May 2005 ~ Credit And Debt Management

Tuesday, May 31, 2005

What Is Debt Refinancing?

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When a person takes out a loan, the loan usually is issued with specific terms, such as the rate of interest the person must pay on the principal and when the loan must be repaid. Similarly, a bill may also carry interest or have a specific repayment schedule. If the debtor chooses to replace this debt with another debt -- one with different terms -- this process is known as refinancing.

A debt is considered to be refinanced when the debtor's current debt is paid off and the debtor takes on a new, replacement debt. Often, a debt will be refinanced by a different lender than the one that issued the previous debt. This lender is essentially buying out the previous loan in exchange for the right to be repaid for the new loan he issues to the debtor.

The refinancing process is initiated by the debtor for a number of reasons. Refinancing is most often done with houses, although it also can be done for cars and other sizable loans. Generally, the debtor refinances to gain some financial advantage. For example, the debtor may seek to refinance into a loan with a smaller monthly payment amount or a loan with a lower rate of interest.

In lieu of refinancing a loan, a debtor may seek to change the terms of his current loan. Instead of entirely replacing his current loan, the debtor and the lender instead sign an addendum to the current loan contract that changes its terms. Unlike refinancing, loan modification must be completed with the permission of the current lender. Refinancing can be pursued with the approval of the debtor only.

Most debts are transferable, both by the buyer or the seller. This means that, theoretically, a debtor can refinance nearly any debt, as long as he finds a seller willing to buy his debt and issue him a new one. However, realistically, many lenders may be unwilling to pay a person's debt and issue him a new one. In addition, some debts carry financial penalties for early repayment.

Financial Consolidation Methods

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If your monthly budget is being pushed to the limit due to high-interest credit card accounts, then you will want to consider consolidating that debt and paying it off. There are several financial consolidation methods that consumers can use themselves. The advantages to consolidating your own debt is that you save money on the service charges paid to debt consolidation firms, and you gain firsthand experience in managing your money.

According to online financial resource Bankrate.com, one option to consolidating your debt is to borrow funds from a friend or family member that has the resources, and then work out a payment schedule. Draft an agreement on paper that will bind you to payment terms as an incentive to pay back the money. You can also offer to enter a credit counseling program that will help teach you how to use your credit wisely and stay out of future credit problems.

According to the online credit resource Lower My Bills, a home equity line of credit can be an excellent financial consolidation method because of the potential for a low interest rate. It is important to remember that a home equity line of credit uses your home as collateral, so if you default on the payments you may be putting your home in jeopardy.

Refinancing your home is a way to consolidate your bills, and potentially lower your interest payments on your mortgage as well. If you have been paying on your home for 10 years or more, there is a gap between the value of your home and the amount left on your mortgage that may be substantial enough to pay off your debt. If you get a lower interest rate than your original mortgage, then you monthly mortgage payments would drop as well.

You might receive an offer to transfer your credit balances to a new credit account as a way of consolidating your credit. Before you get involved in a program like this, be sure to read all of the terms and conditions. There may be a very low introductory interest rate on transferred balances, but that rate may go up after the introductory period is over. If the interest rate being offered after the introductory period is agreeable to you, then consider using a balance transfer account to consolidate your debt.

What Happens to Your Debt If You Leave the Country?

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While you shouldn't move out of the country because you're in debt, there are times when you can't help it. For example, if your job takes you out of the country and you have built up some debt, the situation is unavoidable. What you do about it is up to you, but you have several options.

You have the option of continuing to pay the debt, of course. If you decide that you want to honor your agreement with the lenders, you simply contact them and explain the situation. In some instances, they'll work with you to set up another bank account that can be used solely to pay off the debt. This doesn't always work, however, especially if the country you're moving to doesn't have the best banking system. If your new country of residence doesn't have that option available, you might need to set up a bank account with friends or relatives to handle the debt.

If you decide not to pay your debt, you need to consider the ramifications. While you might not think that you're ever coming back to the United States, circumstances could change, forcing you to return. If you do return, you probably will have ruined your credit. However, if you decide that is the route you're taking, you should close your bank accounts that are still in the United States. That way, if there is a judgment against you, your bank accounts cannot be touched.

Even if you move out of the country, the lender can seek judgment against you. Although you might have moved to Singapore, for example, if the debt was incurred in New York state, the lender can file suit in a court in New York. If you do not show up and the court finds in favor of the lender, any assets remaining behind can be seized. In addition, if the company you work for is a United States-based company and a judgment is found against you, you might find your wages garnisheed.

If you leave the country and you owe money, the odds are in your favor that the lender will not come after you for repayment. There are two reasons for this. The first is that there are no treaties in which a debt can be enforced. If a local court in the country decides it wants to work with the lender, that is another matter entirely, since you would be subject to local enforcement. The second reason that a company won't come after you is because, in most cases, it would be simply too expensive to prosecute a debt in a foreign country.

South Carolina Credit Card Debt Collection Law

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If you do not pay your credit card bills on time, the lender has the legal right to turn the debt over to a collection agency. But several South Carolina state laws, as well as the federal Fair Debt Collection Practices Act, protect your rights even if you owe a credit card company many thousands of dollars.

Credit card companies, their collection agencies and other consumer-oriented lenders cannot legally garnish your wages if you live in South Carolina. State code 37-5-104 bars this practice. Thus, if a collector threatens to garnish your wages he is not only violating state law, but also the Fair Debt Collection Practices Act. Under that federal law, collection agents cannot threaten legal action if they are not able to pursue it or do not plan to do so.

Under the Fair Debt Collection Practices Act, bill collectors can call your residence or place of work unless you've told them in writing to stop doing so. If you did not demand they stop calling you, they can only legally call between the hours of 8 a.m. to 9 p.m. South Carolina time. They cannot discuss your credit card debts with other people without your consent, nor can they call repeatedly, insult you or make threats against you.

Collection agency representatives can mail you letters demanding debt repayment. But they must identify their company, the original creditor's name and the amount owed. They also cannot communicate with you through postcard or place information on the outside of the envelope that reveals they represent a collection agency. You also have the legal right to demand proof that you owe the debt; if the collection agency cannot prove you owe the original credit card debt they must cease all collection efforts.

If you really owe the credit card company money, that business, as well as the collection agency, can report negative information about you to the credit bureaus Equifax, Experian and TransUnion. These reports can only legally remain for seven years from the date of the original missed payment, unless you declare Chapter 7 bankruptcy on those debts. Chapter 7 bankruptcies negatively impact credit ratings for 10 years from the date of filing. If you believe the information reflected on your credit reports is incorrect or outdated, you can demand under the Fair Credit Reporting Act that all involved businesses prove the information or remove it.

How to Collect Debt From the Deceased

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Debt does not die with the debtor, and you can attempt to collect what is owed to you after someone is deceased. This is done by filing your claim with the probate court or executor overseeing the deceased estate. The executor of the estate must pay all debts owed by the deceased before the beneficiaries can receive a penny. This means there is a good chance that you will receive your money, unless the estate was deeply in debt with few assets.

Instructions

Request a statement of claim from the probate court overseeing the deceased's estate. This form may be available on the county or district judicial branch website, or you can call the court.

Determine the precise amount of the debt you are owed by the deceased. Check the original contract and account summaries of payments made and interest accrued.

Fill out the statement of claim. The exact form will vary between districts, but in general it requires the approximate date the debt arose, the nature of the debt and the exact amount of the debt.

File the completed statement of claim with the probate court. File either with the personal representative of the estate, the executor or with the court administrator. Once filed, you will automatically receive essential updates as the estate goes through probate.

Wait for the estate to go through probate. This process usually take about a year, but it can take much longer if the deceased's will is contested. During this process, the executor will inventory all debts and assets of the estate. Debts will be paid according to the priority set by state law and the probate court. You will be paid once the estate leaves probate as long as the estate has enough money to cover the debt. If the estate is insolvent, meaning it has more debt than assets, you may not be paid. In this case, the debt is noncollectable, and you must write it off.

Is Debt Ever Wiped From Your Record?

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Getting accurate information removed from your credit report is no easy feat. Over time, however, information about most debts will drop off your credit record, making it easier for you to get credit at decent interest rates.

Unpaid debts and late payments can show up on your credit report and stay there for up to seven years, though if you request a loan over $150,000 or apply for a job that makes over $75,000 per year, credit bureaus can continue reporting negative information indefinitely.

There are two ways of getting information permanently wiped off your credit report: The first is to dispute untrue information with the credit bureaus. If they can't prove that the information is accurate, they have to take it off your report. The second is to persuade a creditor to remove the account, usually by offering to pay off or settle the debt.

The statute of limitations on collecting a debt through the courts varies from state to state. Once the statute of limitations is up, a judge can dismiss a creditor's lawsuit on the grounds that the debt is outside the statute of limitations. In many states, the statute of limitations is only a few years, far less than the length of time a debt can remain on your credit report.

Don't mistake the fact that your debts can be "discharged" in bankruptcy with their being eliminated from your credit reports. While bankruptcy can end your obligation to repay a debt, the debt will remain on your credit report up until the time limit set by the Fair Credit Reporting Act. However, once a bankruptcy court discharges your debts, your creditors are obligated to list your debts as having a zero balance.

Some companies are in the business of purchasing old debt and trying to collect it, even if it is past the statute of limitations. While you may not be legally obligated to pay this debt, and the debt should not be returned to your credit report, some unethical debt buyers will try to bully you into paying it anyway. They do this by either putting the account back on your credit report, tricking you into agreeing to repay the debt or by taking you to court. If you hear from a collection agency about a very old debt, take action. Send them a letter via certified mail informing them that the debt is out of statute and to refrain from contacting you again. Check your credit reports as well: If you find that the debt is back on your reports, file a dispute with the credit bureaus.

What Happens to Your Home Equity Line of Credit If You File Bankruptcy

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Your bank will close your home equity line of credit to further charges or withdrawals if you file for bankruptcy. You must disclose all debts and credit lines during the bankruptcy application, and the official notice of your bankruptcy filing will be sent to all of your creditors, including the lender on the home equity line. During bankruptcy you may have options for eliminating any balance on your home equity line while keeping your home and first mortgage.

A lender aware that you are filing for bankruptcy will move quickly to protect the bank's interests by closing the account. The credit agreement that you signed gives the bank the right to modify your credit line at any time, and banks routinely reduce or close credit accounts.

A provision in bankruptcy called an "automatic stay" prohibits the lender from taking further action. An automatic stay is a legal injunction signed by a federal judge. It prohibits all of your creditors from collecting from you while you are under the protection of the federal bankruptcy court. Without that protection, a lender aware that you are having financial problems could close your home equity line and demand that you pay any outstanding balance in full if you have been missing payments on the home equity line. If you refuse, the lender could declare you in default of the home equity loan agreement and begin foreclosure proceedings.

The Bankruptcy Law Firms website reports that in some instances you can keep your home and home equity line during a Chapter 7 bankruptcy through the use of exemptions for retaining a primary residence. However, the lender may not allow more charges on the home equity line after you emerge from the bankruptcy. On the other hand, Chapter 13 can allow the home equity line to to be discharged, or eliminated if the market value of your home is less than the balance on the first mortgage. That situation is considered being "upside down" or "under water" on the mortgage because you owe more on the home than it is worth. As a result the home equity line is treated as an unsecured debt because of the absence of equity. Chapter 7 and Chapter 13 are the most popular forms of personal bankruptcy, with Chapter 7 allowing you to shed credit card and other debt within just a few months. Chapter 13 requires a payment plan of three to five years and then unsecured debt is eliminated.

All forms of bankruptcy can be complex and confusing for people inexperienced in such matters and the U.S. Bankruptcy Courts strongly recommends that you hire an experienced bankruptcy attorney to handle your file. You are allowed to file for bankruptcy on your own, but the potential for procedural errors increases if you handle the case yourself. The bankruptcy judge can dismiss the case if you make mistakes and that would allow the automatic stay to end.

What Happens to My Car Insurance After Getting Sued?

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Sometimes, after a person has been involved in a car accident, particularly one in which he was at fault, he will be the object of a lawsuit by people who have been injured or had their property damaged. While the person's insurance should cover a person up to a certain amount of damages, the person will have to pay out of pocket for additional damages and will likely see a hike in premiums.

Basic liability auto insurance provides an individual with financial compensation in the event they are liable for damages caused through their driving. Each policy will have a coverage limit -- a maximum amount of money that the auto insurance company will pay out in claims for a single incident. If the person is found liable for more than that, the insurance policy will not cover this difference.

Often, claims made against a person for damages related to a car accident will be settled out of court. In such a case, the insurance company will agree to pay the individual a certain amount of money as compensation, and the person will in turn agree not to sue. However, a person may instead choose to file suit against the person in court. In such a case, the insurance company will defend their client in court.

After the case has been heard in court, the judge will issue a ruling on who is responsible for the damages and how much the person owes. If the policy holder is found liable for damages, then the insurance company will cover the amount of the damages up the limit specified in the person's insurance policy. The policyholder will not generally be charged for his or the other person's legal fees.

After a person has been found liable for an accident, he will generally see a rise in his premiums. Generally, the more expensive the claim filed against the person's policy, the more his premium will rise. However, being sued will not in and of itself cause a person's premiums to rise. And, if he is not found liable for the damages in the case, he may face no hike at all.

How Do Collection Agencies Work?

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Collection agencies can be found in two different forms: in-house collection and third-party collection. The in-house collection agencies are most often the billing department for a credit agent or large firm which offered time payments. These are used to collect money while keeping the collection costs low and within the company. Most often this will be the first collection attempt you will come across.

Third-party, or outside, agencies are those which are hired by a firm to collect a past due amount. These are the most common types of collection agents people come into contact with. These companies either work on percentage or purchase charged-off debt from the original creditor.

Many collection agencies and their agents work off a percentage of what debts or payments they can collect. Others purchase your debt for pennies on the dollar and then attempt to collect the full amount. Usually if a debtor pays off what they owe, the collection agency makes money from either the payments or from the difference between the costs of buying the debt and the amount collected. In most cases, the collection agency makes from one-quarter to one-half of the full amount as profit. If the collection agency cannot collect the debt, they will often sell the debt to another agency to break even and look for more successful accounts; this usually creates the involvement of three or more agencies with one account while the original creditor has written off the account as a loss.

Collection agencies have four methods to collect a debt: letters, direct contact, reporting the debt to credit reporting bureaus and suing for the debt. Suing for the debt is the least used method because of cost and time consumed. Letters and direct contact are the most often used and can be the most successful methods. If a constant stream of letters or phone calls does not yield results, often the threat of bad credit will bring results. Most collection efforts will be made with form letters and pre-recorded call messages to save on costs and the need for employees. This allows a collection agency to manage its efforts to collecting money from a greater number of accounts.

Collection agencies often use flexible payment options to work out an agreement. Some agencies use a discount option where the debtor can pay half of the debt owed to settle the account. This is usually the case when the debt is very old or very large and is used to cover costs and clear dated accounts.

Financial Debt Recovery

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Recovering after falling into a large amount of debt can be difficult for anyone. Debt is a major problem that people have to deal with every day. Even though debt can hamper your financial situation, it doesn't have to take control of your life. There are steps that you can take to recover from debt and eliminate it.

When you're trying to recover from a large amount of debt, it's important to always make your monthly payments on time. Even if you can only afford to make the minimum payments on your credit cards and other accounts, this is better than missing a payment. If you miss a payment or pay a bill late, it negatively affects your credit rating. Throughout the process of repaying your debts, you should always stick to a specific repayment schedule if possible.

Debt recovery could come in many forms. One option to pursue is debt settlement, a process in which you settle your debts for less than what you owe. Another option to consider is bankruptcy. Bankruptcy can wipe out your debts, but it also can negatively impact your credit score. You could also try debt consolidation, which involves borrowing money to pay off your debts and then focusing on that one debt.

The process of getting out of debt comes with several benefits. One of the most important benefits is that it allows you to improve your credit score. When you have a great deal of debt, your credit score can be negatively affected. Another benefit of this process is that it can free up additional funds for you on a monthly basis. When you get your debts paid off, you don't have to worry about making those monthly payments any longer.

When you engage in financial debt recovery, think about the consequences for your credit report. Certain debt-recovery methods can negatively impact your credit along the way. For example, debt settlement can lower your credit score because you're paying less than what you owe and because you didn't fulfill the terms of your original agreement. Bankruptcy also can negatively impact your credit score and remains on your credit report for 10 years.

If you don't want to tackle the process on your own, there are companies that can assist you with this process. You can get help from a credit counseling company or other similar organization. These companies can help you review your options and choose the best one for your situation. When you choose a credit counseling company, make sure that it's legitimate by checking it out with the Better Business Bureau.

Percentage of Debt That You Have in Relation to Your Income

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You might hear news reports or read articles that talk about how consumers carry too much debt. But how much is too much? What is it measured against to determine if the level is acceptable or not? The most common measurement is called a debt-to-income ratio. Financial lenders use two variations of this ratio to determine whether your debt as a percentage of your income is at an unacceptable level.

The generally accepted percentage of debt to income is 36, meaning that your monthly debt payments should make up not more than 36 percent of your gross monthly income. Your housing costs should be not more than 28 percent of your income. This leaves 8 percent of your income for other debt.

Housing costs are considered to be the principal, interest, real estate taxes and homeowners insurance that you pay each month. If you are renting, it will be your rent and renter's insurance payments. These are the amounts that should not exceed 28 percent of your income. The remaining 8 percent should cover car loans, child support and alimony, credit card bills, student loans, condominium fees and any other debt you have.

To make the determination of what your debt-to-income ratio is, begin with your income. Look at your income before taxes are withheld. If you are paid bi-weekly, you will need to multiply this amount by 26 and then divide by 12 to get your monthly income. If your pay varies from week to week, you will need to calculate an average pay over a few months and then determine your monthly pay using that average. Multiply your monthly gross income by .36 and the resulting answer is the upper limit that your debt can be before financial institutions consider it too high for a loan. Next, total your monthly debt and divide it by your income to see what your percentage is.

If your debt is too high, then you should work to reduce that percentage. You can do this in two ways. Pay off more of your debt so that your total debt is reduced. You may need to reduce other spending in order to put more toward your debt payments for a while, but your goal is to reduce your total debt. The other thing you can do is earn more. This might be harder because you will probably need to take on a part-time job or work more hours at your current job. With a greater income, the same amount of debt will represent a smaller portion of the income.

Debt Consolidation Vs. Credit Counseling

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Debt consolidation and credit counseling are just two of many options availabe for those who need help managing their debt. If you're seeking a debt solution, consider the pros and cons of each.

Debt consolidation refers to combining debts into a single monthly payment to save money on interest and fees. Credit counseling refers to a group of services involving money and debt management.

Secured and unsecured debts are combined into a consolidation loan, or through the services of a debt consolidation company.

You meet with a certified credit counselor who goes over your expenses and income. If you qualify, the counselor works with you and your creditors to create a debt management plan.

Debt consolidation allows you to make a single payment each month at a lower interest rate. If you consolidate unsecured debt into a secured loan, you run the risk of losing your collateral if you can't make the payments.

Credit counseling helps you stabilize your payments and lower your interest rates. It can also lower your credit score if your debt management plan requires that your accounts be closed.

Can a Lien Be Placed on Your Property for Unpaid Medical Bills?

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Medical debt is one of the primary financial issues that plague many families today. When you get into medical debt, the medical provider can take a number of steps to try to get the money back from you. The creditor could file a lien on your property, but not without going through the proper channels first.

When a medical provider places a lien on your property, it does not mean that it owns the property or that you have to move out. A lien on your property is simply a claim to that property by a creditor. When you sell your property, it will be impossible to do so without using part of the money to pay off your debt. You typically also have a certain amount time to pay the debt before the lender could foreclose on the property.

Before a medical provider can place a lien on any of your property, it must first get a judgment against you. This involves filing a lawsuit against you in civil court and then presenting a case to the judge. If the creditor can prove that you do owe the debt and that the debt is still within the statute of limitations, the court will issue a judgment against you. Once it obtains the judgment, the creditor can use it to file a lien on your property.

When a creditor places a lien on your property, the debt that is associated with the lien can earn interest. While you continue to own the property and do not pay off the lien, you will be charged a certain amount of interest by the creditor. When you sell the property, you will have to pay the original judgment lien amount as well as any interest that accumulated while you were still using the property.

When you find yourself with a lien on property, you could pursue a few different options to get rid of it. The simplest solution is simply to pay the lien. Most creditors will work out a payment plan for you so that you can get rid of the debt and the lien. Once you pay off the debt, the creditor will remove the lien. Another option is to file for bankruptcy. This should only be done if you have a significant amount of debt and you do not think you will ever be able to pay it off. This will remove the liens and give you a fresh start on your debt.

I Need Help Refinancing My Home With Bad Credit

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A low credit score and bad credit can make it difficult for you to get approval on a loan, even when it comes to refinancing your home. Refinancing can help lower your interest and monthly payments, which could help you keep your home during difficult financial times. Though many lenders hesitate when it comes to refinancing a mortgage loan when you have bad credit, you do have a number of options available to you.

Instructions

Send for a free copy of your credit report from one of the three approved credit reporting companies: Experian, Equifax and TransUnion (see Resources). Each year, you are entitled to one free copy of your credit report from each of the three companies.

Review your credit report for mistakes and balances that can be settled and amend them. Taking action to repair your bad credit is a sign to lenders that you are working to improve your standing and that you take your credit seriously. In many cases, paying down high-balance credit cards can help improve your credit score within just 30 days.

Attend consumer credit counseling. This can help get your credit back on track if you are having a hard time cleaning up your bad credit on your own. This process could take months and will not improve your credit score overnight. On the other hand, when a refinance company sees you are working with a credit counselor, it could work against you, rather than in your favor, as the lender will consider you at high risk for default.

Shop around with different mortgage refinance companies and compare their rates. When talking to refinance companies, you can determine whether or not they are willing to refinance with you, what their terms and rates will be and then compare notes from each of the lenders. Choose the lowest rate available to you.

Ask a close friend or relative with good credit to co-sign on the loan. Sometimes your bad credit may get in the way of refinancing, but if you have someone you trust with a good credit score who is willing to co-sign on the loan, you may be able to not only get approved, but also obtain a lower interest rate.

What Is the Statute of Limitations on Back Child Support?

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Child support doesn't always stop when your child reaches the age of majority, a legal term meaning the threshold of adulthood. If you got behind on your payments at any point during the years you were paying, the arrears -- or past due payments -- don't go away when your obligation to pay child support ends. Some states will allow your child's other parent to try to collect back child support indefinitely. The statute of limitation for your child's other parent to pursue you for arrears depends on your own state's laws.

Some states require the parent who is owed past due support to file a motion with the court to have the debt converted to a judgment against you. You can defend against this, but the burden would be on you to prove that either you never owed the money at all or you have paid it. Otherwise, the court will most likely enter the judgment against you. If this happens, your child's other parent has 10 years to try to collect on the judgment in Minnesota, North Carolina and West Virginia. He has 20 years from the date of the judgment in Alabama and New Hampshire. In Hawaii, a parent has 10 years after the date of the judgment or until the child turns 33 years old, whichever occurs later.

Some states begin their statutes of limitation from the time you miss a payment, including New York, South Dakota, Wisconsin and Montana. New York, South Dakota and Wisconsin allow a parent to try to collect for 20 years after a default. In Montana, she has 10 years to pursue you for the money.

Many states hinge their statutes of limitation on the date your child emancipates or reaches the age of majority. The cut-off date is a period of years after that time. In Kansas, the deadline is two years after emancipation. It's three years in Arizona, four years in Utah, five years in Idaho, six years in Vermont and seven years in Mississippi. Arkansas's statute of limitation is when your child reaches 23 years old. Indiana, Louisiana, Michigan, Missouri and Washington have statutes of limitation of 10 years past emancipation. In Maryland, it's 12 years. It's 14 years in New Mexico and 15 years in Kentucky.

Twenty-two states and the District of Columbia allow a parent to try to collect back child support indefinitely: Alaska, California, Colorado, Connecticut, Delaware, Illinois, Maine, Massachusetts, Nebraska, Nevada, New Jersey, North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Virginia and Wyoming. Florida allows unlimited time as well, but an exception might exist if the paying parent can prove he didn't know he owed the money. Georgia and Iowa have no limits for child support orders entered after July 1, 1997, but Iowa has a statute of limitations of 20 years after default for orders issued prior to that date.

Oregon's state of limitation allows a parent to try to collect for 25 years from the date the court first issued the child support order.

If you're behind in child support, speak with an attorney in your area to learn your options. It might be possible to negotiate minimal monthly payments to your child's other parent to avoid collection efforts against you.

Credit Cards & Property Rights

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Personal property is not collateral for credit card debt. Credit card debt is handled in married couples based on whether or not they live in a community property state. Credit card debt must be paid before family members can inherit remaining property left by the deceased.

"For richer or poorer" includes credit card debt.

In community property states, credit card debt acquired during marriage belongs equally to both spouses. In non-community property states, credit card debt belongs to the person who signed the application. The only exception is if the application stated that both spouses are responsible.

A cohabiting couple does not have joint credit card debt unless both partners have a joint credit card. Otherwise, credit card debt only belongs to the person who took out the loan.

The estate of the deceased is liable for the credit card debt acquired. If married, the property they owed and the debt they held is passed on to the surviving spouse. The executor has the right to sell property to raise money to pay off credit card debt. Heirs who own property have no liability for the deceased's debts.

Credit card collectors cannot repossess the property purchased with the credit card. Credit card collectors can get a judgment. This can result in garnishment of wages or liens against existing property.

How Far Back Does the Bank Search Your Credit Report for a Loan Application?

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When you ask your bank for a loan, it pulls your credit report as part of its decision-making process. While federal law restricts the length of time that negative information can appear on your credit report, there are exceptions to these rules, especially if you apply for a large loan.

Your credit reports are your personal history of applying for and using credit. Creditors use your credit report to make decisions about offering you credit or lending you money. While the credit bureaus that publish your credit reports are private businesses, federal law governs credit bureau business practices. Under the federal Fair Credit Reporting Act (FCRA), you have significant rights regarding your credit report, including the removal of old and inaccurate credit information.

While positive information about your credit history can remain on your report forever, negative information can appear only for a specific period of time. Credit bureaus must remove most types of negative information, such as late payments or a charged-off account, from your report after seven years. Some exceptions to this rule include bankruptcies, which can stay on your report for up to 10 years; unpaid judgments, which can remain until the statute of limitations on collecting unpaid judgments runs out in your state; and tax liens, which are reported for seven years after the lien is paid off. Another exception is a credit report that's pulled because you're applying for a loan of more than $150,000 or an employer is considering you for a job that pays more than $75,000 per year, as of November 2010. There's no time limit on including negative information in these reports.

Most banks don't rely entirely on your credit history when making a loan decision. Your bank probably looks at the stability of your employment, your housing and whether you have other assets. Having a good, longstanding relationship with your bank can also help you get the money you need. The loan officer at your bank may also pay more attention to your credit behavior over the past year or two rather than focusing on charged-off accounts from six years ago.

If your bank does turn you down for a loan because of something on your credit report, it has to tell you why. It also has to give you the name of the credit bureau that produced your report. You then have 60 days to request a free copy of your credit report from that credit bureau. If there are any errors on the report, you have a right to dispute them. The credit bureau must then investigate your disputes and remove any information that it cannot validate.

Get your credit in shape before applying for a loan. Review your reports and dispute any errors. If you have old accounts that still have a balance, get those paid off, preferably in full. If you've had a clean credit record for the past two years, your banker may not care so much about a charged-off account from several years ago, but he will want to see that you took care of the debt.

What Is Credit Like After Bankruptcy Discharge?

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While a bankruptcy stays on your credit file for 10 years, you are able to get new credit before that period is over. However, getting credit after a bankruptcy discharge, which signals the end of a bankruptcy, is not easy.

Once your bankruptcy has been discharged, you should attempt to reestablish your credit. Wait two months after the bankruptcy and then apply for a secured credit card with a bank. A secured credit card requires a deposit, and the amount of your credit limit is determined by the amount of money you have on deposit. Your interest rate will be a lot higher than a standard credit card rate because of the assumed risk to the lender. But this new credit will be reported on your credit report and, as long as you've made your payments on time, it will have a favorable impact. Eventually, you will see improvements in your credit score. After paying on this account for one and a half to two years, some credit card companies will allow you to have an unsecured credit card. Don't be in a hurry to put a lot of debt of this card. Focus instead on making payments on time.

You probably will be able to get a car loan after a bankruptcy discharge; an automobile financing company is willing to take a chance because they can always repossess the car if you default. But, once again, your interest rate will be higher because of the bankruptcy and the lender might add a fee as well. After you have made timely payments on your auto loan for a year and a half, you may want to see if you can get it refinanced. A lower rate of interest will save you a lot of money in finance charges over the life of the loan. There are also some sub-prime lenders that specialize in these types of high-interest loans.

After you have reestablished credit with a credit card company and an automobile loan, consider a mortgage loan. It's difficult to get a good rate on a mortgage loan after a bankruptcy discharge, even after you have reestablished your credit, so it might be a good idea to have two secured credit cards on which you have made on-time payments before applying for a mortgage loan. This can help increase your credit score, which mortgage lenders use in the approval process and to determine your interest rate. After two years of on-time payments, you might be able to refinance with a lower rate of interest, which could save you thousands of dollars over the term of the mortgage loan.

If you are approved for a mortgage loan, eventually you will be able to qualify for home equity loans and home equity lines of credit. These types of loans should be your long-term goal, because you don't want to start with too much credit, which might lead you back to the same scenario from which you're trying to recover.

Most creditors will not extend any type of unsecured debt, which is debt that does not require security or collateral, for three to four years after a bankruptcy discharge. But as damaging as a bankruptcy can be to your credit, it can be repaired over time.

How Often Will a Credit Limit Increase?

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Credit limit increases do not happen at specific times for every credit card holder. Some banks decrease credit limits for certain customers, even if the accounts are in good standing. Increases are sometimes predictable if you know the criteria on which lenders base them. You can request an increase, although this affects your credit score, and there is no guarantee you will get a bigger credit line.

A credit limit increase means that you get more spending power on your credit card. Credit cards are issued on revolving accounts, which means that a bank extends you a certain amount of credit. You may make purchases up to that amount. Your available credit constantly changes, going down as you spend money and up when you make payments. You have a minimum monthly payment requirement, but you can pay more to free up more money on your credit limit, and you can even pay the entire bill each month to keep your whole credit line available.

Banks periodically review credit card accounts and increase spending limits for good customers. Increases are not solely based on a good payment record, although that helps. Lenders want to make as much money as possible from their cardholders, which involves getting you to spend more, which generates merchant fees and possible interest charges. You may get an automatic increase every year or two if you keep your balance below the limit or recently paid off your balance, as encouragement to spend more, according to Credit Card Chaser. Your bank may notify you about the increase, or you may simply notice it on your statement.

You may request a credit limit increase whenever you wish, although your bank can deny it and you hurt your credit score with each request. Asking for more credit usually generates a hard inquiry on your credit reports, meaning that your bank checks your credit bureau records to see how well you handle all of your accounts. Hard inquiries lower your credit score by up to five points. Be prepared to give a reason for your request, such as transferring a balance from another credit card. Paying on time and being a long-term customer increase your chances of success.

High credit lines are good for your credit score as long as you do not use all of your available credit. The balances of all your revolving accounts should never exceed 30 percent of the available money, and you get the best credit score for keeping it below 10 percent, according to MSN Money writer Liz Pulliam Weston. Your credit use percentages make up almost a third of your credit score, so high but unused limits are very helpful.

How to Refinance My Car to Lower Payments

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Refinancing your car to achieve lower monthly payments could provide your budget with some flexibility. Lowering your car payment by $50---or even more than $100---could free up enough money to help with gasoline costs or a utility bill. However, refinancing for lower payments can often cost you more in the long run, as the bank or credit union will add additional months to the loan to lower your payments. That could result in total finance charges that would be higher than you would have paid on the original loan.

Instructions

Check your credit report and score. Order your credit report from AnnualCreditReport.com---a website established to offer free credit reports under the terms of the Fair Credit Reporting Act. Visit the website to view and print your report (see Resources). Order your credit score separately for a fee.

Compare your credit score with national standards for "good" credit. Privacy Rights Clearinghouse, a national nonprofit consumer information company, reports that a score of 620 is the minimum for good credit, with scores of 720 or higher resulting in loans with the lowest interest rates. However, lenders make their own lending decisions and it is possible to gain loan approval with a score below 620.

Determine how much your car is worth. Getting approved for a refinancing could be very difficult if you owe more on the car than it is worth. Example: You owe $12,000 on the car but because of depreciation, it is worth only $9,000. The new or existing lender might look at that and decide that a new loan is too much of a risk for the bank. The car is the collateral for the loan, and if you defaulted on the loan, the bank could lose $3,000 or more under this scenario.

Apply for a loan through your bank or credit union. Your existing relationship with the bank could make approval easier or qualify you for a lower rate than other banks are offering. Tell the loan officer that you are applying for an auto loan to replace your existing loan. Provide full details on your current loan, including the lender's name and the account number. Also allow an inspection of your car, if necessary, as the loan officer calculates its current value. Once you are approved, you call other banks and credit unions to ask if they can offer a better deal.

Can a Collection Agency Attempt to Collect a Debt With No Judgement?

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Collection agencies do not need a judgment to attempt collecting a debt. A judgment is the result of a civil lawsuit for an unpaid debt. Usually it is the debt collector's final option for collecting. Debtors who refuse to pay a debt until a court orders a judgment are taking unnecessary risks. Judgments can lead to garnish of the debtor's bank account or wages, with some people forced into bankruptcy by multiple judgments. Resolving the debt before court action is a better option.

Court judgments appear in public court records and on the debtor's credit reports. Judgments remain on credit reports for seven years. There is no legal or ethical way to remove them despite the claims of some credit repair agencies. Paying the judgment results in updates to credit reports showing the judgment as a "paid judgment."

A debt collector taking on an account must send a written notice informing the debtor. However, the Fair Credit Collections Practices Act gives the debtor the right to ask the debt collector to provide proof that it has legal authority to collect the debt. Debtors can accomplish this by sending a letter to the debt collector within 30 days of receiving the written notice. In the letter the debtor can ask for proof that debt collector has the right to collect, such as a copy of the original credit application or a copy of the final billing statement. Federal law prohibits debt collectors from continuing collection efforts until providing the information. Providing the proof allows the debt collector to confirm the validity of the debt. Debtors concerned about a debt collector's right to collect should use this method and not wait for a court judgment.

Challenging notices from debt collectors is important because debts sometimes pass from one collection agency to another. Some debt collectors work on commission, with the original creditor retaining the right to transfer the debt to another agency. Legally, debtors can force each new debt collector to verify the debt.

In some cases debt collectors begin the collections process with a judgment. Debt collectors easily win so-called default judgments in court when a debtor fails to appear for a court hearing. "The New York Times" reports some debtors learn about lawsuits against them only after discovering garnishment of their bank account or wages.

Rights of a Surety Against the Creditor

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A surety is often used when a person requires a bond, either for court-related matters or as part of a business contract. A surety essentially guarantees another person's debt or obligations. When the person defaults on the debt or obligation, the surety becomes liable to the creditor. While the surety is liable, the extent to which that liability extends is not infinite. A surety has rights against a creditor; however, the precise rights will vary somewhat by state.

A surety is a person who agrees to take on your debt or obligation should the need arise. Two common situations arise wherein a surety is used. The first is when a person is arrested and the court sets a surety bond for his release. In that case, the person may only be released if a surety agrees to become responsible for the person's appearance in court. The other common usage of a surety is in the construction or building industry. A contractor is often required to be "bonded." What that means is that a surety has agreed to guarantee the contractor's work to the property owner and/or payments to subcontractors or suppliers within certain contractual guidelines.

When a surety is required, the person requiring the surety bond must apply to the surety. The surety will then conduct an investigation to determine whether the person is credit worthy or will be a good surety risk in the case of a criminal bond. If the surety decides to write the bond, the person requesting the bond must pay a premium for the bond. The cost of the bond will vary greatly depending on the purpose, the information ascertained in the investigation and the state where the surety operates.

If the person covered by the surety, or the principal, defaults on the terms of the bond, the surety becomes liable to a creditor. In the case of a criminal bond, this usually means that the surety must either find the defendant and bring her to court, or pay the entire amount of the bond to the court. Default on a contractor bond generally means that the surety becomes liable to a property owner, subcontractor or material supplier. The amount to which the surety is liable will depend on the original terms of the surety, or bond, contract negotiated by the parties.

State law will determine the precise rights that a surety has against a creditor; however, there are common rights and procedures among the states. A surety cannot be held liable for more than the extent of liability contracted for in the original contract. If, for instance, a surety bonds a contractor for up to $100,000 but the contractor ultimately owes the property owner more than that amount, the surety is only potentially liable for $100,000. In addition, a surety generally has the right to require the creditor to seek payment from the principal directly. Although the surety has guaranteed the debt or obligation of the principal, the creditor must still try to obtain payment from the principal before requiring the surety to cover the debt or obligation. The surety is also typically entitled to any security held by a creditor for performance of the principal. If, for example, the creditor is holding machinery of the principal's because payment has not been made and the surety satisfies the debt, the surety is entitled to the machinery in most cases.

How to Borrow Money Without Proof of Income

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Borrowing money without providing proof of income is significantly more challenging than the typical path of providing bank records and pay stubs to demonstrate an ability to meet the obligations of the loan contract. This process is easier if you have an excellent credit rating or are willing to provide significant security for a loan, such as a down payment or a major asset like a house or car. So-called "no-documentation" loans, particularly mortgages, often have higher fees.

Instructions

Review your credit report and credit score from the three major credit bureaus (Equifax, Transunion, and Experian). You can order your reports directly from each bureau or take advantage of the free annual credit report offered to anyone with a social security number. Verify that your credit score is high. To qualify for a low- or no-documentation loan, you will almost certainly require a FICO score of 720 or higher.

Look for providers offering no- or low-documentation loans. Usually, only major national banks and other such lenders can afford to take on the risks involved in such loans. The interest rates are often higher usually additional fees are tacked on. Such loans are targeted towards the self-employed who have difficulty demonstrating regular income or people interested in protecting their privacy.

Apply for low- or no-documentation loans. The most common such loans are for mortgages, but such loans exist for cars and personal loans as well. You will not be required to provide proof of income, although the lender will attempt to ascertain how much you are capable of paying by reviewing your credit reports. Consider offering a significant asset or down payment as security for the loan to improve your chances of approval and to get a lower interest rate.

How to Access Credit Scores

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It is essential to know your credit score when you plan to buy something on credit. This three-digit number tells creditors the likelihood of your repaying credit if it is extended to you. Not knowing this score can cost you when you negotiate the terms of a loan. Higher scores indicate a good credit risk while low scores indicate more of a credit risk. A low credit score typically means higher payments, terms and interest rates. You can access your credit score by one of these three options.

Instructions

Request a copy of your credit report within 60 days of being denied credit. Denial of credit is an indicator your credit score needs to be improved. Legally, if you are denied credit, you can make the request. The notification of this denial should include the name, address and phone number of the reporting creditor. Contact the creditor with the information in the notification.

Obtain a free annual credit report from the three reporting agencies--TransUnion, Experian and Equifax. The Fair Credit Reporting Act requires the agencies to give you this report each year, if requested. The agencies will also give you a free report if you have been denied credit, or you can buy the report directly. You can get the reports all at once or stagger them throughout the year.

Get a credit report from a third party vendor by using a reputable source. When selecting your source, check with the Better Business Bureau for its authenticity. Often, scammers will purposely misspell the name of their agency to get consumers to seek credit reports from unauthentic sources. Verify the site with the Better Business Bureau before entering your information.

How to Rapidly Build Credit

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To get the lowest interest rates on an unsecured credit card or on a loan for a car or home, you must have a healthy credit score--typically 700 or above. If you've never used credit, prospective lenders have no history on which to gauge your trustworthiness in paying back debt; in fact, the length of time you've been using credit weighs in at 15 percent of your overall credit rating. The Consumer Federation of America and Fair Isaac Corp. say that you can quickly get a high credit score in a short length of time, as long as you manage what credit you have appropriately.

Instructions

Open a checking or savings account at a bank, advises MSN Money's Liz Pulliam Weston. When you apply for credit or a loan, your prospective lenders will take this as a sign that you're financially responsible.

Obtain a secured credit card. This type of credit card requires you to make a deposit with the credit card issuer that's used as collateral. Your credit line will be at or close to the amount of your deposit. Weston states that a good secured card has no application fee, a low annual fee and converts to a regular unsecured credit card after a certain period of time--usually 12 to 18 months. But be sure that the credit card issuer reports to the three credit bureaus; otherwise, you won't build credit.

Manage your secured credit card appropriately. The CFA and Fair Isaac stress the importance of making monthly payments on time every month and keeping the percentage of your revolving utilization low, which means sticking with modest account balances. These two factors together comprise 65 percent of your credit score. What's a low balance? Your revolving utilization is determined by the following formula: Your total balance charged to the card, divided by your credit limit. To build good credit quickly, your revolving utilization should stay at or below 10 percent, according to Credit.com.

As an alternative to a secured credit card, piggy-back on the good credit of a spouse or trusted family member. You can be added as a joint account holder on their account or get them to co-sign a loan with you. Weston urges you to tread carefully when using this "shared liability" method of building credit. If you default on a loan or credit card, the other party's credit scores take a hit--and vice-versa.

Check your progress before applying for a major loan or other credit. You can get a copy of your free credit reports once a year through AnnualCreditReport.com, the official website maintained by the three nationwide credit bureaus: Experian, Equifax and TransUnion. These reports don't include your credit scores; however, you can purchase all three for around $30 when you order your credit reports.

How Does Bill Consolidation Work?

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Bill consolidation is converting several smaller bills into one larger bill. Bill consolidation is usually done with loan bills, such as bills for credit cards, car loans and student loans. When debts are consolidated, a lender buys out several debt obligations of an individual to offer her a single larger loan. The consumer begins by finding a consolidator, then the two work together to form the terms for a new loan based on the debtor's existing loans. If and when an agreement is reached, a contract is signed, and the consolidator contacts the original lenders and pays of the loans to be consolidated in full, binding the debtor in a new, larger loan. This can benefit lenders because it allows them to lend larger amounts of money, while having the information of the individual's payment history on the original loans to judge the risk the borrower presents.

Consolidating debt bills can be a useful tool for anyone that has several debts, and it falls to the debtor to seek consolidation, so it is useful to know why and when consolidation can be useful. Consolidating bills to one larger payment reduces the chances of missing a payment, since there are fewer payments to make, and therefore it reduces the chances of damaging your credit score. Consolidation can also eliminate unfavorable terms of certain debts, such as variable interest rates, since the new loan has its own terms. Consolidating can also end up saving money over time, since the interest rate owed will be based on the previous debts, but may ultimately be lower if your credit rating and financial stability have improved since you first took out the debt.

Consolidation is a useful tool, but only in the right circumstances. If you have many small bills and have difficulty remembering to make payments on some of them, consolidation is a good idea. If you are locked into debts with variable interest rates and you expect interest rates to rise (basically if interest rates are low, they are likely to go up rather than down) it can be wise to consolidate to avoid potential rate hikes. Similarly, if you have fixed-rate loans that started at high interest rates, but rates have subsequently declined, consolidation can often allow you to reduce your interest rate. In some cases consolidating can actually raise interest owed, especially if you have a loan with a very low interest rate, such as a federal student loan. Sometimes it is best to leave low fixed interest loans out of a consolidation. Consolidation can also be useful when payments become too burdensome, since the consolidated loan can have a longer duration meaning the payments are smaller and spread out over a longer period of time.

Define Financial Hardship

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Many people are no stranger to financial troubles. If you are in financial hardship, you can qualify for a lot of assistance such as suspended payments on your credit cards, but if you don't really know what financial hardship is, you may not be aware that real help is out there.

Financial hardship involves a severe lack of finances due to life circumstances. There are two reasons why a person may want to prove he has financial hardship. One is to receive help with loans or other debts. Another reason is to withdraw money early from a 401k plan.

There are two types of definitions for the term financial hardship. The IRS has a specific definition supported by regulations so a person can withdraw from their 401k plan. The general definition of hardship is often used by credit card companies, student loan companies or other debtors to allow a person to get a break from making payments on a debt.

The IRS defines financial hardship as an immediate and heavy financial need. The IRS deems certain expenses as immediate and heavy. They include certain medical expenses, costs that are related to the purchase of a home, tuition and other educational fees, payments needed to stop eviction, and burial or other funeral costs.

Without using the IRS's more formal definition, hardship is generally defined as a situation where a debtor is not able to afford repayments on a debt. Usually illness, unemployment or another cause is a reason for that hardship. People who suffer from general hardship may want to seek a different repayment arrangement until they get back on their feet. Many people write financial hardship letters to creditors explaining their financial problems and requesting some sort of arrangement, according to Writing Help Central.

While some things can catch you by surprise, strong financial planning can help you avoid financial hardships. Consider getting rid of unnecessary debts that are eating up finances you could be putting away in a savings account. A savings account will help you to prepare for emergencies that would otherwise put you in a financial strain.

How to Solve Credit Card Debt

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If you have credit card debt, you are certainly not alone. But, if you have a monthly debt that is 15 to 20 percent of your income, you have too much debt, according to CNN Money. Additionally, when you don't pay off your credit cards, depending on your interest rate, much of your money could be going to pay interest. It may seem like an insurmountable task, but you can create a workable plan to solve your credit-card debt.

Instructions

Make a list of all your credit cards, including store cards and gas cards.

Write down how much you owe, the interest rate and the minimum payment for each card.

Get a copy of your credit report at the Annual Credit Report website (see Resources) and make sure there are no mistakes on your report. You can receive a free report once every 12 months from the three major credit-reporting agencies, which are Equifax, Experian and TransUnion.

Call your credit-card companies and ask for a lower rate. Tell them that you have found banks that offer a lower rate than you are paying. Financial guru Dave Ramsey says that you should always ask. You have nothing to lose.

Pay off the cards with the highest interest rates first by paying as much as you can afford each month, making sure to pay the minimum on the other cards as well. As soon as you pay off one card, put it away and start on the card with the next highest balance.

Create a budget and stick to it. Many people get into credit-card debt because they overspend. Think of your credit card as a 30-day loan that you should pay back in full, suggests CNN Money.

Get professional help if your credit card debt is more than 20 percent of your income. Look for a non-profit agency such as the National Foundation for Credit Counseling (see Resources).

How to Stop Paying Unsecured Debt

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It's easy to stop paying unsecured debt, but that doesn't mean the debt vanishes. Some people make a strategic financial decision to stop paying their unsecured debt in hopes of eventually settling the debt for less than the full balance. That can be a tricky proposition, although The New York Times, in a Jan. 2, 2009 story by Eric Dash, reported that some banks will settle delinquent unsecured debt for as little as 30 percent of the balance. So-called debt settlement firms use this technique to pay off debt, but the Federal Trade Commission, while not endorsing the strategy, says you should engage in your own debt settlement.

Instructions

Gather your credit card and billing statements. Choose which accounts you wish to stop paying and place them in a folder.

Stop making payments. The collection calls will begin after you fall one or two months behind and will accelerate greatly after that. Credit card companies and other creditors generally will give up on collecting from you after about six months, and will close your account, list it as being charged-off and sell the balance to a debt collector, sometimes for as little as pennies on the dollar. Before taking that action, your creditor may agree to a settlement.

Contact your creditor after you have fallen four months behind and ask to settle by paying less than the full balance. You can do this by phone or by mail, although telephone conversations sometimes yield faster results. Start by offering 30 percent of the balance (a 70 percent savings for you) and keep negotiating until you have a deal. Keep notes of your conversation or place copies of your letter in your folder. If necessary, negotiate over several weeks, but not past the six-month mark. Alternatively, you could simply stop paying your bills and allow the accounts to be sold to debt collectors. But that could result in lawsuits and possible court judgments if you never attempt to resolve the debts.

Does Overdraft Affect Credit Rating?

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Overdrafting your checking account can lead to a financial crisis if you're not careful. Constant overdraft fees and playing catch-up with your bank create a troubling spiral that can leave you unable to meet your current financial obligations. A common question when dealing with overdrafts whether they have any impact on your credit rating.

When you attempt to spend money you don't have, either by using your debit card or by withdrawing cash from an ATM, your account is considered to be in overdraft. As a result, you can expect to pay a fee of $35, in addition to replacing any money the bank laid out to cover your transaction.

Legislation enacted in August 2010 essentially banned overdrafts without the customer's consent, but you can easily overdraw your account unintentionally even if you opted out of overdraft protection. For example, when you buy gas at the pump, your debit card is charged only $1; if you fail to account for the remaining portion, you may end up overdrawing your account.

In most cases, overdrawing your account won't impact your credit score. Banks don't report overdrafts to the credit bureaus, so there's no need to worry about affecting your credit through overdrafts. However, you may run into trouble handling overdraft fees; since the bank immediately charges the fees to your account, you may find yourself short when it's time to pay your credit card bills. If this happens to you, and you don't make payment within 30 days of the due date, the late payment may be reported to the credit bureaus. In addition, if you've linked your checking account to a credit card in the event of an overdraft, it might result in a card with a high balance going over the limit, which would hurt your credit rating.

The only time you have to worry about a bank account hurting you on your credit report is if the account is sent to collections. This can occur if you have an overdraft and don't pay back the money your account is overdrawn. Having an account go into collections is a serious negative mark on your credit report, one that will stay on your file for seven years. If your bank account or any other item goes into collections, your credit score will suffer.

Although banks don't report your checking account activity to credit bureaus, an overdrawn account won't go unnoticed. Consumer reporting agencies, such as ChexSystems, regularly obtain information about your checking and savings accounts; if your account is overdrawn, there's a good chance your bank will report it to ChexSystems and other consumer reporting agencies. While this information doesn't affect your credit rating, it can be used against you if you try to open a new bank account. Furthermore, some companies rely on consumer reports to make determinations about your creditworthiness if you don't have any significant credit history.

How to Make an Old Debt Disappear

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Every day, thousands of people get out-of-the-blue calls from collection agencies that tell them they owe money from a debt they don't even remember. Sadly, many of these people are tricked into paying old debts that are not legally enforceable. You can stop these collection efforts and dispose of an old debt for good simply by checking your credit and drafting a letter.

Instructions

Know what the debt is from. If you don't know what the debt is from, why should you believe someone who calls you and tells you that you owe it? Many scams are based on this exact practice. So, gather as much information as you can on the company that is calling you and the original owner of the debt. Don't be too surprised if the collector doesn't know. The older the debt, the better your outlook. Unless the collector can demonstrate where the debt originated, you don't have to pay a dime.

Check the statute of limitations for debt collection in your state. You want to know for sure that the debt is outside statute of limitations and that you cannot be sued for it. Collection agencies sue people every day over time-barred debts. Most people end up with default judgments because they do not show up in court, even though the statute of limitations has passed. If you show up and demonstrate the debt is outside the state's statute of limitations, it doesn't matter if you once owed it or not, the case will be dropped.

Pull your credit reports. Most debt can only appear on your credit reports for 180 days plus seven years from the date of last activity. The date of last activity is the date on which the account first went delinquent. If you find that a debt is listed on your report that is older than seven-and-a-half years, you need to immediately call the reporter of that debt and demand that it be removed. You may also find that the date is "fudged" to keep the debt on your report for longer. In these cases, you need to immediately file a report with the Federal Trade Commission and the credit reporting agency that is reporting the invalid debt. Whatever you do, do not ignore it.

Once you know that the debt is outside the statute of limitations for your state and that it isn't hanging around on your credit report, you need to send the collection agency contacting you a full cease and desist letter. A cease and desist letter merely states that the collection agency is in no way, form or fashion to contact you again via any medium. It cannot telephone or send mail or email.

Inform them of the law. Along with your cease and desist letter, you should make it known that the debt is outside the statute of limitations for your state and is, therefore, time barred. Because of this, if the collector sells the debt to another collection agency, transfers the debt or attempts to report to your credit report over the debt, you will not hesitate to seek legal counsel and file a lawsuit.

Sign up for a credit monitoring service. If you can afford it, its a good idea to do this for at least six months following a brush with a time-barred debt. Make sure, however, to use one of the credit monitoring services offered through the credit reporting agencies as those tend to be the most legitimate. These services will alert you anytime someone attempts to post anything to your credit report.

What Is a Reasonable Debt?

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Owing creditors money can improve your chances of getting a loan, but only if it's what creditors consider a reasonable amount of debt. A reasonable amount is one that allows you to make payments on time and in full in addition to managing your other expenses. Creditors primarily use three calculations to determine whether this is possible in your financial situation.

The amount of money you have to cover regular expenses is a fair indication to creditors of how much money you can spare on new debt payments. So, they divide the total of your current monthly debts by your monthly income to determine how much money you have available after your obligations to creditors. If you have a $50 credit card payment, a $200 auto loan payment and a $3,000 monthly income, for example, your debt-to-income ratio is 8.33 percent. Since 36 percent is the maximum ratio creditors usually accept, by this standard you should have little difficulty getting new credit.

Housing accounts for a large portion of monthly expenses for many people, so creditors may ask how much you pay in rent or mortgage payments each month. Ideally, this amount should not be more than 28 percent of your monthly income. Housing expenses can include: rent or mortgage, property taxes, homeowners insurance and mortgage insurance.

The amount you owe on your credit accounts is almost irrelevant to creditors out of context. What matters to them is how much you owe relative to your credit limits, much like your total debts only matter in relation to your income. Maxed-out credit cards, for example, indicate to creditors that you may not have enough money to reliably make payments on a new account. They prefer you to have a debt-to-credit ratio no higher than 50 percent. So, if you have three credit cards with a credit limit totaling $10,000, the sum of the amounts you owe on the cards should not exceed $5,000.

Creditors' calculations don't always capture the full picture of your financial situation. If creditors consider you to be in top financial shape, yet you struggle to meet expenses, then your debt may be unreasonably high for your situation. If this is the case, find ways you can reduce your spending to increase the amount of money you have left over every month. Avoid opening any new accounts until you can comfortably manage the ones you currently have.

What Are the Dangers of Consumer Credit?

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Borrowing money is a way of life in America. Consumers take out loans for mortgages, credit cards, car loans and student loans. Revolving consumer credit, like a credit card, is used for everything from renting a car to booking a flight online. The proper use of credit can be beneficial to a consumer's financial life, but there are risks to using credit that consumers should be aware of.

According to USA Today, consumer spending rose in March of 2010 and increased U.S. household debt to $2.45 trillion. Compared to some other nations, such as China, where household debt is 17 percent of household income, in the U.S., household debt is 136 percent of household income, according to Forbes. Danger ensues when consumers borrow money for loans, take out mortgages or use credit cards but then are unable to repay the loan. Failure to make payments can lead to foreclosure, repossessions and a list of penalty fees. The more the debt accumulates, the harder it becomes for the consumer to pay it all back. For some consumers, paying back their debts becomes impossible and bankruptcy ensues.

According to the Fair Isaac Corporation, inventors of the FICO scoring model, how much debt you have accounts for 30 percent of your score. How you pay those debts represents another 35 percent. When a consumer takes on too much debt or maxes out a credit card beyond the available credit limit, a drop in the credit score may occur. Paying bills late will also drop your score. The later the payment, the worse of an impact it will have. Charge-offs, foreclosures and repossessions will cause a serious drop in a a credit score and can lead to other negatives consequences, such as a lien, judgment or wage garnishment, which all appear on the credit report as public items that further erode the credit score. These negative items can remain on your report for 7 to 10 years.

Identity theft was the number one complaint filed by consumers in 2009, according to the Federal Trade Commission. Whenever a consumer uses a credit card, whether online or in a retail establishment, there always exists the potential for a criminal to obtain access to that number and rack up huge charges. In 2007, consumer credit information was compromised when criminals hacked into the database of TJ Maxx and Marshalls department stores. Criminals can also gain access to consumer's identities when consumers fill out credit applications online. Once a criminal has this personal data, he can actually open bogus credit accounts in the consumer's name and leave that individual with a financial mess to clean up.

A consumer with a higher credit score usually receives a more favorable interest rate when borrowing money. Unfortunately, those with poor or bad credit may find themselves on the receiving end of a loan with an extremely high interest rate and high fees. First Premier, a subprime credit card issuer, has a credit card with an interest rate of 79.9 percent and fees that equate to 25 percent of the credit card limit, which is usually around $250 to $300. This card is marketed to consumers with lower credit scores. According to FreddieMac, mortgage predatory lending can lead to home loans with high interest rates and unaffordable repayment terms. Consumer credit is available for those with blemished credit, but those consumers may pay a substantial price for it.

What Can I Do When My Debit Card Is Charged & I Don't Know Who Did it?

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An unauthorized charge showing up from a debit card can be a stressful situation for a consumer. Unlike a credit card charge, a debit card charge draws directly from a consumer's bank account and may cause the consumer to overdraw the account or simply not have the money needed to pay bills or other living expenses. Consumers who find a charge on their account that they did not authorize need to take prompt action.

When noticing an unauthorized charge made with a debit card, a consumer should immediately contact the bank or credit union to report the problem. The back of the debit card will have a number to report problems or the consumer can call their bank branch directly. Consumers should follow up the call with a visit to the bank to discuss the matter and a letter documenting what has occurred. Banks must investigate the charge and either rule that the charge is legitimate or provide at least a provisional credit within 10 days of the report. Banks can take longer than 10 days to decide on the validity of the claim, but must not hold the customer's money past 10 days.

When making the report of the unauthorized charge, consumers should request a replacement debit card. While it is best to make the request immediately, customers requesting a new card may have to wait a few days before receiving the new card and may need to make other arrangements for paying expenses during this time. Consumers should remember to report the change in card number to merchants authorized to make automatic withdraws.

Federal law provides protections to consumers for unauthorized charges made with a debit card. Once the consumer has made the report to the bank about the unauthorized charge, consumers have no liability for future unauthorized charges made to the account. Consumers have 60 days to report an unauthorized charge to the bank after receiving the statement indicating the charge. In the case of a lost or stolen card, consumers that report the loss of the card within two days are only responsible for $50 of unauthorized charges, after two days the responsibility grows to $500.

Consumers should review their bank records to look for past unauthorized charges that may have gone unnoticed. Finding other unauthorized charges may help the consumer to identify the source of the charges as well as recover any money lost from the account. The unauthorized use of the debit card may be a sign of a larger identify theft problem. Consumers should request a copy of their credit report and carefully go over the information to make certain there is no suspicious activity.

What Are Debt Collection Agency Procedures in Texas?

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Like many states, Texas law spells out what procedures debt collectors must follow when trying to get money from you. Unlike the federal Fair Debt Collection Practices Act, which applies only to collection agencies and to attorneys hired to collect debts, Texas law also applies to creditors trying to collect on a personal, family or household debt.

If you live in Texas and someone's trying to collect money from you, their collection procedure must avoid harassment, unfair practices or false statements. Harassment includes threats of violence, obscene language and threats to publicize your debts. Unfair practices include collecting more than you owe, taking your property when the law doesn't allow it or depositing a post-dated check early. False statements include a collector lying about her name or identity, pretending to represent law enforcement and threatening to sue if they don't intend to do so.

If you have an attorney, the creditor or collector must contact the attorney before talking to you. She can usually only talk to other parties -- friends, neighbors, family members -- to help track you down, and can only contact each individual once. It's illegal for her to tell anyone but you and your attorney that you owe money. Debt collectors can contact you by mail, telegram, phone or fax, but they cannot contact you at inconvenient times, such as after midnight, or call you so frequently it constitutes harassment.

If you don't want to talk to the collector or creditor, send him a certified letter breaking off contact. Once he receives it, he can only contact you to tell you there will be no further contact, or that he's going to take a specific action, such as a lawsuit. The collector must tell you within five days of first talking to you how much you owe and to whom. If you write within 30 days denying the debt, he can't contact you again unless it's to present proof of what you owe.

If a debt collector refuses to follow legal Texas procedure, you can file a complaint with state government. If the collector is your creditor, you can contact the Texas Consumer Credit Commissioner, either by phone or by a written complaint form. The Attorney General handles complaints against collection agencies and other third parties trying to collect debts. The Consumer Credit Commissioner recommends you keep records of the disputed debt, letters from the collector and copies of your responses to bolster your case.

The Process for an HUD Insured Foreclosure

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The process for an HUD insured foreclosure will differ depending on the state where the homeowner lives. There are general guidelines for a foreclosure process but you should read your states foreclosure laws (see Resources for different state laws).

As a general rule, a lender will start the HUD foreclosure process three to six months from the first missed mortgage payment. After 30 days from the mortgage payment date passes and a payment is not made, the borrower is in default and the foreclosure process can begin. However, you can talk to your lender any time within that three to six month period and you could qualify for the federal Home Affordable Modification Program. If you do not qualify for this modification or do not talk to your lender, then one of the three types of foreclosures will be initiated.

This type of foreclosure exists in all states and is the only type of foreclosure in some states. In this process, the mortgage financer files a suit with the state judicial system. A letter will be sent to the borrower demanding payment, and he has 30 days to respond to the payment order. If the payment is not made within a certain period of time, designated by the state, the property is sold at auction to the highest bidder.

This foreclosure is allowed in states where the mortgage has a power of sale clause. The lender will send out notices demanding payment after the homeowner has defaulted on payments. There is a state-imposed waiting period, which when passed the mortgage company can carry out a public auction of the property.

This is only available on HUD homes in some states. The lender files a lawsuit against the homeowner and if the borrower cannot pay the mortgage in a set time period, the property is returned to the mortgage holder. This is common when there is a larger amount of debt than the real value of the property.

Consumer Rights Regarding Credit Collection Agencies

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If you cease to pay a debt, you will likely discover that your account has been transferred to a collection agency, which will attempt to collect the debt. Even though you owe a debt, that does not give debt collectors the right to collect the debt from you by any means necessary.

The Fair Debt Collection Practices Act was established to combat increasingly abusive debt collection practices. If a collection agency violates the guidelines set forth by the act, you may file a lawsuit against it for any monetary damages you suffer. The collection agency may also be required to pay a fine of up to $1,000 to you for any violations of the FDCPA that you can prove in court.

Harassment to collect a debt is common but also strictly prohibited. Harassment includes, but is not limited to: calling at odd hours, calling with the intent to annoy, threatening your person or property, using foul language, or contacting others about your debt to embarrass you. If you would prefer that the collection agency stop telephoning you, you can write a letter demanding that all contact with you be conducted via mail. The collection agency must comply with your request.

Collection agencies hold large numbers of consumer accounts, and mistakes are common. Because of this, every consumer has a legal right to request validation of his supposed debt. If you dispute the validity of the debt in writing to the collection agency, it must prove to you that the debt is yours. The collection agency also needs to prove that it was assigned by your original creditor to collect the debt. Keep in mind that a simple printout of your name and the amount of the debt does not legally prove that you were the one who accrued the debt and are liable for it.

Each state has a statute of limitations to regulate the amount of time a collection agency may legally collect on a debt. This usually averages three to five years for most states. After this time period has expired, a collection agency is not supposed to file a lawsuit against you, but many will attempt to do so anyway. If you receive a court summons for a debt that you know is outside the statute of limitations for your state, you must show up in court to present that fact. If you do not, you could end up with a judgment against you on your credit report.

Once a debt has been delinquent for 180 days, the negative debt reporting period begins. The debt may only appear on your credit report for seven years from that date. After the reporting period is over, all evidence of the debt must be removed from your credit report. When your account is assigned to a collection agency, the agency will place a trade line on your credit report. This is a record of the negative debt. If you have negative trade lines on your report, watch the dates that the debts are scheduled to be removed closely.

Occasionally some collection agencies will alter those dates to leave their trade lines on your credit report for longer periods of time. This is against the law. If it happens to you, immediately contact the credit bureaus with documentation of the actual date the debt was to be removed to rectify the situation.

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Tuesday, May 31, 2005

Refinancing

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Monday, May 30, 2005

Borrow From Loved Ones

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Refinancing Your Home

Balance Transfer

Debt Repayment

Defaulting

Judgments

Treaties

Wage Garnishments

Telephone Calls

Collection Letters

Credit Reporting

Sunday, May 29, 2005

Instructions

Debt and Credit Reporting

Statute of Limitations

Bankruptcy

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Protecting The Bank

The Automatic Stay

Upside Down

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Saturday, May 28, 2005

Car Insurance

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If It's Too High

Friday, May 27, 2005

Definition

How It Works -- Debt Consolidation

How It Works -- Credit Counseling

Pros and Cons - Debt Consolidation

Pros and Cons -- Credit Counseling

Lien on Property

Getting a Lien

Interest

Remedies

Instructions

Thursday, May 26, 2005

Judgments

Date of Default

Emancipation

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Tip

Wednesday, May 25, 2005

Property Rights in Marriage

Property Rights in Cohabitation

Credit Card and Inheritance Property Rights

Property Rights and Credit Card Debt Collections

Tuesday, May 24, 2005

Credit Reporting

Time Frame

Other Credit Considerations

Your Rights

Prevention/Solution

Monday, May 23, 2005

Secured Credit Card

Car Loan

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Home Equity Loan