a legal procedure that allows a new beginning to those people who have financial difficulties and can not pay their debts.
There are two types of bankruptcy of natural persons covered by the Bankruptcy Code: chapter 13 and chapter 7. Both must be filed in the federal bankruptcy court. The costs of the presentation are equivalent to several hundred dollars. For more information, visit the United States Courts website. Attorneys' fees are charged separately and vary according to the lawyer.
The Chapter 13 bankruptcy allows people with a fixed income to keep property, such as a mortgaged house or a car, which would otherwise be absorbed by the bankruptcy process. In the bankruptcy contemplated by Chapter 13, the court approves a debt repayment plan, whereby the person can settle their debts within three to five years using their future income, instead of delivering any good of your property. Once all the payments established by the plan have been made, you receive the remission of your debts.
The bankruptcy contemplated in Chapter 7 is known as direct bankruptcy and is a procedure by which all non-exempt possessions of a person are sold. Some of the exempted goods are: automobiles, necessary tools for work and basic furniture of a house. Some of your assets may be sold by a court official, called a trustee, or be delivered to your creditors.
Both types of bankruptcy allow the debtor to get rid of his unsecured debts and avoid a foreclosure, the expropriation of property, an embargo and the suspension of public services, in addition to ending the intervention of the debt collectors. In addition, both procedures offer certain exemptions that allow the debtor to keep some of their assets, although the amounts exempted vary by state. In general terms, the bankruptcy of natural persons does not remit obligations such as child support, alimony, fines, taxes and some obligations related to student loans. And, unless you have some kind of plan backed by the Chapter 13 bankruptcy procedure to get your debt up to date, the bankruptcy procedure usually does not allow the debtor to keep a property over which the creditor has an unpaid mortgage or an embargo
You must request credit counseling from a government-certified organization within six months prior to the request for the transfer of bankruptcy debts, in addition to a full educational course for debtors before your debts can be forgiven. You can access a list of the organizations certified by the government in each state by consulting the United States Department of Justice. Another requirement to file a bankruptcy case covered in Chapter 7 is to pass the "resource verification". In this verification you must show that your income does not exceed a certain amount of money. Said amount varies according to the state and is published by the U.S. Trustee Program.
Scams Related to the Settlement of Debts
Loans with advanced charges
Some companies guarantee you a loan in exchange for you paying them a certain fee in advance. This charge can range between $ 100 and several hundred dollars. Resist the temptation to accept these loan guarantees that depend on an upfront payment. They may be illegal. It is true that many lending institutions that operate legitimately offer credit lines through the telemarketing system and request a fee in advance, which may be by requesting the loan or evaluating their credit situation. However, these lenders never guarantee that they will obtain the loan, or even assure them that it is very likely that they will receive it. According to the FTC's Regulation on Telemarketing Sales, a seller or telemarketer that guarantees you obtain a loan or some other line of credit, or assures you that there is a high probability of being granted, does not You can ask for, or accept, any payment before you receive the loan.
Be suspicious of the famous credit repair organizations. Many companies seek to attract people with bad credit histories by promising to clean up their credit reports. However, all that these companies offer you for a fee, you can do it yourself ... for free! You have the right to correct incorrect information in your credit file, but there is no one, no matter how much you assure it, that you can remove negative data from your credit report. The only way to improve the status of your credit report is to let a considerable amount of time pass and set yourself the goal of repaying any outstanding debt. Federal laws, and some state laws, prohibit these companies from charging you any fees until they have completed the provision of their services.
What options do I have if I have to face a debt collection agency that works for the US Department of Education? UU.?
If you do not meet a federal student loan, an external debt collection agency can try to locate you and collect the debt. Generally speaking, when a debt collector contacts you for a federal unpaid student loan, you have three options:
1. Rehabilitation. Rehabilitation means that your loan stops appearing as default after you make a series of consecutive payments (usually nine) in a timely manner, for a logical and affordable amount. Generally, you can only rehabilitate a one-time loan. This is the only way for your credit history to stop showing your default. In addition, if you decide to resume your studies, you may also be eligible to receive federal student aid once six of the nine monthly payments have been made.
2. Consolidation. Through consolidation, you can unify all your unpaid loans and settle them with another loan that is granted with new amortization terms. If you have problems repaying the entire loan granted, this is the fastest option that will allow you to stop being a debtor and enroll in one of the alternative payment plans of the United States Department of Education. If you can not liquidate the entire loan that you have been granted, this resource is also the fastest way to stop appearing as a debtor and to be eligible for student aid offered by the federal government. Borrowers should also keep in mind that loan consolidation does not prevent the detrimental effect of default on their credit reports.
3. Amortization. If you have the possibility of paying off the unpaid loan granted by the federal government, this is the fastest way to pay off your debt. In certain circumstances, it is possible that the debt collector in charge of your debt receives the authorization to exempt it from some of your pending charges and other expenses related to the contracting of the collection service for defaulters. For some borrowers, this option may be the most economical way to take out a federal student loan from the non-payment status. Your unpaid debt will disappear from this, but it will continue to appear on your credit report as an unpaid loan that was later liquidated. This option will also allow you to regain your eligibility to receive federal student aid, should you decide to resume your studies.
When you speak with a debt collector, have the necessary documentation to record what type of federal student loan is unpaid. If you are worried because you never applied for this type of loan.