Managing Debt

Counseling services are available to help people budget money and pay bills. Credit unions, cooperative extension offices, military family service centers and religious organizations are among those that may offer free or low-cost credit counseling.

Typically, a counseling service will negotiate lower payments with your creditors, then make the payments using money you send to them each month. The cost of setting up this debt-management plan is paid by the creditor not you. Ask these questions to find the best counselor for you:

* What services do you offer? Look for an organization that offers budget counseling and money management classes as well as a debt-management plan.

* Do you offer free information? Avoid organizations that charge for information or make you provide a lot of details about your problem first.

* What are your fees? Are there set-up and/or monthly fees? A typical set-up fee is $10. If you're paying a lot more, you could be the one getting set up.

* How will the debt management plan work? What debts can be included in the plan and will you get regular reports on your accounts?

* Ask if the counselor can get creditors to lower or eliminate interest and fees. If the answer is yes, contact your creditors to verify this.

* Ask what happens if you can't afford to pay. If an organization won't help you because you can't afford to pay, go somewhere else for help.

* Will your counselor help you avoid future problems? Getting a plan for avoiding future debt is as important as solving the immediate debt problem.

* Ask for a contract. All verbal promises should be in writing before you pay any money.

* Are your counselors accredited or certified? Legitimate credit counseling firms are affiliated with the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies.

Unfortunately, honest credit counselors have a lot of rivals who are more interested in taking your money than helping you. They can do more harm than good. Red flags are:

* Big upfront fees. A reputable credit counseling agency will send free information about itself and the services it provides without requiring you to provide any details about your situation.

* Unrealistic promises. Some companies falsely claim they can solve problems for pennies on the dollar or remove negative information from your credit record.

Check with your local consumer protection agency and the Better Business Bureau to see if any complaints have been filed about the company.

Source: ConsumerAction.gov

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Personal Bankruptcy

Generally, bankruptcy is considered the debt management option of last resort because the results are long lasting and far reaching. The Bankruptcy Abuse and Prevention Act of 2005 established more stringent rules for consumers and attorneys.

The filing process is now more difficult for debtors:

* Debtors must file more documents; including itemized statements of monthly net income, proof of income (pay stubs) for the last 60 days, and tax returns for the preceding year (four years for Chapter 13).

* Debtors must take a pre-filing credit counseling and post-filing education course to have debts discharged.

* Debtors face increased filing fees, plus fees for credit counseling/education.

* The bankruptcy petition and process are more complicated, so it's very difficult to file without an attorney.

The filing process is now more difficult for attorneys:

* An attorney's signature on a petition certifies that the attorney has performed a reasonable investigation into the circumstances giving rise to the petition.

* Attorneys must carefully review documents such as tax returns and pay stubs, as well as ask clients for credit reports.

* Attorneys are more apprehensive about sanctions.

If you have concerns about approved credit counseling agencies or credit counseling providers, visit the U.S. Trustee Program website or call 202-514-4100.

Source: ConsumerAction.gov

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Before You File for Personal Bankruptcy:
Information About Credit Counseling and Debtor Education

Produced in cooperation with the Department of Justice’s U.S. Trustee Program

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 launched a new era: With limited exceptions, people who plan to file for bankruptcy protection must get credit counseling from a government-approved organization within 180 days before they file. They also must complete a debtor education course to have their debts discharged.

The Department of Justice’s U.S. Trustee Program approves organizations to provide the mandatory credit counseling and debtor education. Only the counselors and educators that appear on the U.S. Trustee Program’s lists can advertise that they are, indeed, approved to provide the required counseling and debtor education. By law, the U.S. Trustee Program does not operate in Alabama and North Carolina; in these states, court officials called Bankruptcy Administrators approve pre-bankruptcy credit counseling organizations and pre-discharge debtor education course providers.
Counseling and Education Requirements

As a rule, pre-bankruptcy credit counseling and pre-discharge debtor education may not be provided at the same time. Credit counseling must take place before you file for bankruptcy; debtor education must take place after you file.

In general, you must file a certificate of credit counseling completion when you file for bankruptcy, and evidence of completion of debtor education after you file for bankruptcy – but before your debts are discharged. Only credit counseling organizations and debtor education course providers that have been approved by the U.S. Trustee Program may issue these certificates. To protect against fraud, the certificates are produced through a central automated system and are numbered.

Pre-bankruptcy Counseling

A pre-bankruptcy counseling session with an approved credit counseling organization should include an evaluation of your personal financial situation, a discussion of alternatives to bankruptcy, and a personal budget plan. A typical counseling session should last about 60 to 90 minutes, and can take place in person, on the phone, or online. The counseling organization is required to provide the counseling free of charge for those consumers who cannot afford to pay. If you cannot afford to pay a fee for credit counseling, you should request a fee waiver from the counseling organization before the session begins. Otherwise, you may be charged a fee for the counseling, which will generally be about $50, depending on where you live, the types of services you receive, and other factors. The counseling organization is required to discuss any fees with you before starting the counseling session.

Once you have completed the required counseling, you must get a certificate as proof. Check the U.S. Trustee’s website to be sure that you receive the certificate from a counseling organization that is approved in the judicial district where you are filing bankruptcy. Credit counseling organizations may not charge an extra fee for the certificate.

Post-Filing Debtor Education

A debtor education course by an approved provider should include information on developing a budget, managing money, using credit wisely, and other resources. Like pre-filing counseling, debtor education may be provided in person, on the phone, or online. The debtor education session might last longer than the pre-filing counseling – about two hours – and the typical fee is between $50 and $100. As with pre-filing counseling, if you are unable to pay the session fee, you should seek a fee waiver from the debtor education provider. Check the list of approved debtor education providers at www.usdoj.gov/ust/eo/bapcpa/ccde/de_approved.htm or at the bankruptcy clerk’s office in your district.

Once you have completed the required debtor education course, you should receive a certificate as proof. This certificate is separate from the certificate you received after completing your pre-filing credit counseling. Check the U.S. Trustee’s website to be sure that you receive the certificate from a debtor education provider that is approved in the judicial district where you filed bankruptcy. Unless they have disclosed a charge to you before the counseling session begins, debtor education providers may not charge an extra fee for the certificate.

Important Questions to Ask When Choosing a Credit Counselor

It’s wise to do some research when choosing a credit counseling organization. If you are in search of credit counseling to fulfill the bankruptcy law requirements, make sure you receive services only from approved providers for your judicial district. Check the list at www.usdoj.gov/ust/eo/bapcpa/ccde/cc_approved.htm or at the bankruptcy clerk’s office for the district where you will file. Once you have the list of approved organizations in your judicial district, call several to gather information before you make your choice. Some key questions to ask are:

* What services do you offer?

* Will you help me develop a plan for avoiding problems in the future?

* What are your fees?

* What if I can’t afford to pay your fees?

* What qualifications do your counselors have? Are they accredited or certified by an outside organization? What training do they receive?

* What do you do to keep information about me (including my address, phone number, and financial information) confidential and secure?

* How are your employees paid? Are they paid more if I sign up for certain services, if I pay a fee, or if I make a contribution to your organization?

For More Information and Assistance

The U.S. Trustee Program promotes integrity and efficiency in the nation’s bankruptcy system by enforcing bankruptcy laws, providing oversight of private trustees, and maintaining operational excellence. The Program has 21 regions and 95 field offices, and oversees the administration of bankruptcy in all states except Alabama and North Carolina. For more information, visit www.usdoj.gov/ust.

If you have concerns about approved credit counseling agencies or debtor education course providers, such as the failure to provide adequate service, please contact the U.S. Trustee Program by email at USTCCDEComplaintHelp@usdoj.gov, or in writing at Executive Office for U.S. Trustees, Credit Counseling and Debtor Education Unit, 20 Massachusetts Avenue, N.W., Suite 8000, Washington, D.C., 20530. Provide as much detail as you can, including the name of the credit counseling organization or debtor education course provider, the date of contact, and whom you spoke with.

The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters consumer complaints into the Consumer Sentinel Network, a secure online database and investigative tool used by hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

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Fair Credit Billing

Have you ever been billed for merchandise you returned or never received? Has your credit card company ever charged you twice for the same item or failed to credit a payment to your account? While frustrating, these errors can be corrected. It takes a little patience and knowledge of the dispute settlement procedures provided by the Fair Credit Billing Act (FCBA).

The law applies to "open end" credit accounts, such as credit cards, and revolving charge accounts - such as department store accounts. It does not cover installment contracts - loans or extensions of credit you repay on a fixed schedule. Consumers often buy cars, furniture and major appliances on an installment basis, and repay personal loans in installments as well.

What types of disputes are covered?

The FCBA settlement procedures apply only to disputes about "billing errors." For example:

* unauthorized charges. Federal law limits your responsibility for unauthorized charges to $50;

* charges that list the wrong date or amount;

* charges for goods and services you didn't accept or weren't delivered as agreed;

* math errors;

* failure to post payments and other credits, such as returns;

* failure to send bills to your current address - provided the creditor receives your change of address, in writing, at least 20 days before the billing period ends; and

* charges for which you ask for an explanation or written proof of purchase along with a claimed error or request for clarification.

To take advantage of the law's consumer protections, you must:

* write to the creditor at the address given for "billing inquiries," not the address for sending your payments, and include your name, address, account number and a description of the billing error.

* send your letter so that it reaches the creditor within 60 days after the first bill containing the error was mailed to you.

Send your letter by certified mail, return receipt requested, so you have proof of what the creditor received. Include copies (not originals) of sales slips or other documents that support your position. Keep a copy of your dispute letter.

The creditor must acknowledge your complaint in writing within 30 days after receiving it, unless the problem has been resolved. The creditor must resolve the dispute within two billing cycles (but not more than 90 days) after receiving your letter.

Source: Federal Trade Commission

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Mortgage Payments Sending You Reeling? Here’s What to Do

The possibility of losing your home because you can’t make the mortgage payments can be terrifying. Perhaps you are one of the many consumers who took out a mortgage that had a fixed rate for the first two or three years and then had an adjustable rate. Or maybe you’re anticipating an adjustment, and want to know what your payments will be and whether you’ll be able to make them. Or maybe you’re having trouble making ends meet because of an unrelated financial crisis.

Regardless of the reason for your mortgage anxiety, the Federal Trade Commission (FTC), the nation’s consumer protection agency, wants you to know how to help save your home, and how to recognize and avoid foreclosure scams.
Know Your Mortgage

Do you know what kind of mortgage you have? Do you know whether your payments are going to increase? If you can’t tell by reading the mortgage documents you received at settlement, contact your loan servicer and ask. A loan servicer is responsible for collecting your monthly loan payments and crediting your account.
Here are some examples of types of mortgages:

* Hybrid Adjustable Rate Mortgages (ARMs): Mortgages that have fixed payments for a few years, and then turn into adjustable loans. Some are called 2/28 or 3/27 hybrid ARMs: the first number refers to the years the loan has a fixed rate and the second number refers to the years the loan has an adjustable rate. Others are 5/1 or 3/1 hybrid ARMs: the first number refers to the years the loan has a fixed rate, and the second number refers to how often the rate changes. In a 3/1 hybrid ARM, for example, the interest rate is fixed for three years, then adjusts every year thereafter.

* ARMs: Mortgages that have adjustable rates from the start, which means your payments change over time.

* Fixed Rate Mortgages: Mortgages where the rate is fixed for the life of the loan; the only change in your payment would result from changes in your taxes and insurance if you have an escrow account with your loan servicer.

If you have a hybrid ARM or an ARM and the payments will increase — and you have trouble making the increased payments, find out if you can refinance to a fixed-rate loan. Review your contract first, checking for prepayment penalties. Many ARMs carry prepayment penalties that force borrowers to come up with thousands of dollars if they decide to refinance within the first few years of the loan. If you’re planning to sell soon after your adjustment, refinancing may not be worth the cost. But if you’re planning to stay in your home for a while, a fixed-rate mortgage might be the way to go. Online calculators can help you determine your costs and payments.
If You Are Behind On Your Payments

If you are having trouble making your payments, contact your loan servicer to discuss your options as early as you can. Most loan servicers are willing to work with customers they believe are acting in good faith, and those who call them early on. The longer you wait to call, the fewer options you will have. After you’ve missed three or four payments and your loan is in default, most loan servicers won’t accept a partial payment of what you owe. They will start foreclosure unless you can come up with the money to cover all your missed payments, plus any late fees.

Avoiding Default and Foreclosure

If you have fallen behind on your payments, consider discussing the following foreclosure prevention options with your loan servicer:

Reinstatement: You pay the loan servicer the entire past-due amount, plus any late fees or penalties, by a date you both agree to. This option may be appropriate if your problem paying your mortgage is temporary.

Repayment plan: Your servicer gives you a fixed amount of time to repay the amount you are behind by adding a portion of what is past due to your regular payment. This option may be appropriate if you’ve missed only a small number of payments.

Forbearance: Your mortgage payments are reduced or suspended for a period you and your servicer agree to. At the end of that time, you resume making your regular payments as well as a lump sum payment or additional partial payments for a number of months to bring the loan current. Forbearance may be an option if your income is reduced temporarily (for example, you are on disability leave from a job, and you expect to go back to your full time position shortly). Forbearance isn’t going to help you if you’re in a home you can’t afford.

Loan modification: You and your loan servicer agree to permanently change one or more of the terms of the mortgage contract to make your payments more manageable for you. Modifications can include lowering the interest rate, extending the term of the loan, or adding missed payments to the loan balance. A loan modification may be necessary if you are facing a long-term reduction in your income.

Before you ask for forbearance or a loan modification, be prepared to show that you are making a good-faith effort to pay your mortgage. For example, if you can show that you’ve reduced other expenses, your loan servicer may be more likely to negotiate with you.

Selling your home: Depending on the real estate market in your area, selling your home may provide the funds you need to pay off your current mortgage debt in full.

Bankruptcy: Personal bankruptcy generally is considered the debt management option of last resort because the results are long-lasting and far-reaching. A bankruptcy stays on your credit report for 10 years, and can make it difficult to obtain credit, buy another home, get life insurance, or sometimes, even get a job. Still, it is a legal procedure that can offer a fresh start for people who can’t satisfy their debts.

If you and your loan servicer cannot agree on a repayment plan or other remedy, you may want to investigate filing Chapter 13 bankruptcy. If you have a regular income, Chapter 13 may allow you to keep property, like a mortgaged house or car, that you might otherwise lose. In Chapter 13, the court approves a repayment plan that allows you to use your future income toward payment of your debts during a three-to-five-year period, rather than surrender the property. After you have made all the payments under the plan, you receive a discharge of certain debts.

To learn more about Chapter 13, visit www.usdoj.gov/ust; it’s the website of the U.S. Trustee Program, the organization within the U.S. Department of Justice that supervises bankruptcy cases and trustees.

If you have a mortgage through the Federal Housing Administration (FHA) or Veterans Administration (VA), you may have other foreclosure alternatives. Contact the FHA (www.fha.gov) or VA (www.homeloans.va.gov) to discuss your options.
Contacting Your Loan Servicer

Before you have any conversation with your loan servicer, prepare. Record your income and expenses, and calculate the equity in your home. To calculate the equity, estimate the market value less the balance of your first and any second mortgage or home equity loan. Then, write down the answers to the following questions:

* What happened to make you miss your mortgage payment(s)? Do you have any documents to back up your explanation for falling behind? How have you tried to resolve the problem?

* Is your problem temporary, long-term, or permanent? What changes in your situation do you see in the short term, and in the long term? What other financial issues may be stopping you from getting back on track with your mortgage?

Throughout the foreclosure prevention process:

* What would you like to see happen? Do you want to keep the home? What type of payment arrangement would be feasible for you?

* Keep notes of all your communications with the servicer, including date and time of contact, the nature of the contact (face-to-face, by phone, email, fax or postal mail), the name of the representative, and the outcome.

* Follow up any oral requests you make with a letter to the servicer. Send your letter by certified mail, “return receipt requested,” so you can document what the servicer received. Keep copies of your letter and any enclosures.

* Meet all deadlines the servicer gives you.

* Stay in your home during the process, since you may not qualify for certain types of assistance if you move out. Renting your home will change it from a primary residence to an investment property. Most likely, it will disqualify you for any additional “workout” assistance from the servicer. If you choose this route, be sure the rental income is enough to help you get and keep your loan current.

Consider Giving Up Your Home Without Foreclosure

Not every situation can be resolved through your loan servicer’s foreclosure prevention programs. If you’re not able to keep your home, or if you don’t want to keep it, consider:

Selling Your House: Your servicers might postpone foreclosure proceedings if you have a pending sales contract or if you put your home on the market. This approach works if proceeds from the sale can pay off the entire loan balance plus the expenses connected to selling the home (for example, real estate agent fees). Such a sale also would allow you to avoid late and legal fees and damage to your credit rating, and protect your equity in the property.

Short Sale: Your servicers may allow you to sell the home yourself before it forecloses on the property, agreeing to forgive any shortfall between the sale price and the mortgage balance. This approach avoids a damaging foreclosure entry on your credit report. You still may face a tax liability on the amount of debt forgiven. Consider consulting a financial advisor, accountant, or attorney for more information.

Deed in Lieu of Foreclosure: You voluntarily transfer your property title to the servicers (with the servicer’s agreement) in exchange for cancellation of the remainder of your debt. Though you lose the home, a deed in lieu of foreclosure can be less damaging to your credit than a foreclosure. You will lose any equity in the property, and you may face an income tax liability on the amount of debt forgiven. A deed in lieu may not be an option for you if other loans or obligations are secured by the property on your home.

Housing and Credit Counseling: You don’t have to go through the foreclosure prevention process alone. A counselor with a housing counseling agency can assess your situation, answer your questions, go over your options, prioritize your debts, and help you prepare for discussions with your loan servicer. Housing counseling services usually are free or low cost.

While some agencies limit their counseling services to homeowners with FHA mortgages, many others offer free help to any homeowner who is having trouble making mortgage payments. Call the local office of the U.S. Department of Housing and Urban Development (www.hud.gov) or the housing authority in your state, city, or county for help in finding a legitimate housing counseling agency nearby. Or consider contacting the NeighborWorks® Center for Foreclosure Solutions at 888-995-HOPE or www.nw.org. The Center is an initiative of NeighborWorks America.

Be Alert to Scams

Scam artists follow the headlines, and know there are homeowners falling behind in their mortgage payments or at risk for foreclosure. Their pitches may sound like a way for you to get out from under, but their intentions are as far away from honorable as they can be. They mean to take your money. Among the predatory scams that have been reported are:

* The foreclosure prevention specialist: The “specialist” really is a phony counselor who charges outrageous fees in exchange for making a few phone calls or completing some paperwork that a homeowner could easily do for himself. None of the actions results in saving the home. This scam gives homeowners a false sense of hope, delays them from seeking qualified help, and exposes their personal financial information to a fraudster.

* The lease/buy back: Homeowners are deceived into signing over the deed to their home to a scam artist who tells them they will be able to remain in the house as a renter and eventually buy it back. Usually, the terms of this scheme are so demanding that the buy-back becomes impossible, the homeowner gets evicted, and the “rescuer” walks off with most or all of the equity.

* The bait-and-switch: Homeowners think they are signing documents to bring the mortgage current. Instead, they are signing over the deed to their home. Homeowners usually don’t know they’ve been scammed until they get an eviction notice.

For More Information

To learn more about mortgages and other credit-related issues, visit www.ftc.gov/credit and MyMoney.gov, the U.S. government’s portal to financial education.

The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters consumer complaints into the Consumer Sentinel Network, a secure online database and investigative tool used by hundreds of civil and criminal law enforcement agencies in the U.S. and abroad

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Debt Collection

The Fair Debt Collection Practices Act applies to those who collect debts owed to creditors for personal, family and household debts. These include car loans, mortgages, charge accounts and money owed for medical bills. A debt collector is someone hired to collect money you owe.

Within five days after a debt collector first contacts you, the collector must send you a notice that tells you the name of the creditor, how much you owe, and what action to take if you believe you don't owe the money.

If you owe the money or part of it, contact the creditor to arrange for payment.

If you believe you don't owe the money, contact the creditor in writing and send a copy to the collection agency with a letter telling them not to contact you. A debt collector may not:

• Contact you at unreasonable times, for example, before 8 a.m. or after 9 p.m., unless you agree
• Contact you at work if you tell the debt collector your employer disapproves
• Contact you after you write a letter telling them to stop, except to notify you if the collector or creditor plans to take a specific action
• Contact your friends, relatives, employer or others, except to find out where you live and work
• Harass you through threats to harm you, profane language or repeated telephone calls
• Make any false statement, or claim that you will be arrested
• Threaten to have money deducted from your paycheck or sue you, unless the collection agency or creditor intends to do so and it is legal

To file a complaint, contact your state or local consumer protection agency and the Federal Trade Commission.

Source: U.S. General Services Administration

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Resource Center
Main Page

(PDF Files)

Advertisements For Debt Relief May Be Offering Bankruptcy

Time-Barred Debts

(PDF Files)

If Your Employer Declares Bankruptcy

For People On Debt Management Plans: A Must-Do List

Knee Deep in Debt

Before You File For Personal Bankruptcy

How Bankruptcy Affects A Thrift Savings Plan

Managing Debts: How to Regain Financial Health

(PDF Files)

Your Rights Under the Fair Credit Reporting Act

Bankruptcy Basics

Bankruptcy Information Sheet -U.S. Trustee Program/ Dept of Justice

List of Approved Credit Counseling Agencies for Bankruptcy Filings

FAQ's - Credit Counseling

Q&A's on Home Foreclosures and Debt Cancellation-IRS

Declaring a Business Bankruptcy-IRS

Debtor's Responsibilities Amended by Bankruptcy Abuse Prevention and Consumer Protection Act of 2005-IRS