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Friday, December 31, 2010

Difference Between a Letter of Credit & a Standby Letter of Credit

Difference Between a Letter of Credit & a Standby Letter of Credit

A letter of credit and a standby letter of credit are similar services offered by banks to aid financial transactions between buyers and sellers. The bank issuing either of these letters guarantees payment to the seller if certain requirements are met.


    The difference between these two services is the role of the bank. In a letter of credit, the bank essentially acts as the buyer, providing payment once the seller meets the deal requirements. In a standby letter of credit, however, the bank acts as an insurer. The bank pays the seller in the event the buyer fails to meet the deal requirements.

Purpose of a Letter of Credit

    A letter of credit is typically used to ease the transaction process for both the buyer and seller. It allows for prompt payment and the ability to substitute the credit of the buyer for that of the issuing bank, and lessens the threat of litigation.

Purpose of a Standby Letter of Credit

    A standby letter of credit is primarily used to lessen the risk that the buyer will fail to pay.

Do Secured Credit Cards Rebuild Your Credit History?

Secured credit cards are a special type of credit card that uses the money in a savings account or similar type of account to set the credit limit for the card. Some companies offering secured credit cards give you a higher limit than your deposit. You may also have the option of unsecuring your card to convert it into a normal card after proving you can pay off the card on a consistent basis. These type of cards are a good way to rebuild your credit history after bankruptcy.


    A secured card has to have some sort of collateral backing the account to be called a secured card. The collateral is commonly a sum in a certificate of deposit or checking account with the lender's bank. This amount gains interest as it would normally, and the credit limit is set based on the amount in the collateral account. The secured credit card has an interest rate and minimum payment like an unsecured credit card.


    Secured cards may be listed on the credit card company's main list of credit card offerings, or it may be offered to you after a denial with one of its unsecured products. The application process for a secured card is identical to an unsecured card, but the credit score requirements are much more lenient with a secured card option. If you are approved for the secured card, the lender informs you of the process required for depositing the collateral amount.

Positive Tradeline

    A secured credit card's main way of helping you rebuild a credit history is through establishing a positive tradeline on your credit report. A positive tradeline is a credit account that is current on payments. As you consistently pay on your secured credit card over time, you gain a positive payment history as well. The utilization of the secured card also affects your credit score. Utilization is the card balance compared to the card limit. A lower utilization has a positive effect on your credit score.

Unsecured Cards

    Once you have proven that you can consistently pay a credit card on time, the credit card company may unsecure the credit card by giving you the collateral amount back, or it recommend that you apply for one of its unsecured credit card products. The positive trend on your credit report may make you eligible to apply for cards at other credit card companies as well.

How to Set Off and/or Discharge Debt

How to Set Off and/or Discharge Debt

Discharging debt is possible through successfully declaring bankruptcy or allowing a debt to expire through the statute of limitations in the state from which the debt was issued. Debt set-off occurs when a collector seizes funds or property from a debtor to reduce the overall owed balance. These two processes are entirely different, and require an alternative set of actions to enact them. All of these courses of action carry significant risks.


Debt Set-Off


    Review the the statutes of your major debts by requesting copies of your credit reports from the three major bureaus (Equifax, Experian, TransUnion). Look at how much you owe on each debt and determine which are secured and which are unsecured. Secured debts authorize the creditor to seize assets, such as a car, home, cash or valuable property to cover the balance. Unsecured debts can still be collected on through a lawsuit, but are more challenging for the creditor to collect on.


    Stop making payments on the loans that you'd like to discharge. Be aware that this will result in the creditor downgrading your credit rating, which can impede your ability to take on more debt in the future. As you're aiming to set off the debt through a seizure, this will also make it so that the creditor will take your property at some point.


    Allow the creditor to repossess property to cover at least part of the debt. If the property has depreciated beyond the amount still owed on the debt, you may still owe a portion of the balance even after the property seizure. The creditor may then sue you to collect the rest of the balance.

Bankruptcy for Debt Discharge


    Contact a bankruptcy lawyer to schedule a consultation. Most reputable lawyers will at least allow you to speak with them about your issues for 30 minutes. If all of your questions aren't answered during this period, you can continue contacting lawyers until you're certain that you are prepared to declare bankruptcy. Chapter 7 bankruptcy is the most common for individuals, and will discharge all unsecured debts while generally allowing you to keep your most important property such as your house and commuting vehicle. Bankruptcy remains on your credit report for up to 10 years, and will impair your ability to borrow money in the future.


    Prepare for your bankruptcy filing with the assistance of your lawyer. In general, you'll be expected to refrain from borrowing any additional funds for 180 days before your filing. The judge may deem extravagant spending before your bankruptcy a disqualifier.


    File for bankruptcy with the assistance of your lawyer. When the process completes, the majority of your debts, with the exception of student loans, will be discharged.

Statute of Limitations for Debt Discharge


    Review your credit reports from the major bureaus to determine the amounts of money that you owe from the three major bureaus (Equifax, Experian, TransUnion). If the amounts are small--each debt below $5,000--it's likely that the companies will avoid the expense of suing you. Secured debts will be collected on rapidly, however, and may result in only a set-off of the portion owed.


    Stop making payments on your debts. Review the statutes of limitations on debt collection from the state that issued each debt that you carry. Once that statute of limitations expires based on the last date that you provided payment, you will no longer be liable for the debt owed.


    Attend all court dates that you're summoned for. If you appear at the court date, you will at least get a chance to contest it, and it may not result in a seizure of your funds. If you fail to appear at your court dates, the creditor will receive a default judgment against you, and may seize funds from you to offset a portion of the debt.

Thursday, December 30, 2010

Consumer Credit Report Guide

Your credit report is an indication of how well you've managed your finances. Your credit files are complied by credit-reporting companies that get your financial information from creditors and lenders. You can work to maintain a good credit history by knowing what type of information creditors and lenders examine in your files to determine your creditworthiness.

Identifying Information

    Your credit report will have a section known as identifying information. It includes your name, current and past addresses, your place of employment, Social Security number and other personal information. According to an MSN Money article, "The Basics: How to Read Your Credit Report," a vice president from the Experian credit-reporting company said people shouldn't be concerned about variations in the identifying section of their credit files. For instance, some creditors might report variations in the spelling of your name. Using your full name on all credit and loan applications without variations will reduce the chance that your credit file will accidentally include accounts that belong to another consumer who has a name similar to yours.

Public Records

    It's best if the public records section of your credit report is empty, since notations in that section are typically an indication of serious financial problems that will significantly reduce your credit score. Among other things, the section includes information on bankruptcy, home foreclosure and accounts that have been turned over to collection agencies. Information on accounts sent to collection agencies generally remains on credit reports for seven years. Bankruptcy information typically remains in credit files for 10 years.

Credit Information

    Accounts you have with credit card companies, banks, retailers and others are in the credit information section of your file. The section tracks your credit limits and loan amounts, the dates you open and close accounts, as well as whether you've paid your bills on time. The credit information section can have a significant impact on your credit score. For instance, scoring models may base as much as 35 percent of your credit score on your payment history. A lot of late-payment notations could significantly reduce your score. Lenders and creditors tend to view consumers who make late payments as credit risks.


    The inquiry section of a credit file lists banks, creditors, insurers and others who have asked for copies of your credit report. Such requests come as you seek to open new accounts or refinance existing loans. According to a Fair Issac Co. (FICO) specialist quoted by MSN Money, FICO credit scoring models largely ignore inquiries. For example, multiple inquiries from lenders made within 30 days of a consumer getting a mortgage wouldn't be included in credit scoring because the scoring model knows you are shopping for just one mortgage. FICO scores are a measurement of creditworthiness, and they range from about 300 to 850. Consumers with higher scores are considered less of a credit risk.

Wednesday, December 29, 2010

How to Deal With Debt Collectors and Erroneous Debt

Debt collectors may claim that you owe an unrecognized amount. You don't have to pay erroneous debt. However, debt collectors will continue collection efforts until you take steps to prove that you don't owe the money. Several techniques can help you deal with debt collectors and stop mistaken collection attempts.



    Answer all letters written by the debt collector. Turning a deaf ear to collection attempts does not stop the problem. Speak with collectors to resolve legitimate debt or dispute erroneous debts. Ignoring collection efforts can end with a lawsuit or credit judgment.


    End phone calls with a request. Politely ask the debt collector to stop calling your house or employer. According to the Federal Trade Commission, collectors must abide by your wishes upon request.


    Contest the debt with a letter to the debt collector. Assert that you do not owe the debt in question. Instruct the debt collector to forward written proof that you owe the company money. Tell the collector to halt collection attempts until they comply with your request.


    Save a copy of the dispute letter mailed to the debt collector. Use certified mail service to forward your dispute letter.


    Establish an installment plan to remedy legitimate debts. If the debt collector can prove that you owe the money, satisfy the balance quickly to avoid credit damage (collection account, lawsuit or judgment). Discuss an affordable payment plan, or pay off the balance with one check or money order, if doable. Keep duplicates or copies of money orders or checks written to rectify debts.

Tuesday, December 28, 2010

Can a Judgment Force Me to Sell My Home?

If a creditor or collection agency cannot compel you to pay past due amounts on a debt, it may file a lawsuit against you in your county for a judgment. Once a creditor or collection agency obtains a judgment against you, it obtains the legal right to try to recover the debt through freezing your bank accounts and garnishing your wages. A judgment may also allow the judgment creditor to force the sale of your home.

Certificate of Judgment

    Usually the judgment creditor obtains a Certificate of Judgment after winning a judgment suit against you. A Certificate of Judgment allows the creditor to place a lien on any real estate property you own, including your home. A lien prevents you from selling or otherwise disposing of your real estate property without paying off the judgment. The lien remains until you pay off the judgment plus any interest and costs approved by the court.

Forcing Sale

    If you do not pay off the judgment amount after the judgment creditor places a lien on your real estate property, the creditor may attempt to force the sale of your home. The proceeds of the sale go toward paying the judgment. However, forcing the sale of a home is an expensive option for the creditor, so it will typically use this approach after exhausting all other options to recover the debt.


    Some states provide an exemption amount, below which a judgment creditor cannot attempt to force the sale of your home. For example, Ohio law provides a $20,200 exemption for real estate property, including a mobile home. If the value of your real estate property is less than $20,200 in Ohio, the creditor is barred from seeking recovery of the debt by forcing a home sale.


    Equity in your home is an important factor that determines whether a judgment creditor will attempt to force a home sale. Your mortgage lender is the primary lien holder on your property, and courts typically favor the mortgage lender's interests over those of other lien holders. If you have little equity in your home, or if you owe more on your home than it is worth, a judgment creditor's attempt to force a sale would act against the mortgage lender's interest. However, if you have more equity in your home than the amount of the judgment, the judgment creditor may force the sale of the home without compromising the mortgage lender's interests.

Rules for Garnishing My Paycheck

Having your paycheck garnished by your creditors for unpaid debt can make you wonder if the proper rules are being followed and the correct amount is being taken out. Wage garnishment is regulated by federal and state government laws, and you should know what they allow before your employer gives any money to your creditors.

Consumer Credit Protection Act

    Title III of the federal Consumer Credit Protection Act (CCPA) ensures that employers do not fire workers for the sole reason of having their wages garnished. The act also gives a limit to the total amount of garnishment that may be withheld from an employee's net income. The federal government prohibits more than 25 percent of an employee's take-home pay from being garnished. However, it allows for more of your paycheck to be garnished for bankruptcy, child support or income tax payments.


    Your paycheck cannot be garnished by your creditors without your notification. When you don't pay your bills, you will receive collection calls and letters from the company that holds the debt, or from a third-party collection agency hired to make you pay the balance owed. If you do not respond or make arrangements for a payment plan with your creditors, they have the right to sue in court to try to collect by selling your assets or garnishing your wages. Do not ignore a court summonses; be aware of any judgments against you that will impact your income.

IRS Levy

    If you owe back taxes to the Internal Revenue Service, your wages may be garnished without a court order. The IRS will send you a letter notifying you of the amount that you must pay to the government. If you do not settle your debt with the IRS, you will be sent a notice at least 30 days before your wages are garnished through a levy. If you do not have current contact information on file with the IRS, you may not receive the letters, and can have your paycheck garnished without advance knowledge. The levy will be released when your total tax debt has been satisfied.


    Although the federal government regulates how wages may be garnished, some states have passed consumer protection laws that differ. A few states, such as Texas and Pennsylvania, don't allow garnishments for debts that are not secured by an asset. Other states allow for up to 10 to 25 percent to be withheld for debt repayment. Also, keep in mind that filing bankruptcy may stop collection activities --- and your paycheck garnishment. Chapter 7 may eliminate the debt altogether, while Chapter 13 may allow you to set up a repayment plan that you can afford.

Monday, December 27, 2010

How to Work Out Credit Card Debt When Unemployed

Unemployment is a frightening time, especially if you do not have an emergency fund. With money tight and no income coming in to keep everyone fed and the lights on, prioritizing what must be paid in order to survive becomes the top priority. Typically, credit card debt is not on that list of essentials. Working out credit card debt while unemployed is not impossible, but your lenders do need to see that your financial hardship will affect them and that you are willing to negotiate.



    Trim and prioritize your budget. Stop spending money on things you can live without, like cable TV, and find ways to purchase groceries and other necessities more frugally until you are gainfully employed again. Pay your bills in the following order until your month's allotted money is gone: the rent or your mortgage, utilities, groceries, car payments, student loans (though it is recommended you immediate seek a forbearance) and finally your credit cards.


    Forgo paying even your minimum credit card payments for two to three months. This will hurt your credit score, but most companies will not be willing to seriously attempt to help you until you have defaulted on your payments for at least a few months.


    Assess your budget once again and write down how much money you can put toward your debt each month while unemployed. This is the total amount you must get all of your credit card lenders to work with you to pay each month until you are once again employed.


    Call your credit card lenders. Explain that you are unemployed, which is why you have not made your minimum payments for the past few months. Ask if there are any programs for which you qualify.


    Accept the offer that gives you the best chance of surviving your employment. Some companies offer lower interest rates and minimum payments for up to six months for financial hardship situations like unemployment or disability. Another option the company may offer is reduced payments over a longer period of time to pay back your debt. In more extreme cases, if you can make a lump sum payment for 40 to 70 percent of the total debt, the lender may offer to settle your debt for that reduced amount and call it even. Select the option that gives you the most cash on hand and inflicts the least amount of damage on your credit score.

California Credit Card Fraud Penalties

California Credit Card Fraud Penalties

According to the California IC3 Internet Crime Report, 7.6 percent of all Internet crime perpetrated in 2010 was credit card fraud. California has strict laws against credit card fraud. Those who commit the crime can be charged with a felony or misdemeanor, depending on several factors, including the dollar amount of the fraud. Penalties for credit card fraud can include fines and imprisonment.


    Several crimes constitute credit card fraud, from writing down someone's credit card number and using it to obtaining the actual card and making purchases without permission. Consumers have fallen victim to credit card fraud when unscrupulous retail employees have copied down numbers during a transaction and then used number to order merchandise online. In addition, pre-approved cards sent to mailboxes sometimes are stolen and can be used for a while before the card's rightful owner knows it was sent. By the time credit card fraud is discovered, thousands of dollars can be racked up in someone else's name. Credit card fraud is true identify theft with long-reaching effects.


    California has laws that govern the penalties allowed for credit card fraud convictions. First-time offenders of credit card fraud convicted in California can be sent to prison for 10 to 15 years. The number of years a defendant is sent to prison is dependent in part to whether the defendant also has prior convictions for other crimes. If the defendant already has a credit card conviction on record at the time the new conviction occurs, the prison sentence can be for up to 20 years. Misdemeanor credit card convictions carry a maximum sentence of 11 months and 29 days. The difference between a misdemeanor and felony charge has to do with the amount used on the card and the method by which the card was obtained.

Other Punishments

    In addition to possible prison and large fines, the defendant is typically ordered to repay the amount of money stolen from the card. As part of the sentence, the defendant is generally also ordered to forfeit any equipment used to commit credit card fraud. Telephones,computers, cell phones and anything else that assisted in the crime are turned over to the state, never to be retrieved by the defendant or his family members.


    Judges also order defendants found guilty of credit card fraud to serve time on probation in lieu of jail time. During that probation the defendant may be told by the probation officer to attend moral recognition classes, classes on responsibility, mental health evaluation and substance abuse programs.

Which is Worse for Your Credit, Unsecured Debt or Revolving Credit?

Which is Worse for Your Credit, Unsecured Debt or Revolving Credit?

Unsecured debt and revolving credit affect credit scores for the better and sometimes the worse. The type of debt someone has adds up to about 10 percent of the score, according to the Privacy Rights Clearing House. Revolving credit carries more weight than unsecured debt from a finance company, making negative payment history on a revolving credit account worse.


    Consumers borrow different types of credit. Unsecured debt has no collateral. Secured debt uses collateral as a safety net if the borrower doesn't make payments. Revolving credit comes in unsecured and secured debt. A home equity line of credit represents secured, revolving credit, while a credit card represents unsecured revolving credit. Personal loans from finance companies represent another form of unsecured debt.


    Credit bureaus look at revolving debt closely, says the Privacy Rights Clearing House. The amount someone spends and pays back each month affects credit score, along with payment history. The higher the debt to available credit ratio, the lower the credit score.


    Credit bureaus look at secured debts more favorably than unsecured debts because the lender may reclaim property if the borrower fails to pay. They also put heavier weight on mortgages and car loans than they do on unsecured loans from finance companies, states the Privacy Rights Clearing House.

Why Should You Check Your Credit Report Periodically?

Why Should You Check Your Credit Report Periodically?

Your credit report is a personal financial summary compiled by each of the three major credit bureaus: Equifax, TransUnion and Experian. Each bureau has its own separate report, and the information you find in each of them can vary. You can get a free copy of your credit report from each one of the credit bureaus at annualcreditreport.com.

To Check for Inaccuracies

    The information on your credit report is very important, and small mistakes in reporting can negatively affect your credit score. By checking your credit report periodically, you will be able to spot and dispute inaccuracies in a timely manner.

To Monitor Activities in Your Credit Profile

    Many people are unaware that their identity has been stolen until the damage is quite extensive. If you check your credit report often, you will be able to spot suspicious activity much sooner, and begin to take steps to resolve the problems. In your credit reports, you will be able to see what inquiries have been made in your account, or what accounts are open and determine which ones were authorized by you. If you are interested in keeping your credit score high, you will be able to see what inquiries have been made to your account recently and determine the best way to limit them.

To See What Inquirers See

    The information on your credit report can affect the amount of interest you pay when you apply for a mortgage, car and other loans. It can also affect your ability to get a job, particularly if you have poor credit. By reviewing your credit reports periodically you can get a good sense of what is on your report, whether the information is accurate, and what you can do to improve it.

To Get a Snapshot of Your Credit History

    Your credit reports give you a snapshot of how much money you owe in various revolving and installment loans. Having a clear picture of these debts periodically can help you figure out where you stand financially and how to develop a better plan for the future.

To See What Inactive Accounts Have Been Closed

    Credit card companies sometimes close accounts after they have been inactive for a while without giving their customers prior notice. Closed accounts cause your credit score to decrease because they reduce the total amount of credit that you have available. By checking your credit report periodically you will be able to see when an account has been closed before making a major financial decision.

The Best Non-Profit Credit Counseling

Many people feel overwhelmed by their credit card debt. They may struggle to make the monthly minimum payments, fall behind on their bills or feel unable to handle to get out from under the debt alone. Nonprofit credit counseling agencies help people develop a payment plan and pay their off their credit card debt. However, not all counseling services are created equal and consumers should consider factors like fees, the effect on their credit score and the benefits of using the agency before signing up.


    A nonprofit credit counseling service works as a middleman between a consumer and his creditors. The counseling service will work with a consumer to create a payment plan to repay all of his credit card debt. The consumer pays the credit counseling service one monthly payment and the credit counseling service pays the creditors on his behalf. Repayment plans typically last three to five years, according to Bankrate. Credit counseling services also provide consumers with counseling services to teach them how to build and maintain a budget.


    The majority of credit counseling agencies, even those that are nonprofit, charge a fee for their services. Typically, the agency will charge a start-up fee. This fee covers the cost of opening an account with the credit counseling agency and developing a repayment plan with a counselor. The cost of these fees varies between different credit counseling agencies. However, the best nonprofit agencies charge low or reasonable fees to the customers. Consumers can shop around between agencies to find the best rates.


    When a consumer enters into a debt repayment plan with a credit counseling agency, his creditors may report that payments are being made through a counseling service, according to Bankrate. While this notation will not lower a consumer's credit score, it may make it difficult for him to obtain new credit as lenders will be cautious about extending credit to someone in a debt repayment plan. However, when the consumer completes the plan, any notation of a credit counseling agency will be removed from his report.


    Consumers should research any nonprofit credit counselor they are considering before signing up to ensure they use the best agency possible. Consumers have the right to speak with a representative directly about the services offered by the agency. Consumers should pay special attention to the fees charged by the agency. According to Bankrate, the consumer should ask that the agency put any fees in writing before they sign up.

Sunday, December 26, 2010

Can a Creditor Garnish Student Loans?

Many students receive loans secured by the federal government to attend college. These loans, typically provided at a low rate of interest, allow the student to attend school and pay the loans back when he receives a job and income after school. In most cases, these loans are protected from garnishment by private creditors. This is because student loans are not a form of income per se, but are a loan that the student must pay back.


    To garnish a person's wage, a private creditor must first be awarded financial damages in a court of law. Only after a judge has certified that the debtor owes the private creditor money can the private creditor attempt to garnish the person's wages by petitioning the judge to grant him a motion to do so. Garnishment that a creditor undertakes without the permission of a judge is illegal.

Student Loans

    Students loans are not considered a form of income or wages. This money cannot be freely spent on anything the student wishes. Rather, student loans are just that -- money that the student is borrowing from the government to pay for school and that must be repaid later. Because this money does not count as a form of income, like a paycheck, a judge will not authorize its garnishment.

Private Creditors' Restrictions

    There are a number of legal restrictions imposed on private creditors that prevent them from garnishing money from certain types of people and from garnishing certain income streams. For example, many low-income people are protected from garnishment, as this action would leave them too poor to support themselves and their dependents. Additionally, most federal benefits cannot be legally garnished by private creditors, although federal agencies may be allowed to take them.


    Student loans cannot be garnished by government agencies for the same reasons that they cannot be garnished by private creditors. However, in certain instances, such as if the student has violated the terms of his loans, then his loans may not be garnished by the government, but may simply be cut off. He will still be forced to repay the loans he has already taken out and will be forbidden access to additional loans.

How to Apply for Grants

How to Apply for Grants

Grants are wonderful ways of obtaining funding for projects, business, schooling and even housing. A grant is a program that is offered by the government or by organizations or even private people who wish to fund these different types of things. Unlike a loan, a grant doesn't have to be paid back, so you can get started on your project or schooling without having to worry about being in debt. Although the application process for grants varies depending upon what organization or government chapter you're going through - there are some common things you will need to do. Below is some more information on how to apply for grants.



    Find the perfect grant. Before you can apply for grants, you have to find ones that you are eligible for and that meet your specific needs. There are many ways in which you can find the perfect grant, including searching online. www.Grants.gov is a great resource when you're searching for grants because they have a keyword search tool which allows you to find relevant grants almost instantly. Simply place the type of grant you want in the search bar - for instance, college, housing, schooling or starting a business. Make sure that the grant you've selected is offered for your area or all types of people. Some grants are specifically for certain areas or particular types of people. Once you've found your perfect grant, you're ready to get started.


    Check the details. It's also important that you check the details of the grant. As stated above, some grants are for certain people or areas only. Also, some grant applications require different kinds of information. You may need to place information such as proof of income, number of persons living in your home, whether or not you've received grants in the past and why, what the grant is for, how much money you need and more. Make a note of the types of information you will need to include as well as any documented proof you will have to attach to the grant application. This will make the process go smoother and easier.


    Include all information. Many grants come with a grant kit that will be provided by the organization or person giving the grant. Follow the instructions in the grant kit to the letter and include all necessary information. Double check to ensure that you have everything that is needed before sending the application off, so that the process will go more quickly. In some cases, you will need to send proof of documents, etc. Be sure to send only copies of these documents and not the original copies. You could end up losing them if you do!


    Send the grant out. Once you've filled the grant out, send it to the specified address. Then you simply wait to determine whether you've been selected to receive the grant or not. Notification of this should come to you within a few months of filling out the application. However, don't panic if it takes longer. Remember that many other individuals have also filled out applications and chances are, there are a lot to sift through! Hopefully your patience will be rewarded with acceptance.

Friday, December 24, 2010

Do Debts Die With the Debtor?

Unpaid debts may follow you to your grave and then the question arises of whether they will live on without you. Most debts will indeed die with the debtor, or at least once the debtor's estate has been settled. Some debt may even be forgiven if you pass on. In a few special cases though, a debt may persist beyond your death.

Student Loans

    Should you die, the federal government will forgive any outstanding student loans. This includes both subsidized or unsubsidized Stafford loans and any Plus loans your parent's may have taken out on your behalf. Some private student loans may also be forgiven upon your death, but this is not guaranteed. You should check the terms of your private loans to determine if they are discharged if you die. Having the loans forgiven means that money from your estate will not be used to pay them. This means more money is available to cover your other debts, funeral expenses and for your heirs to inherit.

Shared Debt

    Some debt may continue beyond your death because another person shares responsibility for it. In some states, your spouse may inherit full responsibility for your debts if you held all property and bank accounts in common. Additionally, if another person cosigned or guaranteed any of your debt, they will assume responsibility for it upon your death.

Your Estate

    Upon your death, the executor of your estate is responsible for taking an inventory of all your assets and outstanding debts. The executor must then use your assets to pay these debts in a priority order set by the state. The process of determining which debts are paid, and how remaining assets are distributed, is known as probate. Your debts remain alive until probate is over, which takes around a year. Note, that your creditors are not allowed to contact anyone about your debts unless they are authorized to make payments against your estate. Additionally, your relatives are not responsible for your debt and your creditors cannot attempt to collect from them.

Insolvent Estate

    An estate is considered insolvent if it has more debt than assets. In the case of an insolvent estate, some of your debts will not be paid in full, or at all. After hanging on through the probate process, those debts will then be dismissed. At that point, the creditor has no recourse and the debts will be "charged off," meaning the creditor will record them as a loss.

How to File a Foreclosure

How to File a Foreclosure

For many homeowners, foreclosure is their worst nightmare. It can be traumatic both to your finances and your family to lose your home out of an inability to make payments. Sometimes though, homeowners, in realizing foreclosure is imminent, will seek to file a foreclosure and cut their losses where they can. You will have to prove your situation is irreconcilable, if you want your foreclosure filing to be accepted.



    Meet with your financial adviser to confirm that filing for foreclosure is the best option. Much like bankruptcy, foreclosure will cause serious damage to your credit rating, but it may be your only option. Do not file for foreclosure unless all avenues for help have been closed to you.


    Contact your city or county's public trustee and ask what is needed to file for a foreclosure. You will have to provide proof of home ownership and evidence of your trust. Your public trustee may have other requirements, such as a letter from an attorney confirming your situation and need.


    Put together all the required documents, or copies of the documents, and deliver them to your public trustee. You will likely have to pay a foreclosure fee with your submission. Fees vary widely but could be as low as a few hundred dollars.


    Wait to hear back from your public trustee regarding your foreclosure. Depending on backlog, most foreclosures can be processed within two weeks.

If I Choose to Not Renew a Credit Card, Will It Lower My Credit Score?

If I Choose to Not Renew a Credit Card, Will It Lower My Credit Score?

It is true that having many open credit accounts can be bad for your credit score. Lenders may think you have too many liabilities and too much opportunity to borrow beyond your means. However, not renewing a credit card may not be the best solution to this problem. Once the account is opened, you're in something of a Catch 22, because allowing it to lapse can actually be worse for your score.

Age of Credit

    Lenders like to see a credit history that's been established over a long period, so if you've held the card in question for several years, it's probably advantageous to keep it. If you choose not to renew, it may make your credit history look younger than it actually is, which will be deleterious to your credit score.

Available Credit

    One number that's crucial to your score is the ratio of your available credit to the balance you actually owe. If you close a card that has a zero balance, you've reduced your available credit, but your owed balance remains the same, altering that ratio unfavorably and lowering your credit score.

A Better Strategy

    Instead of choosing not to renew a card you seldom use, it may be smarter to put it to work for you to improve your score. One way you can do this is to use it once or twice a year to make a purchase, but be sure to pay off that balance promptly at the end of the month. This means you'll be using the card to demonstrate your responsible use of credit, but not increasing the total amount of debt that you hold.

New Accounts

    Use your experience with this card as a reminder to better manage your credit in the future. Remember the key fact that having too many open accounts will drop your score. Work on paying off the balance on the cards that you have, and resist the temptation to open that store card you're offered, or to transfer balances to a new, low-interest account. In the long run, it won't work in your favor.

Thursday, December 23, 2010

Post-Foreclosure Help

A foreclosure can be financially and emotionally devastating, but you can recover and get on with your life, according to the Federal Home Loan Mortgage Corporation, also known as Freddie Mac. The agency says there are programs to help foreclosure victims rebuild their credit and even find a place to stay.


    A foreclosure will be reported on your credit report for seven years, according to the Federal Trade Commission. Your credit score could drop significantly, but the negative impact will lessen over time. Good credit management and on-time payments on all your bills will allow your credit score to gradually recover after the foreclosure. A nonprofit credit counselor approved by the U.S. Department of Housing and Urban Development can help you create a plan for rebuilding your credit. Find a counselor in your area by visiting the HUD website (see Resources).


    CNN reports that some foreclosures are caused by understandable hardships such as joblessness, illness or divorce. However, other foreclosures occur when people simply walk away from their properties in so-called "strategic defaults." Generally, that happens when the house has dramatically declined in value and is worth less than the balance on the mortgage.

    CNN reported in 2010 that lenders are taking a dim view of strategic defaults and that people defaulting on their home loans in that manner may be forced to wait seven or eight years before being approved for a new mortgage. According to CNN, people who lost their homes for other reasons may have to wait only two or three years to be approved for a new mortgage. People who walked away in a strategic default should consult a credit counselor before applying for another mortgage. The counselor can help create a truthful explanation for the strategic default, and the information can be included with the new loan application.

Expert Insight

    It may be possible to legally remain in your home after the foreclosure. Freddie Mac reported on its website in 2010 that some lenders were allowing some foreclosure victims to remain in their homes as renters on a month-to-month basis. Ask a HUD-approved housing counselor for the most current information on foreclosure rentals.


    Freddie Mac also reports that lenders may be willing to help you with relocation costs if you need help moving your stuff as you find a new place. A HUD-approved counselor can provide the most current details.


    Making your mortgage payments on time will obviously help avoid foreclosure. Contacting your lender as soon as you begin experiencing financial problems could also help. The lender may be able to lower or even suspend your mortgage payments while you work through a financial crisis.

Wednesday, December 22, 2010

How to Tackle Debt with Limited Income

When you're on a strict budget, it can be difficult to get rid of your debt. If you're only making minimum payments on your credit cards, it can take years to pay them off. If you want to tackle debt with limited income, you have to make a serious commitment. You might have to do without some extras for a while, but the benefits of being debt-free can far outweigh the sacrifices.



    Lower your interest rates. If you can decrease your interest rates, a higher percentage of your monthly payment will go toward the principal balance. This will help you to pay off your debt faster, even if you're making the same payment. Contact your credit card and loan companies and ask them to reduce the interest rates. You might have to threaten to move the balance elsewhere to encourage them to do this.


    Consolidate your debt. In debt consolidation, you take out one big loan that pays off all the smaller loans. Then, you only have to pay one bill each month, often lowering the total monthly payment and making it easier to pay off your debt with limited resources. Consolidating your debt also can lower the interest rate. Talk to a debt consolidation company, but be wary of extra charges just to do the consolidation.


    Pay more than the minimum payment. If you are making only the minimum payment monthly, you are paying mostly interest and hardly touching your principal balance. Apply as much as you can toward lowering your debts. If you can only afford an extra $20 per month, it's still better than nothing.


    Sell things that you do not need. Selling items that you have around your home can be a quick way to get a bit of extra money to pay off debt. Look for gadgets that you don't use and hold a garage sale. Bigger-ticket items, such as antiques or electronics, might sell better online.


    Look for ways to increase your income. Trying to pay off your debt with a low income is difficult, but if you can find ways to earn extra money, you'll be in a better position to pay things off quickly. Look for a part-time job or do some freelance work in your spare time.

Help Me Settle My Debt

Accumulated debt from student loans, credit cards or medical bills doesn't simply go away. The type of debt determines how it is handled; for example, student loans from the government must be repaid and cannot be cleared away by filing bankruptcy. Reach out to your debtors and attempt to negotiate either a payment plan or a settlement agreement, which decreases the total amount of debt and could improve your credit score in the process.

Student Loans

    Federal student loans are slightly more flexible than private student loans and typically have options that allow you to repay your debt with an income-based repayment plan, which sets the monthly payment amount based on how much you earn in a month.

Credit Cards

    Contact your credit card company before your account goes to collection to avoid dragging down your credit score. Credit card companies are often willing to settle for a percentage of the total bill you owe them, or at the very least allow a temporary low payment amount for your bill until you are able to resume your minimum monthly payment amount.

Medical Bills

    Doctor visits, medication and hospital stays quickly add up to exorbitant charges even if you have health insurance. While hospitals may not be able to reduce the total cost of your bill, they are able to provide a payment plan for the cost of your hospital bills.

Debt-Settlement Companies

    Avoid using debt-settlement companies, since they can end up charging an unreasonable number of fees for using their services. In addition to large fees, credit card companies may flag your account if they find out you're working with a debt-settlement company to take care of finances, according to MSN Money. A flagged account is likely to be forwarded to a collection agency in an attempt to collect on the account. According to MSN Money, your best bet is to contact your creditors and attempt to settle directly, rather than rely on a risky debt-settlement company.

Tuesday, December 21, 2010

Can a Promissory Note Be Voided for Fraud By Filing a Release of Obligation?

Can a Promissory Note Be Voided for Fraud By Filing a Release of Obligation?

Holders of promissory notes can release them for any reason. Promissory notes can also be legally abrogated, or nullified, for several reasons, including fraud. While filing a release of obligation document releases the promissory note maker from any future responsibility or liability for the debt, abrogation of the promissory note for reasons such as fraud do not.

Promissory Note

    A promissory note is a document that states that an individual or business promises to pay another individual or business a certain amount of money. Personal checks are simple forms of promissory notes. Other promissory notes, such as treasury bonds, are investments. An investor buys a bond at a discounted price and then after the bond matures, the treasury will pay the investor the face value of the bond upon its redemption.

    Some promissory notes, though, are debts such as loans or IOUs. Companies or organizations that need to raise money will sell promissory notes to investors and promise to pay the investor a fixed return on the investment plus annual interest.


    At its most basic level, fraud is type of deception. If a fraud has been committed, then someone has been misled or lied to. According to the U.S. Securities and Exchange Commission, the problem of fraudulent promissory notes is rampant. In typical cases of fraud, independent life insurance agents are persuaded by a fraudster to sell their customers promissory notes. The fraudster agrees to give the agent a 20 percent to 30 percent commission on each sale. Customers purchase the promissory notes hoping to earn a high return with no risk. Some promissory notes falsely say they are insured or guaranteed, but since the customer knows the agent, the customer usually does not question this. The fraudster then either runs off with all the money or pays the agent his commission and absconds with the rest. Sometimes, fraudsters will implement Ponzi schemes where revenue from new sales of promissory notes is used to pay interest on older promissory notes. The end result, though, is that the customer never gets his investment back.

Release of Obligation

    A release of obligation is a legal document that cancels or annuls an agreement. It is used in the case of real estate transactions where both the buyer and seller agree to terminate the sale and purchase of a property. It is also used by divorced couples, where, for instance, an ex-spouse receiving alimony releases the ex-spouse who had been paying the alimony from his obligation to pay any future alimony.

    A release of obligation is also used to abrogate promissory notes. In the case of promissory notes, there does not need to be mutual consent. The party who holds the promissory note may at any point and for any reason release the maker of the note from his obligation to repay the debt. A release of obligation might happen, for instance, in the case of an adult child who borrowed money from a parent via a promissory note, and the parent decides to release the child from his obligation to make repayment.

Can a Promissory Note Be Voided for Fraud By Filing a Release of Obligation?

    A promissory note cannot be voided for fraud by filing a release of obligation. A release of obligation does not imply anything other than the holder of the promissory note wishes that the debtor be released from his debt. While promissory notes will become null and void if fraud is discovered, that does not mean that the fraudster is off the hook. The investor has every right to file criminal charges against the fraudster, and, depending upon the type of promissory note, the local attorney general and/or the Securities and Exchange Commission might file their own charges against the fraudster.

How to Settle Debts Without a Debt Settlement Company

How to Settle Debts Without a Debt Settlement Company

If you are dealing with unmanageable debt, you may consider using a debt settlement company to work on your behalf. Unfortunately, many debt settlement companies charge substantial fees, and there is no guarantee that they can resolve your debt problem. You may be able to settle your debts on your own as well as any debt settlement company could, and you can save the fees along the way.



    Determine how much money you have available to pay your debts. Before you begin any negotiation, have a clear picture of your finances. Analyze your cash flow and calculate the most that you could afford to pay your creditors if you get into a debt settlement plan. If you agree to a debt settlement and cannot afford to make the payments, your plan will fail.


    Call your creditors and negotiate. Ask for a lower interest rate on your debt, a reduction in your outstanding balance or any deal they can cut you if you make a lump-sum payment. Ironically, your creditors may be reluctant to agree to a settlement program with you if you have been paying on time. Usually, creditors will cut a deal only if it appears you cannot make your payments. Consequently, you will probably be able to negotiate your best deals after you have fallen behind on your payments.


    Declare bankruptcy. If you cannot manage to negotiate a deal with your creditors, you can resort to filing bankruptcy. While a bankruptcy can wreak havoc on your finances, it is the ultimate debt settlement action. When faced with a bankruptcy discharge, your creditors lose all power to collect on your debt. While creditors will get at least some payment from you if you file Chapter 13 "reorganization" bankruptcy, in a Chapter 7 "liquidation" bankruptcy creditors traditionally receive nothing. Even if your creditors did not want to settle your debt, the bankruptcy discharge forces their hand and effectively renders your debt invalid. You may have to deal with the after-effects of your bankruptcy for 10 years, but as a last resort, your bankruptcy discharge will basically settle all of your debts down to zero.

How to Fix and Watch Your Credit

A credit bureau is a company that collects and reports information about your credit accounts to others. In the United States, the three major credit reporting bureaus are Experian, Equifax and TransUnion. In most cases, only time will remove accurate, negative information from your credit reports. However, you can dispute and request removal of all inaccurate information from your credit report. Several companies also offer credit monitoring services that allow you to watch your watch and will notify you of major changes to your credit profile.



    Order a copy of your credit report from each of the credit bureaus. You can purchase a copy of your credit report directly from the credit bureaus' websites. You are also entitled to a free copy of your credit report annually from each of the credit bureaus. To obtain a free copy of your credit reports, go to annualcreditreports.com.


    Review your credit report from each of the credit bureaus. Make sure you review all three reports. Information listed on each report is sometimes different. Determine if there is any inaccurate, negative information on your credit report. Dispute any inaccurate information by following the online "Dispute" link on the credit bureaus' websites. You will need to dispute the information with each credit bureau that reports the inaccurate information. You can also dispute the information by calling the phone number listed on the credit reports. List the reasons for the dispute as specifically as possible.


    Wait for the credit bureaus to remove the inaccurate information. This process takes no longer than 30 days. The credit bureaus will notify you online or by mail with the results of your dispute.


    Subscribe to a credit monitoring service so you can continue to watch your credit, or request your reports again in a year. Subscribe to a service that monitors your credit from all of the credit bureaus. The credit monitoring service will automatically notify you if there is a significant change to your credit profile.

Monday, December 20, 2010

How to Negotiate a Debt Repayment Fee Rate

How to Negotiate a Debt Repayment Fee Rate

If you owe large amounts of money to credit card companies or the servicer of your student loan, it's easy to panic. You might wonder how you'll pay all of what you owe. If you've lost your job during a difficult financial time and have had to take a lower-paying one, this challenge can be even more daunting. Fortunately, you might be able to negotiate lower monthly fees from your creditors. To do this, though, you'll have to prove that you have suffered a financial hardship that makes paying your debts without a renegotiation of them an impossibility.



    Build a case that you have suffered a financial setback and can't afford to pay your monthly debt obligation in its current form. To do this, make copies of your two most recent paychecks, current federal income tax return, savings and checking account statements, credit card bills and other loan statements. You'll use this paperwork to prove to your creditors that your gross monthly income has fallen.


    Call the creditors to whom you owe the most money. Explain to them that you have suffered a financial hardship--tell them what it is--and can no longer afford to pay your monthly debt. Request that they renegotiate your debt repayments. Perhaps they can lower the principal balance that you owe. Maybe they can lower your interest rate. Or maybe they can restructure the terms of your debt so that you pay less each month.


    Write a financial hardship letter. In it, explain to your creditors exactly why you can't afford to make your monthly payments. Some reasons might include a job loss, drop in weekly working hours or a serious medical condition that kept you from earning your regular paycheck. Also include in your letter your request to have your debt repayment negotiated so that you pay less each month.


    Send your creditors the copies you made of your financial documents and your financial hardship letter. Your creditors will use this information to determine if your financial setback is serious enough to warrant a reworking of your debt repayments.


    Agree to a specific reworking of your debt payments if your creditor approves your request. Make sure, though, that this negotiation, whether it be an interest rate reduction or a slashing of your principal balance, results in a monthly debt payment that you can afford.

Sunday, December 19, 2010

How to Collect Bad Debts

How to Collect Bad Debts

If you own a small business and frequently deal with clients, you might encounter a few late payments and non-payments. But fortunately, there are ways to deal with unreliable clients. Rather than write-off non-payments and lose money, take steps to collect the money owed. You can employ several tactics, which may persuade clients to submit their past due payments.



    Notify the customer by phone or letter. Often times, a simple phone call or past due statement prompts customers to submit a payment. What's more, telephoning the customer and leaving non-threatening messages may also move a customer to pay a past due balance.


    Agree to a new payment arrangement. If the customer can't pay the bill, agree to new payment terms. Propose a debt settlement, in which the customer submits a one-time lump sum for less than the balance owed. In return, you agree to cease all collection attempts. You can also extend the loan term or reduce their minimum payment, which increases affordability.


    Hire a collections agency. Business owners are busy, and they are usually unable to devote a lot of time to collection attempts. Contact a debt collection agency and ask them to handle the account. Reputable collection agencies include Rapid Recovery Solutions and Direct Recovery Associates (see Resources below). They'll contact the customer by phone and mail collection letters. If their attempts are successful, you agree to pay the collection agency a percentage of the money.


    Pursue legal action. If letters, telephone calls and hiring a collections agency doesn't result in repayment of the debt, it's time to seek legal action. Contact an attorney and ask them to write a letter. Choose an attorney in your local area, ask friends and family for referrals or use a lawyer directory (see Resources below). However, make sure the attorney has debt collection experience. If the customer still doesn't respond, request a court date and have a judgment placed on the customer's credit report.

5 Ways to Dump Your Credit Card Debt

Getting rid of your debt is an excellent way to raise your credit score and give you peace of mind; however, you must choose the strategy that works best for you specific financial situation. In other words, debt elimination methods are not one size fits all. By understanding the pros and cons of each method, you will be able to make an informed decision about your plan of attack.

Payment Plan

    One way to dump your credit card debt that doesn't involve applying for a loan or damaging your credit is by paying all of your debt off by yourself. To pay down your debt strategically, you may choose between two methods. The first strategy involves paying off the credit card with the lowest balance first. People who choose this method typically do so because of the motivation they get from seeing their balances paid down quickly. Another method is to pay down the balance with the highest interest rate first. In doing so, you typically save money by paying as little interest as possible. Call your creditors and ask for lower interest rates so that you can pay off your debt as quickly as possible.

Debt Consolidation

    Debt consolidation may help you to pay off your credit card debt faster if you can qualify for a loan with a lower interest rate than your current credit card interest rates. Banks and consolidation companies generally advertise very low rates on these loans, but only those with excellent credit usually qualify for those rates. The other situation where debt consolidation may be helpful is if you have trouble making on-time payments to all of your various accounts, since consolidation gathers up all your debts under one loan. However, you must be careful when using debt consolidation, since there's nothing keeping you from spending on the credit that becomes available after the consolidation loan wipes out the balance.

Debt Management Plan

    Anyone overwhelmed by their debt situation may benefit from working with a trustworthy credit counseling organization. Only credit counselors have the power to put you on a debt management plan, which is a predetermined period of time over which you will pay off the entirety of your debt. Once you decide to use a DMP, your credit counselor negotiates with your creditors to lower your interest rates or payoff balances, then calculates a period of time over which you'll pay off your debt. DMPs do not damage your credit score because the credit agencies view management plans as you taking responsibility for your financial situation.


    Debt settlement is very damaging to your credit score because your creditors need to believe that you're headed for bankruptcy before they agree to settlement, which usually means defaulting on your payments for a matter of months. Be careful of working with so-called debt settlement companies, which are often scams and may charge high fees. Instead, work with a credit counselor or negotiate your own settlement by saving money while you default on your payments, then offering your savings as the settlement amount. Usually, creditors agree to settlements around the six-month mark after you've stopped paying. The lump sum settlement is generally between 25 to 75 percent of what you owe, according to MSN Money.


    When you think about bankruptcy, you probably think of starting over from scratch, but eliminating all of your debt. In reality, that scenario only applies to one type of bankruptcy, which is Chapter 7. This type of bankruptcy involves the liquidation of your assets in exchange for a discharge of your debts. Chapter 13 bankruptcy is more like a payment plan, and is reserved for people with steady incomes, of whom generally have been hit with a one-time financial crisis, such as a period of unemployment, unexpected medical expenses or divorce. In exchange for payment over a three-to-five year period, those under Chapter 13 may keep their assets, and, at the end of the payment period, the some of their debts are forgiven.

Saturday, December 18, 2010

How to Get Out of Debt After Divorce

Getting out of debt is hard for any individual, but sometimes after a divorce, it is even harder. Bills pile up, and sometimes expenses are unevenly split because of a rough situation. Emotions run high, and sometimes, debt piles up before the consumer even knows it. However, through proper budgeting and planning, you too can get out of debt after divorce.



    Check your credit. Go to a website, such as AnnualCreditReport.com, and get a free tri-merge credit report. You will have to provide the company with your date of birth, full legal name, Social Security number and a credit card number. Select all three bureaus' reports: Experian, TransUnion and Equifax. To order your credit score, however, will cost you about $30 to $40, depending on the site you select.


    Go through your report and see if any of your ex-spouse's information is listed on the report. Immediately report any errors or misplaced debt to the credit bureau. This can be done online by selecting the line item and highlighting the reason for the error. The bureau has 30 days to respond to you, by law. Remember if the debt is in both names, you are liable even if your ex-spouse is supposed to pay it. Make sure to receive a copy of each monthly statement on the debt to ensure that it is paid on time.


    Create a budget. List where every dollar of your income goes and categorize it by spending. Look through your budget and see if any extra items can be deleted--such as cell phone extras and cable TV packages.


    Make a list of all debts. Rank them in order of smallest monthly payment to the largest. Contact each lender and ask if they will lower your interest rate based upon a good credit score (700 and above) and on-time payments for a year (if applicable).


    Take on extra work or have a garage sale to earn extra funds to apply towards savings and debt.


    Build up a 3-to-6 month emergency fund prior to paying off debt. This will decrease your dependence on future debt.


    Pay any excess funds toward the smallest monthly payment listed in Step 4, according to Dave Ramsey's Snowball Debt Method. Pay on this debt until paid in full. Apply all excess funds plus the amount of the smallest monthly payment to the next smallest monthly payment. Continue to pay on this debt until paid in full. Continue the pattern until all debts are paid in full. Dave Ramsey suggests this pattern to create momentum and quick success.

Statute of Limitations on Credit in Indiana

Credit card companies have a limited amount of time to file a lawsuit against you for a charged-off debt. Indiana, like all states, has a statute of limitations on debt collection: Once it has passed, a creditor has to either accept the loss or try and persuade you to pay the bill without a court judgment.

Indiana Statute of Limitations

    In Indiana, a credit card company or debt collector has six years to sue you for unpaid credit card debt. After the six years is up, if you are sued for the debt, you can ask the court to dismiss your case because the debt is too old for collection. Credit bureaus can include this information for up to seven years after you default on your account.

Statute of Limitations on Judgments

    If your creditor does take you to court over the debt, it has a much longer time to collect its lawsuit. Indiana law grants judgment creditors 20 years to collect a debt that doesn't involve real estate. Judgments stay on your credit report for up to seven years if paid, or until the statute of limitations runs out on an unpaid judgment.

Why You Still May Need To Pay

    Just because your debt is past the Indiana statute of limitations doesn't mean that you may not need, or want, to pay up. Some potential creditors, such as mortgage lending companies, may demand that you pay or settle an old account before approving you for a loan. Additionally, there are debt collection companies that specialize in collecting old, out-of-statute debts. These bill collectors buy up old debt, usually for a small fraction of its value, and then try to collect.They may repeatedly try contacting you by phone or by mail, and some might even try to sue you. While there are ways of stopping these companies from engaging in further harassment, there is nothing that prevents the debt collector from reselling your debt. If this happens, you'll have to repeat the steps you took with the first collection agency.

Protecting Yourself

    Don't ignore a letter from a bill collector: If you believe the debt is no longer collectible under Indiana's statute of limitations, invoke your rights under the Fair Debt Collection Practices Act and send the collector a letter stating that the debt is no longer collectible and that the collector should stop contacting you. If the debt collector tries to sue you, go to court: If you don't, the collector can win a default judgment against you, even if the debt is out of statute. Show up in court, preferably with a lawyer.

Bankruptcy Vs. Debt Consolidation in Pennsylvania

Bankruptcy Vs. Debt Consolidation in Pennsylvania

Bankruptcy is a tough choice to make. On the one hand, it gives you an opportunity for a fresh start. But it comes at a price: a damaging effect on your credit score. Alternatively, if you are concerned about salvaging your credit, debt consolidation is another available option.


    All states adhere to the U.S. Bankruptcy Code. Whether you file a bankruptcy petition for Chapter 7 or Chapter 13, all states interpret the law the same. The main difference is the qualifying median household income applied in a means test to determine your eligibility for filing bankruptcy. The means test compares your household income to the median household income of similar size in Pennsylvania. If your income is too high, you may not qualify for bankruptcy liquidation under Chapter 7 but may qualify for Chapter 13, which re-works your debts with creditors.

Automatic Stay of Protection

    A bankruptcy petition gives you automatic stay of protection from creditors, which suspend all collections efforts on their part. The automatic stay of protection bars a creditor from contacting you. During the time, the court requires that you submit financial records and receive credit counseling as part of the evaluation process.

Debt Consolidation

    Debt consolidation, debt settlement and counseling fall under the umbrella of credit counseling. Debt consolidation refers to taking out a large loan at a lower interest rate to pay off your high-interest debts. The best example of this is taking out a home equity loan with a low fixed rate to pay off your credit cards. In contrast, debt settlement involves settling your debt obligation for less than the full amount that you owe. There a number of agencies that provides credit counseling services to Pennsylvania residents. You'll have to do some homework to determine which agency is right for you. According to the Pennsylvania Attorney General's Office, avoid debt counselors who charge excessive fees, make hard sales pitches and pay employees by commission.


    Bankruptcy may be a likely option if you've experienced a dramatic loss of income and don't expect any future income gains. In contrast, you have to pay off a debt consolidation loan. Therefore, a loss of income leaves you back where you started if you took out a debt consolidation loan. In addition, if you have your debts discharged in Chapter 7, you are essentially "free and clear." If you don't qualify for Chapter 7 but fall under Chapter 13, you are basically reorganizing your debts with creditors. Debt consolidation leaves you with a larger loan. Another option is debt settlement which reduces your principal balance to as low as your creditor is willing to accept. But you must stick to the terms once you reach a settlement agreement. You can also have a credit counselor negotiate an interest rate reduction which reduces your monthly payments.

Credit Impact

    Most likely, your credit score has already taken a hit if financial circumstances have brought you to the brink of bankruptcy. However, a bankruptcy is devastating to your credit score. The impact is hard to quantify because it depends on what your score was to begin before you filed. The credit rating agencies report bankruptcy information for up 10 years. On the other hand, debt consolidation salvages your credit score to some extent. Debts that are consolidated show as paid off on your credit report. However, the credit rating agencies also take into consideration the amount of debt you owe. So, a larger loan will have a negative effect on your score.

Friday, December 17, 2010

Define Unsecured Bankruptcy

Define Unsecured Bankruptcy

In a personal bankruptcy case, debtors receive a discharge of a portion of their debts. The bankruptcy code distinguishes between secured and unsecured debt. Only unsecured debt can be discharged in a bankruptcy case. Debtors must work with their creditors regarding secured debts. Out of all possible unsecured debts, certain debts cannot be discharged.

Secured Debt

    Collateral makes the difference between secured and unsecured debt. Secured debt is a loan backed by collateral. A creditor lends money to a debtor and takes a security interest in the debtors property or collateral. Using the debtors property as collateral ensures that the lender will get paid. The debtors knowledge that he will lose his property if he defaults on payments prompts him to make his regular payments. Either way, the creditor will be paid by taking the property or receiving the debtors agreed-upon payments. Common types of secured debt are mortgages and car loans.

Unsecured Debt

    A contract between the debtor and the creditor creates unsecured debt. The contract involves no collateral. The contract merely contains the debtors promise to repay the money borrowed, according to the contracts terms. If the debtor defaults on the loan, the creditor has no property to take to ensure payment. The creditor will have to resort to collection tactics to induce the debtor to make good on the debt. The most common types of unsecured debt are credit card debt, medical bills and personal loans.

Chapter 7

    In a Chapter 7 bankruptcy, a trustee administers the debtors case. When creating the bankruptcy code, legislators intended that a debtor would repay at least a portion of his debts. Because the debtor has virtually no money with which to pay creditors, the object was to raise money to pay creditors by selling the debtors property. The trustee identifies the debtors exempt property and the debtors non-exempt property.


    The bankruptcy court cannot discharge secured debts, so the debtor must decide what she wants to do with her secured debts. For example, a debtor owns a car that cannot be exempted from sale. The debtor can either pay for the car, or the creditor will take the car. If the debtor wants to keep the car, she will need to work out a deal with the car dealership and agree to pay for the car under the original contract terms. The debtor would be reaffirming the debt.


    After the trustee has sold all property that is not exempt from being sold, the debtor receives a discharge of unsecured debts. Wait. Not so fast. All of the debtors unsecured debts may not be dischargeable in any type of bankruptcy. The legislators who created the bankruptcy code thought that debtors should be held responsible for these debts. Debts for child support and alimony; certain taxes; student loan debt; debts for the willful and malicious injury to another person or to the property of another; debts for death or personal injury the debtor caused while driving under the influence; and debts for certain criminal restitution orders cannot be discharged.

Can My Wife's Debt Be Garnished From My Paycheck?

A creditor may legally obtain a garnishment through the court system, allowing that creditor to take a portion of a person's paycheck until the debt owed to the creditor is satisfied. If you do not personally owe a creditor a debt, the creditor cannot garnish your wages, even if your spouse owes money to the creditor.


    A garnishment allows creditors to take funds owed to them using legal methods. A creditor must present its case that an individual has not paid a debt legally owed to be granted a writ of garnishment. The writ of garnishment can then be served on that person's employer, who must redirect a portion of a person's earnings to the creditor until the old debt is satisfied. A creditor may also garnish bank accounts held by the debtor, freezing and seizing assets in the accounts until the amount of the garnishment is satisfied.

Spouse's Liability

    If your spouse entered into a contract with the creditor, agreeing to pay back a loan, but you did not enter into the contract, the creditor cannot legally pursue your paycheck. When a garnishment is served on your employer, you also receive a notice in the mail detailing the garnishment amount. This notice also provides information on contesting the garnishment, including a deadline for you to file your challenge to the garnishment with the court.

Judgment First

    A creditor must obtain a judgment against your wife before the creditor may pursue any garnishment actions through the court. To receive a legal judgment, the creditor must file a lawsuit against your spouse for the debt and win the suit in court. The court determines the final amount your wife owes the creditor. The exception to this process is if your wife owes taxes from filing separately from you or payment for federal student loans. The government may then garnish wages or bank accounts without suing first.

Other Restrictions

    A garnishment may not seize more than 25 percent of a person's disposable earnings for a week's pay or the amount of a person's earnings that exceeds 30 times the federal minimum wage for a week's earnings, whichever amount is less. Disposable income is defined as the amount a person has earned after all deductions are taken out of a paycheck (such as taxes and health insurance).

Thursday, December 16, 2010

How Do Debt Repayment Programs Work?

If you have an excessive amount of credit-card debt you may need the services of a debt repayment program. A number of services are available from both profit and nonprofit organizations. Some repayment programs both provide counseling services and settle your debts. Get as much information as possible, and try to avoid those companies that charge a fee.


    To pay down debt you may want to contact the National Foundation for Credit Counseling, which is a nonprofit organization. Call the toll free number, 1-800-388-2227, and you will be able to speak with a certified credit counselor in your area. A credit counselor will develop a plan of action specifically for you. She will first gather your personal information such as name, address, social security number and date of birth. The representative will then want to confirm and verify all income sources. Next she will need all of your credit-card statements and a list of your other monthly obligations such as car insurance, homeowner's insurance, utility payments, life insurance and cable expenses. The consumer credit counselor will also need a listing of all of your assets, such as money in the bank, stocks, bonds and investments. You can communicate with a counselor in person, by phone, through the mail or online.


    The professionally trained counselor will then review your budget or help you construct one if you do not have a budget in place already. Since he has a listing of all of your expenditures, he is now able to make some recommendations designed to help you save money, pay debt, and set up an emergency fund. Chances are he will have suggestions on where you need to cut back your spending. The idea is to make your budget more affordable and manageable. Sometimes your income is not enough to meet your current obligations. In that case other options will have to be considered.

Debt Management Program

    The credit counselor will help you create an action plan designed to get you out of debt and keep you from acquiring more debt. She will probably enroll you in a debt management program. The credit counselor will contact all of your creditors by mail to let them know you are in the program. The counselor will then negotiate with your creditors for a lower monthly payment as well as a lower interest rate. You may be able to have other fees waived, such as late charges and over-the-limit fees. Waiving fees helps you pay your debt off faster.

Program Implementation

    When all creditors have agreed to the program the credit counselor will set up a repayment program which usually last for 36 to 60 months. You send a lump sum payment to the credit counseling service, and it distributes the monthly payments to each of your creditors. This can have a negative impact on your credit report, but eventually you will see your credit score increase. All creditors that agree to the program pay a fee, which is one of the ways the program is funded.

Help Fix My Credit Score

If you haven't paid attention to your credit score, it may be time to start, particularly if you are looking for a new loan or even a new job. Your credit score affects how banks see you as a credit risk. The higher the score, statistically the less likely you are to default on a new loan or credit card. If your score is low, find out the reasons and start to fix the problems now.

Get a Copy

    To fix your credit score, you must first order a copy of your credit report, preferably from each of the three major credit reporting agencies. By law, you are entitled to one free copy of each report per year, which you download from the Annual Credit Report website. If you have been denied employment or credit because of information in your credit report, you are also entitled to a free copy from the agency that was used in the decision. You may have to purchase a copy from each of the agencies if you cannot obtain a copy otherwise.

Review and Dispute

    Carefully review the copy of your credit report from each agency. Look for information that is erroneous, and note it separately. Pay attention to late payment information on accounts on which you have not paid late, or accounts and records that are not yours. Dispute this information with the reporting agency, either online, by phone or by mailing a certified letter, stating why the information is wrong. The credit reporting agency must investigate your claim, usually within 30 days, and give you their decision on the outcome in writing. If you disagree, you may put a short statement in your credit file noting your disagreement. You may also dispute the information directly with the creditors.

Time Heals All Wounds

    If the negative information on your credit report is accurate, there is nothing that you can legally do to have it removed. Credit reporting agencies are required to report accurate and truthful information about you. Most negative credit information remains on your report for seven years, with the exception of a Chapter 7 bankruptcy, which is reported for 10 years. After two to three years, however, most negative information has considerably less effect on your credit score, particularly when you replace it with positive information.

Report Good Information

    Make sure that you are using credit correctly, making your payments on time and keeping your balances low compared to your credit limits; never carry any more than 30 percent of your available credit limit as a balance. Don't apply for multiple lines of new credit at one time. Use new and existing accounts wisely, and this behavior will be reported on your credit report. Make sure that any accounts that should be reporting to the major credit agencies are doing so.

What Are Charge-Offs on Credit Reports?

After a certain amount of time has passed without paying a debt, the creditor will report the account as a charge-off or as a bad debt on your credit file. A charge-off can lower your credit score, which means that some creditors will deny your request for request or charge you a higher rate of interest for credit products when you apply.


    If you don't make a payment on a loan or credit card debt for 6 months, the lender will charge your account off as a bad debt. This means they have determined that your account is uncollectable.

Time Frame

    After your account is charged off, it will be reported on your credit file and remain there for 7 years. If you decide to pay a charge-off account, it will show a zero balance but it will still remain for 7 years.


    If an account is charged off on your credit report, it will have a credit rating of I-9 or R-9. The, "I" stands for installment loan if it's a car loan. The "R" stands for revolving account if it's a credit card account. The 9 is the code or designation for charge-off.


    Charge-off accounts are normally sent to a collection agency for further activity. The debt collector will make phone calls and send letters. Legal action is a possibility.


    Accounts that are charged off still have to be paid.

Expert Insight

    The lender or creditor will receive a tax credit for charge-off accounts because they report them as a loss.

Tuesday, December 14, 2010

Monitoring After a Personal Bankruptcy Discharge

Filing personal bankruptcy and having your debts discharge can eliminate overwhelming balances and give you the opportunity to make a fresh start credit-wise. But just because you get rid of balances doesn't mean you should stop worrying about your credit. Ongoing credit monitoring is essential to improving and keeping your credit in good shape.

What is Bankruptcy Discharge?

    Filing bankruptcy doesn't guaranteed the discharge of your debt. Discharging refers to no longer being liable for these balances. A judge hears your case and considers your reason for seeking a bankruptcy. Creditors can dispute the bankruptcy. But if your debts outweigh your assets and you don't have the ability to repay, a judge may grant a bankruptcy discharge and possibly erase your debts under a Chapter 7. A Chapter 13 may eliminate debts as well, but also give you the opportunity to repay some or all of your debts under a new repayment plan. A Chapter 11 bankruptcy primarily helps businesses that can no longer repay creditors, and allows these businesses to reorganize and pay back creditors over time.

Check Report for Accuracy

    Bankruptcies appear on your credit report, and every credit account included in the bankruptcy will have a notation on your report indicating that the debt was discharged in your filing. It's imperative to check your credit report a few months after a discharge to ensure that all accounts are updated. Annual Credit Report gives free reports from each of the three bureaus each year. Get your free copies and then check each item. The phrase, "included in bankruptcy" and a zero balance should follow each credit account discharged under the bankruptcy. If this phrase doesn't appear, the creditor or lender may seek payment at a later date and consider the account delinquent. Contact the creditor to have your report updated.

Establishing New Credit

    Getting new credit cards or acquiring a small loan after a personal bankruptcy discharge helps rebuild your credit, which is key in reversing the damaging effects of a bankruptcy. Chapter 7 and 11 bankruptcies stay on your report for 10 years. Chapter 13 stays on the report for seven years and can significantly drop your score. Scores can improve once the bankruptcy reaches the end point. But in the meantime, take steps to improve your score with timely bill payments and keeping consumer debt to a low.

Closely Monitoring Credit History

    Along with acquiring new accounts to rebuild credit after bankruptcy, keep a close eye on your credit report following a bankruptcy. Even if all creditors update your reports accurately after the bankruptcy, other issues such as identity theft and new reporting errors can follow and lower your score even further. Develop a habit of getting your report each year; notify creditors immediately if an unfamiliar account appears on your report or if you suspect someone stole your personal information and opened accounts in your name.

What Is the Statute of Limitations for Collecting a Debt in Maryland?

Creditors, debt collectors and debt buyers must follow the guidelines and procedures outlined in the Fair Debt Collections Practices Act---FDCPA. The FDCPA is a federal law that pertains to each state, but it does not dictate the state statute of limitations for civil collection. Individual states retain the right to set time limits for debt collection. The statute of limitations for collecting a debt in Maryland is outlined within state law 5-101.


    Statute of limitations is the specific period of time that the law allows for legal action in relation to civil or criminal matters. Collecting debts in Maryland, and every other state, is a civil matter. Maryland laws concerning the statute of limitations for debt collection are most often considered open contracts, but may fall under written contracts in the case of promissory notes. Open contracts and written contracts have the same time frame for collection in Maryland.

Time Frame

    The statute of limitations In Maryland for open contracts, such as credit cards, and for written contracts is the same---three years. The three-year clock starts on the date that the last payment was posted to a credit card account or the date of last activity on a written contract. For example, a Maryland debtor with a posted payment on a credit card account dated October, 2009 may be sued for collection on that account until October, 2012, unless the debtor makes an interim payment. Additional payments to the account restart the statute of limitations clock.


    Creditors, debt collectors and debt buyers have the right to continue collection activities after the statute of limitations in Maryland has expired. The statute of limitations means that the creditor may not win a judgment suit against the debtor on an out-of-statute debt if the debtor defends the suit based on the statute of limitations. A valid debt remains collectible, as long as the collectors adhere to the guidelines in the FDCPA.

Judgment Statute of Limitations

    If a creditor sues a debtor in Maryland before the statute of limitations has expired and wins a judgment, the judgment has a separate statute of limitations for collection. Judgments in Maryland expire after 12 years and carry a 15 percent maximum annual interest rate. Judgments in Maryland may not be renewed. Once a creditor obtains a judgment, it is possible to levy bank accounts, seize personal property and place a lien on real estate owned by the debtor.

New Credit Problems

New Credit Problems

While credit can help you buy a house, car or make purchases without having to use cash or checks, you may run into problems with new credit. People with problems obtaining new forms of credit can often improve their chances by first understanding what causes lenders to deny credit. Once you know how the system works, you can use that knowledge to help yourself obtain new credit.


    When you apply for a loan or new form of credit, whether it is a credit card, mortgage or debt consolidation, your creditors will only grant you the loan if they believe you will pay it back. To convince a creditor you won't default on the loan, you have to prove that you are a reliable borrower, and to determine if you are reliable, lenders typically look at several key factors, such as your credit reports, income and your debt-to-income ratio.

Reviewing Your Credit

    It's important to know exactly what your current credit status is before you try to apply for a new loan. Your credit report tells a lender how you've used credit before, and a bad credit report can prevent you from getting a loan. The Federal Trade Commission has authorized annualcreditreport.com as the only government approved website to provide consumers with their yearly free copies of their credit reports. If there are any mistakes or errors on your report, you can have these removed, but you cannot remove accurate information.

Credit Repair

    If you don't have a good credit history, this is probably the main reason you're having trouble getting new credit. While you cannot simply change the past and remove your bad history from your credit report, you can start rebuilding your credit immediately by showing lenders you're a responsible borrower. The best way to start rebuilding is to simply pay all your bills on time and not use more credit than you can reasonably manage.

Other Factors

    Your credit report is not the only factor creditors use to determine if you should get a new loan. Lenders also want to know how much money you make, as well as how much debt you currently owe. For example, Lending Tree reports that mortgage lenders typically prefer lenders whose monthly debt obligations take up no more than 36 percent of their monthly income. If you increase the amount of money you earn or decrease the amount you're paying in bills each month, this makes you more attractive as a potential borrower.