June 2005 ~ Credit And Debt Management

Thursday, June 30, 2005

If a Second Deed of Trust Is Foreclosed What Happens to the First Deed of Trust?

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A deed of trust represents a homeowner's agreement to repay a mortgage loan. In contrast to a mortgage, a deed of trust involves three parties: the borrower, the lender and an impartial, third-party trustee who holds the property in trust for the benefit of the lender. The trustee may foreclose on a deed of trust if the borrower defaults on the loan. A second deed of trust, like a first deed of trust, secures the loan against the property's value.

In simplest terms, if a second deed of trust is foreclosed, nothing happens to the first deed of trust. A second deed of trust is called just that, because it is recorded after the first deed of trust and is second in priority as far as property liens (ownership interests) are concerned. That is not to say, the lender for your second deed of trust cannot initiate foreclosure proceedings if you default on the loan.

Since a second deed of trust is second in priority, if the value of your property should fall below the amount you owe on your first deed, the second deed becomes an unsecured loan. Holders of unsecured loans are the last in line to be paid in bankruptcy judgments and similarly, the second deed holder in a foreclosure gets paid after the holder of the first deed.

A second loan for a property can be difficult to obtain and often comes with a considerably higher rate of interest, as the lender assumes a bigger risk of losing money on the investment. Even if the lender of the second deed of trust initiates a foreclosure, the first deed lender will be paid first, and the second deed lender only gets paid if any funds remain.

If the second deed holder forecloses, the first deed holder will not necessarily foreclose as well, and often it is the case that a homeowner is delinquent on a second loan, but remains current on the first. Alternatively, the holder of the first deed may opt to buy out the second deed holder's interest in your property, or the second deed holder can buy out the first deed holder. It is beneficial for both lenders to have only one lender controlling both deeds of trust, and there is no increased risk if the property's appraisal value is higher than the combined loan balances.

Any outstanding state property taxes trump all other creditors. If you are current on your first deed of trust and are only delinquent on property taxes, the first deed lender may pay your taxes to remain in the position of senior lien holder.

How Much Can You Get on a Pell Grant?

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Students can use Pell Grants, which are federal funds intended to help low-income individuals with higher education expenses, to pay the costs of attending trade schools or undergraduate studies at colleges or universities in the United States. The federal government has maximum amounts it can grant to students through the Pell Grant program.

The maximum annual amount of Pell Grant funding was $5,500 as of February 2011, says Federal Student Aid. However, due to their financial backgrounds and/or school costs, many students are not eligible for the maximum amount of Pell Grant funding. Additionally, a student's enrollment status (full- or part-time) and time remaining in college also factor into Pell Grant eligibility.

The federal government puts students into two categories for financial aid purposes: independent and dependent. Those classed as dependents must include their parents' financial information on their FAFSA, regardless of whether their parents actually plan to contribute any money towards their education. Students classed as independents need only include their own (and their spouses', if married) salary, tax and asset information. To be an independent, a student must either be 24 years of age or older (at the start of an academic year), married, have children, a ward of the court or orphan, a U.S. military veteran or on active duty with the U.S. Armed Forces.

The government uses students' (and parents', for dependent students) financial and tax information to calculate the Expected Family Contribution (EFC), which is a detailed estimate of how much students' and/or their families are able to pay for education. Because the federal government awards Pell Grant funds on a need-based sliding scale, students with very low EFCs will likely be eligible for the maximum Pell Grant amount, while those with higher EFC numbers will be eligible for smaller amounts of Pell Grant funding, or none at all, if their (or their parents') incomes are deemed too high by their schools' financial aid adjusters.

Students under age 24 who are children of U.S. military members killed in the Iraq or Afghanistan wars after September 11, 2001, are automatically eligible for the maximum Pell Grant amount, if they qualify for such grants based on their EFCs, enrollment plans and time remaining as students. Additionally, individuals who are not eligible for Pell Grants may still obtain collegiate financing through other government student grant programs, federal student loans or private loan sources.

Chapter 13 Bankruptcy Payment Rules

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A Chapter 13 bankruptcy filing is a type of bankruptcy where the courts will order a repayment plan for a specified duration to creditors, often allowing the debtor to settle their debts for less than what is owed for the full balance. This type of bankruptcy will have damaging effects to credit, but they won't be as long lasting as the effects of a Chapter 7 bankruptcy.

As opposed to a Chapter 7 bankruptcy filing, individuals filing a Chapter 13 bankruptcy can keep homes from foreclosure even if they are behind on the payments. A Chapter 13 bankruptcy allows the debtor to place all secured and unsecured debt into a repayment plan. In many cases a Chapter 7 bankruptcy will result in an instant foreclosure since it breaches the agreement with the lender, whereas a Chapter 13 bankruptcy filing will secure the debt and does not breach the agreement for the debtor's mortgage. But he could face foreclosure if he fails to abide by the plan approved by the courts.

When filing for a Chapter 13 repayment plan the courts will review the debtor's income, expenses and total debt load. It is advisable to place all debts into the bankruptcy filing, but there are some debts that are not eligible. The debts that cannot be placed on a bankruptcy payment plan are back child-support payments, federal student loans or taxes owed to the IRS. The list of liabilities to creditors should be complete upon filing, and the debtor is responsible for the accuracy and currency of the information. Debts not placed on the plan at the time of filing will not be included in the bankruptcy protection.

Upon filing, all creditors listed will be notified of the court date. Within 20 to 50 days of filing a Chapter 13 petition, a debtor will have a court-appointed trustee represent their case to their creditors. The debtor must be present for this proceeding to answer questions from the court and creditors. Creditors who fail to have representation at this hearing will not be included the bankruptcy and will have debts automatically discharged by the courts, meaning that the debtor is no longer liable to repay them. A debtor who fails to appear for this proceeding will have her bankruptcy case dismissed. It is during this proceeding that the repayment plan will be agreed upon.

Once 30 days have passed after the original Chapter 13 bankruptcy petition, the debtor is obligated to begin making payments to the creditors that are included in the plan, regardless of whether the plan has been officially approved. Failure to do so could jeopardize the bankruptcy proceeding. Payments are completed via a payroll deduction and overseen by a court-appointed trustee.

Most Chapter 13 bankruptcy repayment plans last between three and five years, depending on the debt load. The more debt that he has incurred, the longer the duration of the plan. During this time, the debtor will live on a very fixed income since the trustee appointed by the court system will oversee all payments being made through direct payroll deduction to each creditor. Once all of the debts have been cleared and settled, the courts will automatically issue a discharge of the bankruptcy and send it to the debtor and to all creditors involved, concluding the bankruptcy and allowing the debtor to start rebuilding his credit.

Objectives of Credit Risk Management

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Credit risk management is chiefly responsible for the protection of an organization's lending assets. It must also provide internal communication to its credit representatives with policies and procedures that reduce ambiguity and allow them to best fulfill their duties. Another important objective for credit risk management is customer retention. Other objectives must be met while keeping customers loyal to insure current and future sales.

Credit risk management satisfies it primary objective of risk reduction through credit analysis and review. Credit analysis is the research and investigation required to determine the risk involved with lending to a customer. This is performed by using information from credit applications, public records and credit reports. Credit applications provide information like the applicant's name, address, age, Social Security number, driver's license number and credit references. Information from public records may include judgments, liens and business registrations. Credit reports provide financial information from credit bureaus like Experian, Equifax and Trans Union. They can reveal an applicant's credit lines, payment history, legal information (bankruptcies and judgments) and credit score. By researching and investigating an applicant's financial background, credit risk management is able to gauge the risk involved in doing business with him. For established customers, a credit review process should be employed to stay familiar with the credit situation of clients. This process allows for credit limit adjustments and other actions to reduce the company's credit risk.

Credit risk management must provide internal communication to its credit department and representatives. This not only allows them to fulfill their obligations in risk reduction, but also allows them to operate more efficiently by providing clear instruction on how to perform or act. Through the use of credit policies and procedures, credit risk management is able to better satisfy this objective. Credit policy defines the rules and guidelines regarding the performance of lending functions within an organization. This can include target customers, interest rates, loan amounts, collateral requirements and other risk analysis requirements. To provide the credit department with specifics on how to achieve the company's credit policies, credit procedures are used. These procedures can include information requirements for the investigation and analysis of credit. They can also detail information about the credit approval process, account suspension notifications and circumstances requiring management approval or notification. Credit policies and procedures reduce ambiguity amongst the organization's credit representatives. This facilitates an easier and more efficient approach to credit risk management.

Providing good service is necessary to retain customers. The company's marketing and sales departments are directly responsible for sales by attracting new clients. Credit risk management, while not charged with making sales, are still indirectly responsible for them in how they treat clients (customer service). Being polite and professional are rudimentary skills. But learning to work with customers, while satisfying a risk reduction role, takes training and development. Without good customer service as a basic objective, the organization stands to lose customers. Hard credit measures such as overly-conservative credit limits, payments terms and collateral requirements can chase customers away. Without customers there is no need for credit risk management, as the organization will naturally cease to exist.

Another objective of credit risk management involves coordinating with other departments. By working with the collections department, credit risk management is better able to stay in touch with customer payment issues and possible financial problems. Coordinating with the accounting and finance departments can provide information regarding cash-flow requirements and possible changes needed regarding financial risk. Communicating closely with the sales department can reduce internal and external conflicts regarding account decisions.

Can Medical Debt Be Reported to Credit Reporting Agencies?

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The three major consumer credit reporting agencies, Experian, Equifax and TransUnion, compile information provided by creditors into specific credit history reports for each consumer. Lenders then examine your credit report for your past financial behavior when determining whether or not you qualify for new lines of credit or loans. All types of debt, including medical debt, can appear on your credit report.

As a rule, health care providers do not report the payments you make on your medical debts to the credit reporting agencies. Its only when you stop making payments that a medical debt will appear on your credit report. Like any creditor, health care providers sell nonperforming accounts to collection agencies. Provided the collection agency that purchases your medical debt maintains a contract with the credit reporting agencies, it reserves the right to file a report. Once this occurs, your medical debt will appear on your credit report as a derogatory collection account.

The Health Insurance Portability and Accountability Act, commonly known as "HIPAA," protects the private medical information of all consumers. While HIPAA allows health care providers to share information about your medical debts with collection agencies, it restricts collection agencies from reporting sensitive medical information to the credit reporting agencies. Lenders, insurance providers, employers and other third parties have the right to pull your credit records. Thus, by restricting what collection agencies can and cannot report, HIPAA keeps your medical information private.

Debts held by collection agencies, such as medical collection accounts, cannot appear on your credit report for longer than 7.5 years. While the Fair Credit Reporting Act places a seven-year reporting period on all collection accounts, the seven-year period does not begin until your original medical debt is 180 days delinquent. Thus, if your health care provider sells the debt relatively quickly, it may appear within your credit file for slightly longer than seven years.

Medical debt differs from other types of debt in that the expenses are not voluntarily. An unexpected illness or injury can leave you owing thousands of dollars in medical bills that you cannot pay. Because medical debt is not voluntary, not all lenders view medical collections as a risk factor when evaluating your credit history. For example, an individual who runs up a credit card bill and does not pay it often represents a higher credit risk to lenders than a consumer who has outstanding medical debt for an emergency surgery, even though the credit scoring system views all collection accounts as derogatory.

How to Make a Past Due Bill Payment

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Past-due bills can accrue extra fees and interest, so the sooner your account is current the easier it is on the pocket book. With bill pay options such as paying online or using an automated system, paying past-due debts is easier and more convenient. Most payments will even post the same day if you choose to pay electronically. Creditors and even utility companies have set up electronic options for consumers to pay their bills anytime day or night.

Instructions

Find your most-current account statement that you received in the mail or through personal email.

Review the statement for payment and interest information. Look at the total payment at the bottom with the interest and late fees added.

Set up an online account access if you do not already have one for your account. This can be done easily for most accounts. Go to the company's website or a bill payment website and create a new account.

Log in to your account and make sure that your records match the information showing on the screen including interest, fees and payment amount.

Go to "make a payment" or "pay your bill" and fill out the payment information, select the date you want your payment to post and then click "submit payment."

Write down your payment confirmation number for your records and record the payment in your checkbook.

Can a Bank Account Be Garnished for Child Support?

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Often, a state government will order an individual to pay child support payments to his spouse. These payments are intended to help the spouse raise the child through financial support. Unless the person is able to work out an alternative legal agreement, one approved by a judge, with his spouse, these child support payments are mandatory. A state may garnish the person's wages to collect them if necessary.

When a judge orders a person to pay child support, the person will generally have an opportunity to argue why he should not have to pay this money. Unless the judge sides with him, the person will be held legally responsible for these debts. Once a person is held legally responsible for debts, then the state can take all of the collection actions available to a private creditor, such as garnishment.

While garnishment may usually be done by private creditors, it can be also be done by the state. In fact, the state has more options when it comes to garnishment than private creditors. Whereas private creditors are prohibited from seizing certain types of income streams, such as government benefits, state governments often have the legal right to divert money from this income. Therefore, state debts are generally more threatening to the debtor than private ones.

Garnishment is only applied to sources of income available to the borrower, not assets. A creditor, including the state, can only garnish payments that can be anticipated, such as paychecks. In some cases, a garnishment order may be applied to a person's income tax refund, but generally garnishment can only be applied to income that is provided repeatedly. Therefore, a bank account cannot be garnished, but income streams directed at the account can be.

A bank account cannot be garnished, but it can be frozen. Just as a creditor can receive a garnishment order from a judge, it can also receive an order that allows him to freeze the person's bank accounts. When this order is received, the state can provide it to the person's bank, who will legally be required to prevent the person from accessing the account. In some cases, the state will then be able to take money out of the account.

How to Legally Reduce Unsecured Debt

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Unsecured debts, especially credit cards, are a huge problem for many American consumers. High interest rates, exorbitant fees and high credit limits often leave consumers swimming in debt. If you have an overwhelming amount of credit card debt and cannot dig yourself out of the hole, you have two options for legal debt reduction: settlement and bankruptcy.

Instructions

Exhaust all other strategies for debt reduction. This includes making drastic cuts in your budget to free up more disposable income, working extra hours or a second job, working with a credit counselor or consolidating all loans to create lower payments. Both debt settlement and bankruptcy are detrimental to your credit.

Settle only some of your debts, if you choose this option. You should settle the most delinquent accounts. However, if you have less delinquent accounts that have much higher balances, you should settle these instead. The goal is to relieve yourself of the monthly burden.

Contact a debt settlement company or contact the creditors yourself to begin negotiations. Check the reputation of any debt settlement agent through the Better Business Bureau before handing over personal information.

Check all of your account statements before beginning debt settlement negotiations. You will likely need to be seriously delinquent to settle. In addition, make sure you have some cash on-hand. Creditors are unlikely to settle unless you first make a good faith, lump sum payment indicating your intent to begin repayment.

Get a copy of the settlement agreement in writing before signing it. Review it carefully with a trusted advisor--like a family attorney--before you agree to it.

Hire a bankruptcy attorney, if you choose this option. You do not necessarily need one, but he will certainly help you file the correct paperwork. Choose between Chapter 13 and Chapter 7. Chapter 13 is when the courts stop collection calls, restructure your debts and place you on a repayment plan. Chapter 7 is when all debts are cancelled and the courts seize and sell your assets to recoup the losses.

How to Stop Wage Garnishments in Colorado

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Any attempt at stopping wage garnishment has a better chance of success prior to the process being put into place by the creditor. When wage garnishment goes into effect, a creditor is unlikely to stop the garnishment willingly since you were not making payments prior to starting the process. Federal law establishes wage garnishment laws, but each state can create its own laws as long as they do not exceed the criteria created under federal law. The state of Colorado allows up to 25 percent of your wages to be garnished.

Instructions

Make an appointment with a local Colorado attorney who specializes in bankruptcy. Ask for a free consultation to discuss your options.

Gather any information you are asked to bring to your consultation. Generally, this will include all of your income and expenses. Bring any information regarding the creditor, the judgment and any garnishment paperwork you have. If the judgment was granted in Colorado, bring the court paperwork if possible.

Listen carefully to the advice of the bankruptcy attorney. There are two types of bankruptcy: Chapter 7 and 13. Chapter 7 bankruptcy will eliminate most of your debt. Child support is an example of debt that cannot be discharged. You qualify for Chapter 7 bankruptcy if you make less than the median income for your family size in Colorado. If you make more than the median income, you can pursue Chapter 13. This will reduce your total debt and put you on a payment plan. Both forms of bankruptcy will stop immediate wage garnishment.

File bankruptcy if you choose to proceed. Once the bankruptcy petition is filed with the Colorado bankruptcy court, the attorney can notify the creditor to cease garnishment.

Does Getting Pre-Approved on a Mortgage Affect Your Credit?

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Home ownership usually begins with figuring out how much you can afford to pay every month for a mortgage payment in addition to tax and insurance costs. If you have high credit scores from each of the three major credit reporting bureaus, you have a better chance of securing a home loan at a low interest rate. However, the simple act of applying for a loan can lower your score, so proceed with caution.

The Fair Isaac Company is the organization that collects and tracks consumer loan data. The three major credit bureaus, Equifax, Experian and TransUnion, assign each borrower a three-digit score that predicts risk. Higher scores mean lower risk for lenders, and if you have high scores, you'll probably get the best (lowest) interest rates for borrowing. Five factors affect the FICO score. Your on-time payment history and the amount you owe are the biggest factors and account for 65 percent of your score. The types of credit you have and how long you've been a borrower account for another 25 percent. The last category is "new credit," which is where lender inquiries come into play.

According to Kiplinger.com, applying for a credit card, auto, student or mortgage loans will affect your credit score although the drop tends to be "five points or less," according to FICO official Barry Paperno. These are called hard inquiries, which stay on your credit report for two years and affect your score for one year. If you have an existing lender that runs your credit periodically but not for new loan purposes, that's a soft inquiry. It's also a soft inquiry if you request your own credit scores. Soft inquiries do not affect credit scores.

The number of hard inquiries you initiate over the course of a year directly affects your credit score. While applying for one loan such as a mortgage only minimally affects your credit, if you follow up with an auto loan application and a credit card application, you could find yourself in trouble -- meaning your credit score will drop and you'll become a riskier loan candidate, subject to higher interest rates and loan payments.

If you plan to apply for a mortgage loan, review your credit reports and scores first with each of the three bureaus. You're entitled to one free report per year from AnnualCreditReport.com. If your credit scores indicate that you're close to qualifying for a better rate, work on improving your score before you apply by paying your bills in full and on time every month so the hard inquiry won't affect your rate. MyFICO.com offers a breakdown of what scores are best, better, fair and poor.

How Long Does a Lien Stay on Your Bank Account?

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A lien or frozen bank account has a great impact on your money situation. You can't write checks on the account or withdraw funds; and if this bank account contains all your funds, acquiring life's necessities can prove challenging. But fortunately, bank liens aren't forever and you can recover funds.

A creditor can file a lawsuit to recover funds from an unpaid balance. If you don't appear in court to dispute the charge, a judge can place a credit judgment on your credit report and attach a lien to your bank account. With a lien attached to your bank account, your financial institution freezes all funds in your account, which prevents you from depositing or removing funds.

Liens attached to your bank account remain in effect until you pay the judgment. The sooner you address a bank account lien and contact your creditor or the court issuing the lien, the sooner you can lift the lien and regain access to your personal funds.

Vacating the judgment is one way to quickly lift a bank account lien and access your funds. Vacating a judgment basically re-opens the case. You'll need to visit the court that issued the judgment, or visit your local courthouse if dealing with an out-of-state creditor, and then file the necessary documents to vacate the judgment with the court clerk's office. This filing immediately reverses a lien, and you're assigned a new court date to go before a judge.

If you owe the debt, vacating the judgment only prolongs the process. A judge will likely re-issue a judgment and you'll owe the funds. Contact the court or the original creditor to begin a payment plan to pay off the balance you owe. Paying the balance in full can quickly lift the lien, but if you don't have the cash, work out an installment plan. Creditors notify the court once you've satisfied a judgment, and the court lifts the bank lien.

Things to Do to Fix My Credit

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No matter how irresponsibly you managed your credit in the past, it can be fixed. Credit repair companies make promises of boosting your credit in miraculously short time frames for substantial fees. However, credit repair takes time. Legal credit repair is free and can begin whenever you are ready to begin improving your finances.

The first step in fixing your credit is ordering a copy of your credit reports. In order to know where you're going, it is important to know where you stand financially. Your credit reports include a list of all your credit accounts, amounts owed, dates of late payments and personal information such as your address and legal name. All consumers are entitled to a free copy of each of their credit reports from the three major credit bureaus --- Experian, Equifax and Transunion --- each year to help combat fraud and incorrect credit reporting. Each derogatory item in your credit report has a negative impact on your credit score. Review your report to find negative credit information that may be incorrect or unauthorized.

Creditors, like consumers, make mistakes when handling your credit information. Occasionally, you may find information included in your report that is false; you may also find evidence of identity theft. Dispute these items immediately by contacting the credit bureaus in writing. If you pull your credit reports online, all three major bureaus have electronic dispute forms for you to use when correcting your report. Creditors have 30 days to prove the validity of the information. If the information cannot be proven as correct, the credit bureau is required to delete the information from your credit report.

Arguing with creditors over legitimate debt gets you nowhere except to a place of frustration and anxiety. A creditor is less likely to make provisions for customers with accounts in bad standing than a customer who demonstrates a desire to manage his debt responsibly. Communicating with your lender after creating a positive payment history can sometimes take the place of disputing items on your credit report. If information on the credit report is valid, the only solution is continuing to make timely payments avoiding adding new debt to your bill.

There are few substitutes for managing your credit accounts correctly when attempting to improve your credit rating. The top three factors influencing your credit score each month are payment history, amounts owed and length of credit history. At 80 percent of your score, these three factors allow you the opportunity to keep your credit score rising each month even in the presence of derogatory information. After seven years, the negative items in your credit report, with the exclusion of bankruptcy, are removed allowing you to get a fresh financial start.

About Wage Garnishment

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Wage garnishment is usually a last resort by a creditor to get money that is owed to them after all other collection efforts have been exhausted. It can have a lasting effect on your personal life, your career and your credit. Although you are protected to some degree, it can still be devastating.

Wage garnishment is a court order delivered to the place of employment of the person who is having their wages garnished. The payroll department will incorporate the garnishment into the employee's payroll. A set amount, also court ordered, will be deducted from the employee's wages on a weekly, biweekly or monthly schedule, depending on how often the employee is paid.

Wages will continue to be garnished until the court-ordered amount is paid in full. However, the effect of having your wages garnished will stay on your credit history for seven years.

Once your employer is presented with the court order for garnishing wages, it then becomes the responsibility of the employer to make sure the designated amount is deducted from each paycheck. It also becomes her responsibility to forward the amount that was deducted to the proper place.

The court order can only take a certain percentage of your disposable earnings, which are earnings that are left after legally required deductions such as taxes. They can also not garnish wages that come from Social Security, retirement benefits or public assistance benefits, unless it is for child or spousal support.

The effects of wage garnishment are very damaging to your credit. Also, while you are legally protected from getting fired for one wage garnishment, you can be fired for having more than one. While only a certain percent of your income can be garnished, some wage garnishments, such as an IRS garnishment, can take a rather large percentage.

If the court-ordered garnishment is for back child or spousal support, the percentage that can be taken from your paycheck is usually higher. Also, there are certain funds that are not exempt from garnishment if it is for back support such as veteran benefits, military retirement, worker's compensation programs, unemployment and Social Security.

How to Move Long-Term Liabilities to Short-Term Liabilities

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Long-term debt is a difficult burden to carry. The reason many carry debt for long periods of time is the inability to satisfy the obligation short term. As your financial situation improves, you may find it cost-effective to transfer long-term liabilities to short-term ones. Short-term liabilities are those payable in one year or less. While your payments will be higher, you will save on interest long term. More importantly, you will be closer to paying off your debt and attaining financial freedom.

Instructions

Reduce the principal owed on the liabilities. Run an amortization schedule (see Resource), or request one from the creditor. Pay down the principal to the point where the loan will be paid off in one year or less.

Modify the term of the liability through the creditor. Meet with a representative and discuss repayment options. Find out what it will cost to reduce the term to one year or less. Follow the lender's procedure, and execute any required documents.

Pay the liability until it naturally amortizes to the point where only one year or less remains. This is the longest method to reduce a long-term liability to a short-term one.

Debt Management Vs. Credit Counseling

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Credit counseling and debt management plans are not necessarily separate entities. They may co-exist, as debt management is one of several options a credit counselor may recommend. For those who feel they are over their heads in debt, credit counseling is an option. It's important to use a reputable credit counseling organization recognized by the National Foundation for Credit Counseling.

Only a credit counselor can recommend that you utilize a debt management plan (DMP), if you are applying the standard financial definition of debt management. Therefore, you must obtain credit counseling before choosing to pursue a DMP. Reputable credit counselors don't just work with you to clear your debt, they also help you determine how you got into financial trouble and help create a budget that will provide a level of financial freedom. Credit counselors should present you options for debt relief, such as simple budgeting, debt consolidation loans or DMPs.

Your credit counselor may present the option of a DMP if you have defaulted on your accounts or if you have difficulty making monthly payments. Debt management involves restructuring your debt and helping the debtor manage his payments to solve his debt issues. When you sign up for a DMP, your credit counselor contacts your creditors to try to negotiate lower interest rates or a reduction in payoff balances. You agree to a payment plan that requires you to make monthly deposits to the credit counselor, who distributes payments to your creditors over a specific time frame -- usually 48 months or more, according to the Federal Trade Commission. At the end of that time frame, your debt will be paid off if the plan is followed.

Do not confuse DMPs with debt settlement or debt negotiation. The Federal Trade Commission does not recommend using these latter two services, as they often charge high fees and sometimes increase your overall debt. Some of these companies force your accounts into default status by holding onto your payments until the creditor agrees to lower your payoff balance. This action causes your credit score to plummet, and you may incur significant late fees. In most cases, you can pursue debt settlement or debt negotiation strategies yourself.

While a professional counselor can help, you can help yourself by getting your credit card interest rates as low as possible and ordering your credit report to review your credit profile. You can call your creditors directly and ask whether they can lower your interest rate or provide some other payment modification. Creditors will consider this only if you are delinquent on you account payments and can show that making the minimum required payments is difficult. You can order a free credit report from each of the three credit bureaus once each year through the AnnualCreditReport website. A credit report shows all your credit activity, and it enables you to determine what activity is hurting your credit rating. If there are inaccuracies on the report, you should dispute the items with the credit bureau to have them removed, because mistakes can damage your credit rating.

The Truth About Credit Card Debt

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The Average American carries or has carried credit card debt at some point in his life. Figures are all over the board as to just how much that figure is. The numbers being bandied around are anywhere from $2,000 to $8,000. What the average person is carrying, however, is not as important to consumers as each person's personal situation. A consumer should focus on how much he owes and how to understand the intricacies of credit card debt, payments and interest rather than worrying about the "average American."

The interest rate on your card is extremely important to people who carry credit card debt. You are charged interest for the privilege of borrowing money, according to Investopedia. Typically, the higher credit risk you are, the higher rate of interest the credit card companies will charge you to use their card. To get the lowest interest rates, you must not max out your credit cards, never make late payments and, most important, never skip payments. Otherwise, if you are able to get a credit card, you will certainly pay dearly for it in interest.

If you do have sizable credit card debt, the worst thing you can do--besides not paying the monthly payment--is to make only the minimum payment. This is because of the compounding interest the credit card companies charge you, which is quite different than simple interest, which is simply the amount you borrowed times the interest rate, according to The Simple Dollar. So, 10 percent interest on $1,000 is $100. This is what most people think they pay when they have to pay interest on their credit card, but that is not the case. The truth is much harsher.

Credit card companies are not charging you simple interest. They are charging you compound interest. The way the compounding interest works, it will take you a very long time, if ever (depending on how much you owe) to pay off your card if you only pay the minimum each month. Compound interest is the interest that is added back to the original amount of money borrowed. Most credit card companies compound interest monthly. So, using simple interest from the $1,000 at 10 percent interest, you would owe $1,100. Compounding the interest gives you a different figure, because you have to recalculate the balance at the end of each month. Working out compounding interest, you would add 1/12th of the interest to the original amount, which would be 1/12 of 10 percent of 1,000, which is $8.33, so the starting balance would be 1,008.33 at the start of the second month, repeated each month.

The higher your interest rate is, the greater the compound interest that will accrue will be. But, the credit card companies only advertise the simple rate of interest to you. An example given from The Simple Dollar explains this. If you owe $3,000 on your credit card that has a 24.99 percent interest rate, if you use simple interest, you would owe $749.70 extra in interest after one year. Using monthly-compounded interest, you will owe $3,841.82, or an extra $92.12. If interest is compounded more often than monthly the figure you owe will be higher.

The important lesson is to not carry a balance at all, and then you won't have to worry about interest. The next best thing is to pay more than the minimum balance so that the interest calculations will be lower. If you are putting money in savings, but are carrying a credit card balance, you will be wise to pay off your credit card before putting money in savings. The interest the credit card companies charge you will negate any money you earn in savings.

Tips for Managing Medical Bills

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Individuals with medical bills should educate themselves on their exact insurance coverage and learn the skill of negotiation for medical services. Medical bills, like other bills, can quickly become overwhelming, making it crucial to take control before they affect the quality of your life. Tricks that many people are unaware of can save hundreds if not thousands of dollars.

People are accustomed to negotiating with insurance companies, car salesmen and real estate agents. However, most individuals do not consider negotiating medical services. All it takes is asking the right person, such as the office manager, who then identifies the person in charge of the billing. Visit the hospital and ask to speak with the chief financial officer. A conversation with him could potentially save you 30 percent of your bill total. Of course, it is up to the CFO to decide on the amount they or the billing office is willing to discount. Only an estimated 30 percent of Americans have tried negotiating medical bills, according to the Consumer Reports National Research Center. Out of the 30 percent, an estimated 93 percent have successfully negotiated a lower bill.

A large percentage of physicians --- about 80 percent --- prescribe generic medications to save patients money. However, a much smaller percentage of physicians consider economy when recommending a diagnostic test or treatment. It is especially crucial to ask physicians for low-cost treatment opportunities when money is an issue to start with. Just ask nicely. Ear infections, pinkeye and other minor health ailments can be treated with over the counter medications that are already reasonably priced with no negotiation or expensive procedures necessary.

Look over medical bills for any errors on a statement. Examine charges for any double billing on items or treatments that have been received, and check that the correct charges were billed for each item. Report any errors to the hospital billing management and insurance provider. Ask questions to clarify charges you are unsure about. Go over each item on the bill with your insurance provider to confirm the insurance portion of the bill has been paid. At times, individuals will receive a bill at full price because the insurance payment has not yet been paid or processed.

Before committing to a medical bill payment agreement, be sure it fits your budget. Your budget must be able to cover your mortgage or rent, utility bills, food and other necessities, and then the remaining money in the budget can go toward the medical bills. This precaution should be taken to avoid larger financial problems, such as disconnection of utilities or even losing your home.

Paying with cash is mutually beneficial to the individual in debt and the medical establishment. Paying with cash eliminates the credit card interest rates, which end up costing you more money on top of the medical bills. It also saves hospitals from paying credit card transaction fees. Steer away from paying medical bills with a home equity loan, as this can jeopardize the stability of your home. Paying with credit is not really paying the bill; it is just transferring the debt to your credit cards. Obtain and save all receipts for payments paid in cash.

Creditors and the Minimum Amount to Garnish

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Title III of the Consumer Credit Protection Act (CCPA) provides a limit on the amount creditors can garnish an employee's wages. Every state has its own garnishment laws, setting forth the maximum allowable garnishment for state residents. However, states cannot impose garnishment laws that exceed the amount provided in Title III. States may set garnishment limits below the federal guidelines or set limits equal to the federal guidelines. Although state and federal garnishment laws provide the maximum amount creditors can garnish, there are no set limits regarding the minimum amount allowable.

Pursuant to Title III of the Consumer Credit Protection Act, creditors are allowed to garnish wages, "to the lesser of 25 percent of disposable earnings or the amount by which disposable earnings are greater than 30 times the federal minimum hourly wage." The statute allows for garnishment of up to 50 percent for child support and tax liens. Title III offers protection to employees facing a first garnishment; it is illegal for employers to terminate an employee due to garnishment by one creditor. However, employers may terminate an employee if a second creditor files a garnishment claim.

As Title III states, only disposable income can be garnished. Disposable income is the amount of wages left after required deductions are made. For example, if an employee has Social Security and/or state and local taxes deducted from his pay, whatever remains after those deductions are made is considered disposable income. In other words, a creditor may garnish up to 25 percent of an employee's net earnings during a given pay period; a creditor is not allowed to garnish up to 25 percent of an employee's gross earnings.

Title III and state garnishment laws do not provide a minimum garnishment amount. Thus, if an employee owes a creditor a nominal sum, that creditor is not prohibited from attempting to collect that amount. Restrictions only apply to maximum amounts. However, employees who owe creditors nominal sums are still protected by federal and state garnishment law. For example, if an employee owes a total of $100 to a creditor, but his disposable income is less than 30 times the federal minimum wage, his wages cannot be garnished. Typically, however, creditors will not garnish wages if the debt owed is nominal, particularly if the costs of filing for garnishment exceed the amount owed.

Multiple garnishments are not restricted by federal or state law. As such, an employee can be subject to more than one garnishment at the same time. However, the total amount garnished cannot exceed the federal statutory amount of 25 percent. Garnishment is on a "first file" basis, meaning each subsequent creditor must wait until the debt owed to the first garnisher is paid where multiple garnishments would exceed 25 percent. However, if the first garnisher is only taking 15 percent of an employee's disposable income, a second garnisher is allowed up to 10 percent.

Does Refinancing My Car Loan Negatively Affect My Credit?

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Refinancing your auto loan will affect your credit score, but the size of this impact will vary based on the terms of the refinancing. Any time you change your loan and debt profile, your credit score will change as well. However, changing your loan terms only, which is a small change, will likely result in a small change to your credit. Taking a new auto loan can affect your score to a greater degree.

Your credit score is calculated based on a number of factors, and each of these factors is weighted differently depending on the reporting agency. The three major reporting agencies, Experian, Equifax and TransUnion, all use similar formulas despite their different weighting systems. Those formulas account for your payment history, the length of your credit history, your total outstanding debt, new credit you have received and the types of credit you use. Changes to any of these factors will result in a corresponding change in your score.

When you refinance your auto loan, you may change one or more of the factors that determine your credit score. For example, if you pay off a large portion of your debt and refinance to a short loan period, you will lower your outstanding debt balance. This would result in a positive increase to your credit score. On the other hand, if you refinance to a longer loan, your balance will stay high for a longer time, adversely affecting your credit. The overall effect of your auto refinancing depends on these details and the process you use to obtain your new terms.

The two primary options for refinancing are changing the terms with your existing lender or taking a new loan with another lender. In the first option, your score may change if your lender makes a credit inquiry against you, your loan balance changes or your terms change. All of these effects should be minimal . On the other hand, if you take a loan from another lender, there are different factors to consider. The lender will make an inquiry, perhaps change your loan balance, modify your terms and issue a wholly new loan. The impact of closing your existing loan and opening a new one will be larger than simply modifying the terms of your existing contract.

To keep your credit score high during a refinancing arrangement, try to modify directly with your existing lender. This will prevent the necessity to open a new loan. The effect on your credit is minimized. Within a few months, you may see no net difference in your score.

Beware of contacts and advertisements from finance companies offering to refinance your debts with no negative impact to you. Often, these companies are hiding relevant items such as the impact the change may have on your credit or the additional fees associated with taking a new loan. Research the credit agency before refinancing, and do not buy in to "too good to be true" scenarios.

A Way to Fix My Credit Without Paying a Lot of Money

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Bad credit scores are not permanent. Many companies offer credit "repair" services at premium fees to attract consumers desperate to patch up their credit scores. However, there are a range of free strategies available to help you fix your credit. No legal strategy works overnight, but understanding the factors that influence your credit can help guarantee improvement in your score over time.

Creditors view responsible borrowing as using the amount of credit you can afford and repaying the balance as agreed. If you max out a credit card and pay the minimum balance only, you are not demonstrating your ability to responsibly manage credit. Keep your credit usage within amounts you can afford to pay back within a few billing cycles. Your consistent positive repayment history helps to improve your credit utilization ratio.

One of the major factors influencing your credit score is the amount of credit you owe versus the amount of credit available to you. You can fix you credit by working immediately to reduce your credit utilization ratio below 30 percent. Once your balance become low, your timely payments and reduced balances help to boost your score. The longer you keep your payments up, the more your score increases.

The financial burden of no credit is similar to the burden of bad credit. Consumers must demonstrate their ability to responsibly use credit over time to qualify for competitive interest rates and other credit based incentives. Keeping accounts open for a long period is a simple method of improving your credit score. When your account balances reach zero, keep the account open so you maintain the maximum you can in available credit.

The information contained in your credit report influences your score. However, not all information in your credit report is correct. Requesting a copy of your credit report annually can help you keep track of information submitted to the credit bureaus. In the event you find an error, the Fair Credit Reporting Act states that the credit bureaus must drop the item immediately unless the creditor can provide documented proof.

Some credit bureaus offer credit monitoring services to alert you each time your credit score changes. You can use these services to learn which actions you take influence your credit score the most on a monthly basis.

How to Freeze Your Experian Credit Report

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Consumers can protect their credit information by placing a freeze on their credit reports. According to Consumers Union, over eight million people in the USA have their identities stolen each year. Many times the thieves use stolen information to open new credit accounts in the victims' names. A freeze can help guard against credit theft by restricting access to the report until the verified account owner lifts the freeze, either temporarily or permanently. Requirements and restrictions for credit freezes vary from state to state, so check the laws if you want to freeze your credit report.

Instructions

Find your state's information on the FinancialPrivacyNow.org website. The credit freeze has been available in all states since November 2007. The filing fee, if any, will be listed.

Navigate to the security freeze page of the Experian website (see References) and select your state. This will open a page with specific information on how to file a freeze with Experian.

Read this information page to find out what exactly is needed to file a credit freeze. Each state has different regulations. Look at the requirements for personal identification.

Fill out the online form at Experian's "Add a Credit Report Security Freeze" web page. Use a credit card to pay if a fee is required.

Gather the personal identification needed and make photocopies. Use certified mail to send in the photocopies to the address specified for your state. Do not send original documents as Experian does not send them back to you.

Wait for the confirmation notice from Experian. It will include a personal identification number (PIN), which allows you to temporarily lift the freeze as needed. File the PIN in a safe place.

How to Improve Your Credit Score and Get Rid of Collections

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Credit is an important factor lenders use in determining whether to extend you credit. Collection accounts are placed on your credit file if you do not pay debts, such as cable services, cell phone services, credit card companies, loans and video game stores. These accounts will remain on your credit report for seven years and have an adverse effect on obtaining credit you need. It is important to eliminate collection accounts from your credit file so you can improve your credit score.

Instructions

Obtain a credit report. To see what collection accounts you have reporting to your credit file, you need to pull your credit report. Each year you can obtain a free credit report from each of the credit bureau agenices from Annual Credit Report .If you have already obtained your free report, you can purchase a credit report from the credit bureau agencies online on their website: Equifax, Experian and TransUnion.

Contact collection agencies and arrange for payment. Pay the collection accounts in full if you are able to do so. If not, see if the collection agency will settle the account. Since collection agencies acquire your debt from your original creditors for only pennies on the dollar, these companies will often accept an amount less than what you owe as payment in full for the account. Before settling a collection account, obtain a settlement letter from the collection agency as proof that the agency agreed to settle the account.

Obtain another credit report. You will want to ensure that once you paid the collection debt the agency marked it as paid on your credit file. Because collection agencies may not always follow through with their promise to update your credit file, it is important you pay the debt by check, money order or cashier's check so you have proof you paid the amount the collection agency requested.

Dispute the debt on your credit file. Under the Fair Credit Reporting Act, a credit bureau agency must verify information you dispute within 30 days or remove it from your credit file. If the collection agency does not update your account as paid or remove it from your credit file, dispute the debt. You can place a dispute online with the credit bureau agencies or by mail. If the debt cannot be validated since you paid it, it must be removed from your credit file. Removing the collection account will improve your credit score and improve the chances of you being able to obtain financing in the future.

What Is the Most That Can Be Garnished Out of Wages in the State of Minnesota?

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Wage garnishment is a way for a creditor or a collector to recover unpaid debt. Federal laws, such as Consumer Credit Protection Act, limit the amount that a creditor can withhold. Collectors must follow a set of procedures before they can starts taking money from the debtor's paycheck or bank account.

Minnesota law follows the federal laws when it comes to the garnishment process. Before a creditor can garnish wages, he must file a lawsuit against the debtor and obtain a judgment to collect debt. If a debtor fails to respond to the lawsuit, the creditor receives a default judgment and can start collecting the unpaid debt by withholding money from the debtor's paycheck or bank account.

Federal laws prohibit creditors from garnishing more than 25 percent of the debtor's net income or 40 times the minimum wage, whichever is greater. Minnesota law is more generous by giving the creditors 40 times the minimum wage, while federal laws allow 30 times the minimum wage. Creditors cannot garnish wages for six months after a debtor have received public assistance. Collectors cannot take the debtor's home, car, furniture and possessions up to certain values.

If a debtor receives public assistance, he protect his wages by returning the "Garnishment Exemption Notice," a form the creditor must send at least 10 days before withholding any money. A copy of this form should be mailed to the creditor's attorney. The debtor should file the "Exemption Notice" with his bank if the creditor intends to withdraw funds from a bank account.

Title III of the Consumer Credit Protection Act prohibits an employer from discharging an employee whose wages are being garnished. However, Title III does not protect an employee from being discharged if his wages are being garnished for the second or subsequent times. Violations of the Consumer Credit Protection Act can be reported directly to the U.S. Department of Labor. Violations of the Minnesota statutes can be reported to the Minnesota Attorney General's Office.

How Many Years Can a Credit Card Company Try to Collect a Debt?

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A credit card company can attempt to collect on a debt for the rest of your life. There are state laws governing how many years credit card companies have to successfully pursue you in court for unpaid debts, and there are federal laws restricting how long the delinquent credit information can remain on your report. But there are no laws forcing the debt itself to expire.

Statute of limitations laws, which vary by the state, govern how long credit card companies have to successfully sue you in court. The average is about six years, according to BCS Alliance, a credit and debt website. It's a common misconception that an expiring statute of limitations makes the debt impossible to collect. Credit card companies can continue to contact you for payment. However, BCS Alliance reports that without the threat of legal action, card companies often have little leverage to collect on old debts. Debts outside the statute of limitations are considered "time-barred" for court action, according to BCS.

Old credit card debts can remain on your credit report for seven years, according to the Federal Trade Commission. After that the information is considered outdated and must be removed from your credit report. Theoretically, you could choose to ignore a credit card debt that is no longer being reported on your credit report and is beyond your state's statute of limitations for legal action. Although the debt remains valid, the card company is left with virtually no leverage under that scenario. The delinquent account is no longer hurting your credit score and the card company knows that it cannot successfully sue you and force wage garnishment.

BCS Alliance reports that state statutes of limitation laws were created to bring a measure of fairness to debt collection and to keep people for worrying the rest of their lives about being sued. BCS Alliance notes that you can still be sued for a debt that is outside of the statute of limitations, but that the case will be dismissed by the judge once you or your attorney appears in court and points out that the account is time-barred for legal action.

It is best to respond in writing to a credit card company or debt collector contacting you about a credit card debt that has expired under your state's statute of limitations. BCS Allliance says that you should advise the card company in writing that the debt is now time-barred and that you should not be contacted about it again. The site says you should never admit that you owe the debt or that you are willing to make payments. Doing so could result in the statute of limitations being reset, and the card company could immediately sue.

Eliminate worry about old debts by making payments to resolve them while they are still within your state's statute of limitations for legal action. You may be able to pay off the balances for less than the amount owed through a process called debt settlement. "The New York Times" reported in 2009 that some credit card companies were settling delinquent credit card accounts for 20 to 70 percent of the balance. Settlements for around half the balance are more common, however.

Who Qualifies As Head of Household in Wage Garnishment?

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Garnishment occurs after a creditor receives a legal judgment permitting collection of debt by automatic deduction from a debtor's paycheck. Every state has garnishment laws that govern the amount a creditor may garnish during a pay period. Although each state is free to establish its own garnishment laws, these laws cannot establish garnishment amounts in excess of that which is prescribed in Title III of the Consumer Credit Protection Act.

Pursuant to Title III, no creditor may garnish more than 25 percent of a debtor's disposable income. Disposable income is that which is leftover after compulsory deductions are made. For example, if a debtor nets $3,000 in a pay period, but has compulsory deductions of $500 for Social Security and taxes, the remaining $2,500 is considered disposable income. State and federal law allows creditors to garnish the lesser of 25 percent of a debtor's disposable income, or "the amount by which a debtor's disposable income exceeds 30 times the federal minimum hourly wage."

Head of household status is defined by the Internal Revenue Service. To qualify as head of household, a debtor must have been single at the end of the previous calendar year, must have paid more than half of household costs and must have had a "qualifying person" live with him for at least half the year. A qualifying person is a minor child or a dependent parent.

Only Florida allows for a head of household exemption. In Florida, if a creditor obtains a garnishment judgment against a debtor who qualifies as head of household, that debtor can overcome the judgment. Other states have established garnishment limits below the federal guidelines. Thus, if head of household exemption is not available, the amount to which a creditor is legally entitled may still be below Title III's 25 percent limit.

Title III protects debtors from termination for a first garnishment. As such, it is illegal for an employer to fire an employee for one creditor's garnishment. However, if a second creditor receives a garnishment judgment, an employee is no longer protected; the decision to fire the employee is left to his employer. Multiple garnishments are allowed; however, the combined amount is still limited to 25 percent of a debtor's disposable income.

How Long Does a Credit Freeze Last?

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A credit freeze--also called a security freeze--is a very effective way to protect yourself against identity theft. However, the process can be confusing because the cost and process vary from state to state and among the three major credit bureaus. A credit freeze will remain in effect until you choose it lift it yourself, either temporarily or permanently, unless you live in a state that limits the freeze to seven years. You just need to know how to do the initial freeze with each credit bureau. Once that's done, it will remain in effect as long as you wish.

A credit freeze means that your credit bureau information cannot be accessed unless you specifically authorize it with a password or personal identification number when you want to apply for a credit card or loan. A freeze protects you from identity theft, since thieves won't typically know the password. The freeze will keep them from opening any accounts in your name.

According to consumer advocate Clark Howard, the cost of a credit freeze varies depending on the credit bureau and your state of residence. It usually runs from $3 to $10, although it may be free if you are already a victim of identity theft. Once you do the freeze, it will last until you "thaw" it, either temporarily or permanently. You may be charged a fee each time you thaw it if you do so temporarily.

Each of the three credit bureaus has its own process for doing a credit freeze. A freeze for Equifax should be done via certified mail with a return receipt requested. TransUnion allows you to do a freeze online, over the phone or by mail, and Experian allows you to do a freeze online or by mail. Exact details for the process can be found on each credit bureau's website (see Resources). Once you follow the correct process for each bureau, your freeze will be in place.

In most cases, a credit freeze is permanent unless you choose to remove it yourself. In some states, it will only stay in effect for seven years. If you live in one of those states, you can renew the freeze after the seven-year period.

In certain states, credit freezes used to be available only to victims of identity theft. However, as of 2009 the three major credit bureaus offer a freeze to anyone who wants one. You simply have to follow the correct process for each individual bureau and pay any required fee.

Can a Charged Off Credit Account Be Garnished?

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The statistics for 2010 were grim -- more than $75 billion of consumer credit was charged off, affecting 9.35 percent of all credit accounts. The economic conditions of that year led to the highest annual charge-off rate since statistics were tracked beginning in 1989. Despite these losses, banks still want to collect -- and the collectors just might try to garnish debtors to make good on these delinquent accounts.

An account write-off occurs when a bank determines that a customer is unwilling or unable to pay on an active loan. Although the bank will attempt collection, at some point determined by the bank's own policies the bank will move the account from active status to write-off status. This move provides the bank with certain tax advantages, including deductions for business losses.

After an account is written off, the bank itself will cease collection attempts. However, the bank may sell the account to a third-party debt collector. This collector, who may have paid pennies on the dollar to buy the account, will then try to get the customer to pay the full outstanding balance plus additional interest and fees. The customer will either pay the collector in full or in part, or try to evade collections.

If the customer and the collector cannot come to terms, the collector can either sell the account to a different collector, let the account expire or take the customer to court. The latter path clears the way to garnishment. When the collector can prove that the debt is valid, the judge will issue an order of judgment that then compels the debtor to pay. This judgment is a necessary prerequisite to obtaining a garnishment.

After the court issues the debt judgment, the debtor must make arrangements to pay the full outstanding amount. If the debtor fails to comply, the creditor can obtain a garnishment order from the judge. This order compels the debtor's employer to withhold a certain amount of each paycheck -- the amount varies by state -- and forward it to the sheriff's office for eventual disbursement to the creditor. Although the collector will be paid off, it's likely that the original charge-off from the bank will remain on the debtor's credit report for a minimum of seven years.

Can I Settle My Credit Card Debt Myself?

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If you're overwhelmed by credit card debt, you may be wondering what your options are for dealing with it. Depending on your situation, you may consider debt management, consolidation or even bankruptcy. If you're behind on your payments, another option is debt settlement, which can reduce what you owe. While you can hire a debt settlement company to negotiate on your behalf, it is possible to settle your credit card debts on your own.

Your account must be delinquent at least 30 days. Before you contact your creditors, determine how much you're willing to offer. You must have cash on hand to settle with so don't offer more than you can afford. Depending on your situation, your creditor may be willing to settle for anywhere from 25 to 75 percent of what is owed. Contact your creditor by telephone or in writing with the terms of your offer. If the creditor accepts the offer, request written verification before sending payment. Send payment via money order or wire transfer if possible. Do not give your creditor direct access to your checking account. If the creditor rejects your offer and demands more, be prepared to make a counteroffer.

Debt settlement allows you to save money by reducing the total amount of your debt. You also save money in terms of the interest and fees you would normally pay if you were making regular payments to your debt. Negotiating a credit card debt settlement can also put an end to collection efforts, including civil lawsuits. If a creditor sues you for unpaid credit card debt and wins a judgment against you, it can pursue you for wage garnishment or seize your bank account or other assets.

Any amount of forgiven debt over $599 may have to be claimed as income on your taxes unless you can demonstrate that you were insolvent at the time of the settlement. Debt settlement also has a negative effect on your credit score, primarily because your account is reported to the credit reporting bureaus as delinquent for an extended period of time.

If you don't feel comfortable settling your credit card debt, be very careful in contracting the services of a debt settlement company. These companies typically charge substantial fees and they can't guarantee that you will receive the best deal. In addition, there are a number of fraudulent debt settlement companies that exist solely to defraud consumers. Before entering into an agreement with a debt settlement company, check with the Better Business Bureau and the Federal Trade Commission for a record of complaints and/or lawsuits. Never agree to anything without requesting a written contract and beware of any company that asks for a consultation fee or demands payment prior to acting on your behalf.

Can a Creditor Freeze a Joint Bank Account?

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When a person owes another party a substantial amount of money, the creditor can take a number of actions to receive compensation. With the permission of a judge, the creditor can often seize assets from the debtor, including garnishing wages and freezing bank accounts.

According to bankruptcy attorney Ronald S. Cook, a creditor seeking to freeze assets will generally notify the bank of its request. If the bank complies, the account in the debtor's name will be rendered unavailable to him. A creditor is allowed to freeze up to twice the amount of money owed, and the freeze will generally apply to deposits made to the account after the freeze has been instituted. Joint bank accounts, in which one party is the debtor, aren't indemnified against freezing.

Freezes are placed by creditors as a means of compelling the person to pay. Although the creditor cannot directly withdraw the money from the frozen bank account, the debtor's inability to access her money may provide her with an incentive to make payment to the creditor. Before the account can be unfrozen, the debtor will generally be required to appear in court and petition the judge to unfreeze the account. This will usually require the debtor to offer some payment on the amount owed.

According to Illinois Legal Aid, a number of funds are exempt from seizure and freezing. These include Social Security benefits, public assistance benefits, unemployment insurance, awards made under a law for crime victims' compensation, and many forms of income needed to support a debtor and his family. In addition, depending on the laws of the state in which the account is held, many pensions and retirement funds are protected from seizure as well.

According to Indiana Legal Services, if only one depositor who holds the account is being sought by creditors, then the other depositor's funds are exempt from seizure. However, the other depositor must be able to clearly demonstrate which funds she deposited into the account so that they can be removed from the freeze. However, if the other depositor was named in the judgment in the creditor's case, her funds can be frozen, too.

State laws differ on the rights of a joint depositor not named in a judgment. For example, according to the Neighborhood Economic Development Advocacy Project, a New York resident may be able to have his account unfrozen if he can show that the party named in the legal judgment had her name on his account for convenience only. If he cannot show this, he can still have half the money in the account unfrozen, unless the creditor can show more than half of the money belongs to the debtor.

What Are the Differences Between a Debt Management Program and Debt Consolidation?

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Large amounts of debt can be overwhelming. Debt management programs and debt consolidation are two different solutions for getting out of debt. Both options have advantages and disadvantages. If you are determined to get out of debt or you need help just making your monthly payments, you should review both options.

Most debt management programs are run by credit counseling agencies. In a debt management program, you make one monthly payment to the agency. The agency works with your creditors to lower your interest rates and your monthly payments and, if possible, to settle your debt. The agency also works with you to set up a budget and give you counseling so you can prevent going into debt in the future.

However, using this type of program does leave a negative mark on your credit report. Additionally, many of these agencies disappear or do not help in the way they promise. When choosing this option, carefully research an agency and check with the Better Business Bureau in your area to make sure the agency you choose is legitimate.

Debt consolidation can make your monthly payments more manageable and lock in a lower interest rate on your loan. With debt consolidation, you take out a new loan in the amount of your other debt. You use the money from the loan to pay off all your other debts.

Although the monthly payments are often lower, they are stretched out over a longer period of time. This means you may end up paying more interest than you did on the loan. However, with a consolidation loan, you may qualify for a lower interest rate than you had on your credit cards.

One problem with this loan is that many people will do this with a second mortgage or home equity loan, which ties the debt to your house, and if you cannot make payments in the future you may lose your home. Another problem is that it does not address the behaviors that caused you to get in debt. Often people who go this route end up with the same amount of credit debt as well as the consolidation loan in a few years' times.

As you look at your individual situation, you need to determine which solution is better for you. If you are in serious trouble with your creditors and really want to change how you manage your finances, a debt management solution may help you change your habits and get your debt under control. Debt consolidation might save you money as you work to get out of debt on your own. Suze Orman, in her debt management special, says she likes debt management companies but says, "Say no to (debt consolidation companies)."

An alternative is to set up a debt payment plan for yourself. List your debts in order from highest interest rate to lowest. Create a budget and find extra money to apply to your debts. Start with the first debt on your list, and pay extra on it until it is paid off, then move on to the next debt. Working an extra job or selling items can help you get out of debt.

Can a Judgment Affect Assets Held by a Spouse?

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Judgments are court orders that allow creditors expanded avenues for debt collections. Not only will a judgment seriously harm your credit rating and place your assets in danger of seizure, judgments can affect assets held by your spouse. The laws in your state of residence dictate whether or not your spouse's assets can be touched by a creditor with a judgment.

If your name is on a bank account held by your spouse, then the judgment may affect the assets held in the account. If the bank account is solely in your spouse's name, then the judgment should not affect the assets, unless you live in a community property state. Your state of residence must allow garnishments or levies to be used on joint bank accounts in order for the judgment creditor to seize the funds. If you can prove that the funds within the joint account are solely from your spouse's income, you may appeal the garnishment and have the funds released. Other exemptions include a portion of your disposable wages, Social Security income, Veteran's benefits and certain pension and retirement income.

Your spouse's wages may be subject to garnishment for a judgment that is solely in your name if you incurred the debt during your marriage. A spouse is not liable for debts incurred outside the marriage unless their name is also listed as the account owner. In this case, the judgment would be against all listed account owners. For example, if you have a credit card in your name only, but add your spouse as an account holder after you are married, your spouse is liable for the portion of the debts incurred during the marriage. If the debt leading to the judgment is solely in your name, but the debts were incurred during the marriage, your spouse's wages may still be subject to garnishment if your state adheres to the Doctrine of Necessaries. The same rules apply to real property assets that are solely in your spouse's name. Judgment creditors can petition the court to place a lien against real property in the amount of the judgment.

Certain states uphold the rule of common law called the Doctrine of Necessaries. If you live in Ohio, Connecticut or any other state that recognizes this law, then assets held by a spouse may be affected by a judgment. Medical debt and other expenses deemed necessities fall under this doctrine.

If you live with your spouse in a community property state, a judgment against you can affect the assets held by your spouse. Laws vary by state, but many community property states consider the debts incurred in the marriage the property of both parties, just as the assets incurred during the marriage are shared equally. Community property states are Alaska, Wisconsin, New Mexico, Arizona, Louisiana, Nevada, Washington, Idaho, Texas and California.

Are Credit Card Debt Elimination Programs Legit?

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When credit card users fall behind on payments or get overwhelmed by the amount of debt they have, they often turn to companies advertising "debt elimination" or debt settlement services. Though some of the services these companies offer may be beneficial to you, there is a large percentage of these companies that offer little more than scams or empty promises. Talk to a financial adviser or credit counselor in your area if you need help with credit card debt.

When the company offers itself as a debt elimination service, this tends to be misleading. Many consumers believe that debt elimination means you will be able to get out of your credit card debts without having to pay them back. While this may be possible in some extreme situations such as debt settlements or bankruptcy, debt elimination companies typically have no more power to reduce or eliminate your debt then you do.

One way companies offering debt elimination services try to get you to become their customer is by telling you they can settle your debt for pennies on the dollar. Sometimes credit card companies are willing to settle some debts for less than the amount of debt you owe. However, you can negotiate your own debt settlement without the aid of a company that offers debt elimination services, and will likely save yourself a lot of money in the process.

Other debt elimination companies try to get you to enter into a plan whereby the company agrees to give you a loan to pay off your debt. Known as debt consolidation, these companies don't really eliminate any of your debt, they simply shift the burden from your old creditors to the company giving you the loan. Debt elimination companies that "help" you consolidate your debt are simply selling you a new loan, and are doing so because they think they can make money off of you.

The Federal Trade Commission warns consumers that using any debt settlement or debt elimination company can lead to even more serious financial consequences. These companies often charge high prices for their services, and can leave consumers far worse than they were before. Always carefully research any debt elimination company you're considering. You should also demand that the company provides you with a written fee agreement so you know exactly how much you have to pay, and when.

Does a Debt Collector Have to Send a Letter Before a Suit?

12:02 PM No comments

There are vital points of verbal and written contact with a debt collector leading up to a lawsuit. Federal and state laws require collectors to follow a specific process when they attempt to recoup debts from consumers. A violation of any part of the process could turn a debt-collection suit in your favor, especially if the violation interferes with your right to defend yourself.

The U.S. Fair Debt Collection Practices Act requires collectors to send you a notice explaining the debt you owe within five days of first contacting you to request payment. The notice must include your account number, the company you owe and the amount the company is trying to collect. The notice also must provide instructions on how to dispute the debt if you already paid it or you believe you owe less than the amount shown on the notice.

You have a right to send a letter to collectors to tell them to stop contacting you about paying a bill. The FDCPA requires collectors to stop communicating with consumers after receiving such letters, but there are exceptions. One exception is that a collector can contact you one more time to inform you of his company's intention to sue to recoup a debt. The FDCPA prohibits collectors from making empty threats about lawsuits. They must be prepared to sue you if they inform you of their intention to do so.

A collection agency that files a lawsuit against you must send you a summons, which is an official notification that a suit has been filed. The summons tells you when and where to appear in court to defend yourself, and it comes with a complaint that explains why the company is suing you. A collection agency that fails to send you a summons, or fails to follow rules for serving the summons, gives you a legitimate defense to fight the lawsuit.

An improperly served summons interferes with your right to defend yourself if a collector sues you. That's why there are rules regarding how people receive a summons. For example, the New York City Civil Court indicates that its appropriate for a summons and complaint to be left with an adult at the home of a person facing a lawsuit, but copies of both documents must be mailed to the same address within 20 days of leaving them at the home. Consult with an attorney to dispute a collector's lawsuit if you didn't receive a summons and complaint or you suspect the collector didnt properly deliver them.

Credit Union Banking Laws

5:23 AM No comments

A credit union is chartered by either a state or the federal government and is a financial institution that is owned by its customers. A credit union offers lower rates on loans and pays higher rates on deposits than do most commercial banks. And from time to time, it will pay its excess profits to its customers as dividends. More than 3,000 credit unions, or about 40 percent of the total, are state chartered and are supervised by the National Association of State Credit Union Supervisors (NASCUS). The remainder are federally chartered and are supervised by National Credit Union Administration, a federal agency.

The credit union movement began in Europe where they were established to encourage savings by their members. In 1903, credit unions were introduced to the United States when the first two were established in Massachusetts and New Hampshire where many people either were not being served by traditional banks or were charged high interest when they borrowed money. In 1934, the Federal Credit Union Act was passed by Congress; and soon thereafter, the predecessor of NCUA was established. In 2008, more than 85 million people were members of credit unions that had deposits in excess of $600 billion.

By law, credit union can be established to serve people who have a common affiliation such as employment, the area where they live, or the university they attend. For instance, a company can establish a credit union for its employees and anyone related to them. As a member of that affinity group, a person can become one of the owners of the credit union by making a small deposit, often only $5 or $10. When a dividend is paid, it will be pro-rated to members based on the size of their deposits.

Commercial banks and credit unions are managed differently. Credit union members are in control of how it is managed by electing a volunteer board of directors. The board then elects the officers and other supervisors from the credit union's membership. Membership requirements are spelled out not only in the CUNA by-laws, but also in the by-laws of NASCUS.

Almost all the money deposited in both state and federally chartered credit unions are guaranteed by the National Credit Union Share Insurance Fund (NCUSIF) that covers the first $100,000 of any account. The remaining 162 state chartered credit unions are insured by American Share Insurance (ASI).

When a company establishes a credit union as opposed to a commercial bank, as provided by law, it creates an important fringe benefit for its employees. By creating a self-funded credit union, it can provide such services as direct deposit of its employees' paychecks, a service that it pioneered almost 30 years ago. Furthermore, credit unions tend to be more understanding of the needs of its membership than are commercial banks.

Welcome to our website credit and debt managementr.

Thursday, June 30, 2005

Priority

Effects

Significance

Considerations

Property Taxes

Maximum Amount

Independent vs. Dependent Status

Expected Family Contribution

Considerations and Alternatives

Home Ownership

Debts

Time Frame

Beginning of Payments

Duration

Monday, June 27, 2005

Risk Reduction

Internal Communication

Customer Service

Departmental Coordination

Sunday, June 26, 2005

Reporting Medical Debts

HIPAA Privacy Laws

Time Frame

Effects

Instructions

Child Support

State Debts

Garnishment

Bank Account Seizure

Instructions

Saturday, June 25, 2005

Instructions

How FICO Scores Work

Hard Vs. Soft Inquiries

The Consequences of Multiple Hard Inquiries

Check Your Credit Before Applying for a Mortgage

What is a Bank Account Lien?

Length of a Bank Lien

Vacating the Judgment

Deal With the Debt

Ordering Your Credit Reports

Disputing Items

Getting Your Bills on Track

Considerations

Friday, June 24, 2005

Function

Time Frame

Features

Misconceptions

Effects

Warning

Instructions

Thursday, June 23, 2005

Credit Counseling

Debt Management Plan

Warnings

Considerations

Wednesday, June 22, 2005

Significance

Misconceptions

Features

Considerations

Prevention/Solution

Negotiate

Low-cost Treatments

Errors and Insurance Payments

Make a Budget

Pay with Cash

Tuesday, June 21, 2005

Title III

Disposable Income

Minimum Amounts

Other Considerations

Background

Effects

Options

Considerations

Warning