Author: Dawn Kennedy

The Consumer Lawsuit Part III- Consumer as Plaintiff

Posted on by Dawn Kennedy

This is the final article in the “Consumer Lawsuit” series. Part I covered what happens when the consumer is defendant (served with a lawsuit) and what to do. Part II covered two instances “when” the consumer should consider suing a creditor, collector, or credit reporting agency. This article will cover what to expect when the consumer is the plaintiff, or the party that files a lawsuit. I am going to emphasize again in Part III – very few people like lawsuits. They can be stressful, frustrating, and exhausting. But sometimes they are necessary to protect legal rights.

I want to start with one of the biggest obstacles for consumers who should consider a lawsuit- attorneys and fees. Attorneys are often seen as the bad guys in consumer disputes. The creditors often have teams of attorneys, and many collection agencies employ attorneys to collect on debts. This is why collection notices may originate from a law office. For many consumers who want to fight, the thought and costs associated with legal representation are a huge issue. However, these concerns are directly addressed within the consumer protection laws themselves to make sure consumers can get relief.

Consumers can be Awarded Costs and Attorney Fees Under Fee-Shifting Statutes from Violators

For cases brought by consumer under the Fair Debt Collection Practices Act (FDCPA) and the Fair Credit Reporting Act (FCRA), there are provisions for plaintiffs “who prevail” against the collector or credit reporting agency who violated the law. In addition to “actual” damages the consumer suffered by the violation, there are “statutory” damages, meaning money damages available to the consumer within the law just for the violation, and under “fee-shifting” provisions, the law provides the collector or credit reporting agency pay, “costs” and “reasonable attorney fees.” Rarely is the client out of pocket “up front” for these cases, and many attorneys evaluate these cases without a fee. Also, once a consumer is represented by an attorney, the collector cannot contact them directly, the collector must only contact the consumer through their attorney.

Procedures in a Lawsuit Itself

When a consumer decides to file a lawsuit, there are procedures that must be followed under our system of laws and justice. There is an order to things, and this order must be strictly followed. This is another part of the frustration and emotional toll many lawsuits can take on consumers. Lawsuits may seem overly complicated, slow moving, and the other side has rights to file motions as well. As I covered in Part I, every defendant has the right to receive notice of the lawsuit filed against them and has the right to respond.

If we describe the process in the most basic order of steps, and not all suits are straight lines, there are four to five steps that are common. The lawsuit will contain the original complaint, or pleading to the court, service to and the answer by the defendant, motions and “discovery” around evidence, conferences before a trial with settlement talks, and then a trial. Not all lawsuits make it to trial, in fact most are resolved much earlier in the process. Sometimes settlement talks can occur right after the answer is filed by the defendant and the evidence of consumer law violations is produced. This is because the consumer protection laws under the FDCPA and FCRA are “strict liability” meaning, if the violation occurs, the collector or credit reporting agency is liable. There is no need to prove that the agency had bad intent or malice toward the consumer. Because there is a strict liability component to the laws, many consumers receive relief from the courts when they enforce their legal rights and defend themselves against abusive and illegal tactics to collect debts or credit reporting errors that the agencies refuse to correct.

And that’s really about it for the basics of the consumer lawsuit. If you missed Part I or Part II, you may want to go back and read them. If you have questions or comments about this series, please let me know. I want to re-emphasize that if a consumer owes money, there is a right way to collect a debt within the law, and a wrong way that violates the law. If a credit reporting agency makes an error, and refuses to correct it, there can be serious consequences for the consumer, whether it is being denied a job, having a security clearance revoked, or increased insurance rates. When agencies violate the law, consumers have rights, and they need to enforce them.

 

The Consumer Lawsuit Part II- When a Consumer Should Sue

Posted on by Dawn Kennedy

In the first article of this series, I discussed the consumer lawsuit from the perspective of the consumer as defendant, meaning the consumer received a lawsuit from a creditor, debt collector, or debt buyer. In this article, Part II, I want to discuss when a consumer might consider suing a creditor, debt collector, or even credit reporting agency (Equifax, Experian, or Trans Union).  I want to say what I said last article, very few people like lawsuits, they can be time consuming and emotionally draining.  Consumers file suit against collectors at a far lower rate than collectors sue consumers. Unfortunately, there are times where a lawsuit may need to be filed by a consumer to stop abusive practices against them or to correct inaccurate information causing serious consequences. Here are two instances when a lawsuit may be the consumer’s only real option.

1. If after the consumer has tried all of the self-help strategies available and the collector or credit agency is refusing to comply with the law, a lawsuit may be necessary to protect the consumer’s legal rights. There are many, many steps a consumer can take to try and work with a collector or credit reporting agency, whether the debt is owed. Here are some resources for different types of consumer problems that outline what the consumer can do on their own, without legal assistance:

A. Identity Theft. If the consumer is a victim of identity theft there are steps to dispute debts and credit reporting items that do not belong to the victim. If the consumer follows these steps, and the collector or credit reporting agency refuses to comply with the law, a lawsuit may be necessary.

B. Collector Harassment. Even when a consumer owes the money, there are federal laws that protect consumers from misrepresentation and abuse by collectors. A great resource describing the limitations on debt collectors, what they are allowed to say or do, and not allowed to say or do is available on the Consumer Financial Protection Bureau Website. If the collector continues to violate the law, a lawsuit may be necessary.

C. Credit Reporting Errors. If the consumer has already disputed mistakes on their credit reports with Experian, Equifax, and TransUnion. The steps for consumers to order a free report from each of the bureaus and dispute any items on the report is found on this Federal Trade Commission Link. It is important to note that the credit reporting agencies are just that, reporting information provided by the “furnishers” of information- creditors, collectors, debt buyers, the IRS, bankruptcy courts, etc. If there is an issue with the organization that granted credit, the consumer must make sure to address the dispute with the furnisher as well.

2. If the Consumer is sued by a collector, creditor, or debt buyer, violations by these organizations may be grounds for a counter-suit (cross-complaint) at the time the consumer is sued. When the consumer has suffered frustrating months leading up to a lawsuit by a collector who does not follow the law, the consumer may bring a counter claim against the collector. In the last article, I talked about when a consumer receives a lawsuit, but if the consumer has been a victim of abuse, harassment, misrepresentation, etc, these claims can often be brought in court even when the consumer has been served.

 A collector or creditor does not get a pass on following the law just because the consumer is sued to collect a debt.  If a consumer receives a lawsuit, they should speak with an attorney. Look to local legal aid societies or find a “debt defense” or “consumer law” attorney for help. The consumer must respond to any lawsuit quickly, and if counter-claims are available, they must be filed with the answer.  If the consumer is represented by an attorney, the collector can only talk to the attorney, and no longer contact the consumer directly.

State Laws for Consumers and Other Protections for the Military
It is also important to note that most states have consumer protection statutes, many that are similar to the federal statutes. For Example, In California there is a body of law under the Unfair and Deceptive Acts ad Practices (UDAP) that protect consumers.  This means that the collector may have violated state law, and there may be a lawsuit in state court available to the consumer to protect their legal rights.   If the consumer is a military member (or dependent in some cases) there are specific laws such as the Servicemen’s Civil Relief Act (SCRA) and the Military Lending Act (MLA) that may be available to a military consumer. The military consumer can contact the local Judge Advocate General’s (JAG) office for assistance.

The Consumer Must Preserve Their Rights by Keeping all Letters and Starting a Call Log.   First, the consumer should save EVERY piece of correspondence received from a debt collector or creditor. If a law firm sends a letter trying to collect, save it. Start a folder and save everything. Second, start a call log. Texts, calls, and email messages. There are rules about identifying themselves as a collector, and a requirement to let the consumer know they are calling to collect a debt.

Note when a phone call is received or when the consumer makes one, who they talked to, any promises made, and what the outcome of the call was. In this day and age, we have caller ID, and we can note the date and time of calls, voicemail messages, and hang ups. It is critical that the consumer preserve this proof that they are receiving calls in violation of the law. And many collectors call in violation of the law. Either too early in the morning, or too late, or at work, or even after the consumer requests they stop calling.

Also note the outcome of the conversation. Did the collector promise to send something? Promise to remove the consumer form the auto-dialer?  Promise not to call because the consumer made a promise to pay, “next Friday?” Write it down. And as frustrating as it may be, dealing with the collector, the consumer must not BREAK THE LAW themselves. The collector will advise the consumer that the call is being recorded, but depending on state law, the consumer may not record the conversation. Write it down. 

Part III of this series on the Consumer Lawsuit will address what the consumer should expect (in most instances) if they decide to file a lawsuit against a creditor, collector or credit reporting agency.  Unlike the collectors who often have teams of lawyers (or are lawyers), many consumers do not have an advocate, know where to get one, or are afraid of the costs involved. These are all real concerns, particularly if the consumer is already in financial trouble.   

 

 

The Consumer Lawsuit Part I: Consumer as Defendant

Posted on by Dawn Kennedy

Creditors and debt collectors sue consumers on all types of delinquent debt, including credit cards, medical bills and auto loans. Honestly, very few people like to be involved with a lawsuit. Bringing an action in court is time-consuming and can be both frustrating and emotionally exhausting.  If a collector escalates a delinquent debt into a lawsuit many times it is because the consumer fails to respond to attempts to collect or cuts off any collection action with a cease and desist letter. Unfortunately, it is not always possible to avoid a lawsuit. When the consumer is properly served (with notice of) the lawsuit papers, a response to the complaint is the best course of action.

Debt collectors (and creditors) file many more lawsuits each year against the consumer than consumers file against the collector. Statistics compiled by data and analytics firm Web Recon, LLC reveal that consumers filed 15409 lawsuits under three consumer protection statutes nationally for the entire year in 2017. These lawsuits were filed under the Fair Debt Collection Practices Act (9784 times), the Fair Credit Reporting Act (4346 times), and the Telephone Consumer Protection Act (4392 times).

For comparison, during that same timeframe in Texas, and only Texas, creditors and collectors filed over 160,000 lawsuits against consumers. That’s right, in 2017 lawsuits filed against consumers to collect a debt in Texas were ten times the number of lawsuits filed nationally by consumers against collectors. The ugly truth is that a recent Consumer Financial Protection Bureau Debt Collection Survey found about 1 in 15 consumers with a debt in collections was sued in 2017. Scary numbers, but consumers have rights in these suits, and often do not assert them. The purpose of  the rest of this article is to provide the steps a consumer can take to ensure their legal rights are protected. 

First and Foremost Consumers Should NEVER Ignore a Lawsuit

Depending on where a consumer lives, a response to the complaint will be due back to the court quickly, typically within 20-30 days. If the consumer (now the defendant) does not respond, they can lose their right to defend themselves in court. If the debtor ignores the lawsuit the collector can get a “default judgment” against them, meaning the plaintiff collector will get an order from the court saying the consumer owes the money without needing any evidence to prove it. The collector wins automatically because the consumer didn’t show up to the court hearing. With that default judgment in hand, the collector has a legal right to collect the money awarded by the court, often with additional collection and attorney fees. Collectors can take that legal order and attach the consumer’s bank accounts, garnish wages, etc.

Consumers Should Seek Legal Assistance Pronto

Contact an attorney or local legal aid program. It can be a result of a consumer’s shame or fear that will stop them from contacting a lawyer. Most legal aid programs offer legal help either free or for a reduced cost. There may be debt defense options available to the consumer, such as having the creditor prove the amount of the debt owed and even that they have a legal right to collect the debt. With the recent proliferation of “debt buyers” which are debt collectors who buy debt accounts from other companies, often the original creditor, who has already written off the debt. Many times the creditor who sells the account databases with the list of debts does not guarantee the accuracy of the accounts they sell to debt buyers!

Some of the accounts that debt buyers receive are inaccurate, or too old to sue on, or may be already paid off, but weren’t cleared from collections before they were sold. Yet, these debt buyers will aggressively attempt to collect on these mistakes, or file suit. It doesn’t really hurt the collector to file a suit with the anticipation that the consumer won’t show, and they will get a default judgment. If the consumer responds and appears in court, they may even drop the suit right then. If the consumer ignores the suit because they were scared, or believed the suit was a mistake, when they don’t respond the collector wins. Every consumer who receives notice of a lawsuit should at least speak with legal counsel.

If You Find a Judgment by Checking Your Credit Report

Sometimes a consumer will only learn about a lawsuit from their credit report. A default judgment was entered under “public records” and the consumer never even received notice of the lawsuit! This tactic is affectionately known as “sewer service” and is used by some unscrupulous organizations to secretly file suits to get default judgments on debts. And this tactic is illegal. Consumers must be personally served the with the lawsuit. In our system of justice, the party being sued has the absolute right to notice and must have a chance to respond to a lawsuit.

In Part II of this series, I will discuss the steps consumers can take as plaintiffs under a number of consumer protection laws. These statutes cover areas such as debt collection and consumer credit reports. There are instances where the consumer may have to bring a lawsuit under one of these federal statutes to stop illegal and unlawful actions taken against them.

 

More Americans under Financial Stress Than Five Years Ago

Posted on by Dawn Kennedy

Stress due to financial issues is a real concern for Americans. Studies have been done on this topic. It’s actually quite amazing how people can manage this stress over a long period of time. The average person struggles for three years, yup, 36 months, before asking for help or considering bankruptcy. With 78% of American families living paycheck to paycheck, there are a whole lotta people paddling like a duck furiously under the water trying to look like they are smoothly swimming through the waves.

The American Psychological Association (APA) did a study in 2014, just five years ago, that found 72% of Americans felt stress related to finances “occasionally” and 22% felt “extremely stressed” about their finances, that is more than 1 in 5. Fast forward to 2019. The economy is doing better, and the unemployment rate is low, but we are no less stressed about our money. In fact an October 2018 survey revealed that now 52% of respondents reported that they are are “regularly stressed” by finances. We are going the wrong way. And Americans, businesses, and entire communities are suffering.

The obvious effects of financial stress – depression, anxiety, insomnia and headaches- directly affect the physical wellness of each person. It follows that when we are under financial stress, we get sicker. But there is a lot more to this. Americans with financial stress tend to either take action, or “freeze” and don’t take an action, that compounds the financial issues longer into the future. One 2016 study found that 1 in 5 people with financial stress either thought about missing, or actually missed a needed medical appointment because of money concerns. This decision further increases the risk of illness, and potentially the loss of pay from missing days of work. But physical illness isn’t the only effect. People with financial stress are also more prone to skipping work, but not while actually ill. The effects of not sleeping and anxiety can make going to work very difficult. Staying home can mean losing hours, reducing the paycheck and compounding the crisis.

And the effects of financial stress go beyond individuals or families. Businesses are affected by financial stress by both employees, and the business itself. Financial stress can affect productivity and attention at work. Study data, from integration firm Innovu, released in February 2018 reported a, “financially stressed employee” will spend an average of 20 hours a month on financial issues at work. Also, that 70% of workplace accidents are due to distractions caused by stress in the workplace. And a financially stressed business will affect workplace morale due to real concerns about financial insecurity. This insecurity can lead employees to find new jobs, leaving the business short staffed, adding to and perhaps accelerating business reorganization, bankruptcy, or outright failure.

Financial stress also affects whole communities. Neighborhoods that have a large number of residents facing financial insecurity tend to have a higher use of prescription drugs for pain and depression. Financially stressed residents are often in poorer health due to the physical effects of long term stress. Additionally, involvement in community activity tends to decrease in neighborhoods where there is financial distress, and increase where there is a sense of neighborhood financial well being.In fact, financial stress was identified as a top community health concern in an entire midwestern county. Olmsted County, Minnesota is implementing a strategic initiative through 2020 to improve community health.

The impacts to the family, health, work, and community from financial stress are brutal. But there are some steps that anyone can start immediately, these can’t fix anything overnight, but sometimes just knowing where to start can help to reduce stress.

  1. Take a breath. Admit that you are tired of this, in fact you are Dave Ramsey, “sick and tired of being sick and tired.” And you are deciding now that things are going to change. Read those statistics, you are not alone, and you are not “stupid” or “bad” or whatever term you beat yourself up with when you open the mail. Tell yourself, “I may not know how yet, but I know WHY we are no longer living this way.” And then start to make your plan.
  2. Get those four walls secured. The right thing to do is to make sure the “four walls” around you and your family are paid for before anybody else gets a cent. Forget the FICO, forget the credit card. When there is food in the house, the utilities and rent or mortgage gets paid, and you have a ride to work, you can fight the rest of the way. If you are hungry, fearing eviction, and not sure if there is going to be water tomorrow, you honestly cannot think about anything else. If you are a small business, determine your “four walls” that must be addressed first or you are unable to bring income to the company
  3. Get some help. There are a ton of free blogs, articles, and resources online to get you started. You can download my free ebook, “Nine Mistakes to Avoid When You are Having Money Problems” without an email address or any other personal information. Then ask people to help you. Your work may have a wellness program with resources. Your church or local Ramsey Preferred Coach may host Financial Peace University Course. Consider working with a financial coach to help you get organized, get a plan, and walk with you. You don’t have to go it alone, but you must have the courage to share your situation with someone else.
  4. Know Your Rights. Know that nobody, no company, no creditor, no bank, NOBODY, has the right to abuse you, harass you, call you at work, and threaten to sue you if they really aren’t getting ready to file. They can call, yes, but you do not have to be belittled, shamed, or guilted into making payments, even if you owe the money. Call a consumer advocate or lawyer.

Student Loan Garnishment? How Much of Your Income is Actually at Risk

Posted on by Dawn Kennedy

Lots of news floating around about how a new legislative proposal where the federal government would take 10% of a student’s wages as an automatic payment for student loans, basically a garnishment, and this may affect many of the current 44 Million borrowers. This suggestion has drawn fire from many consumer law advocates, like myself, who feel that this plan would allow the government to prioritize student loan debt above necessary living expenses; food, utilities, shelter, and transportation. But this proposal also has me thinking about the state of current student loan garnishment structure.

Garnishment is simply a “forced” withholding of part of a consumer’s income in response to a debt. Federal Student Loans are subject to “administrative wage garnishment” and will not need a court order if the borrower is in default. The current percentage of wages which is subject to administrative wage garnishment is 15% of a borrower’s “disposable income”, defined as the net check, or income after withholding taxes and other deductions. But this 15% is after mandatory minimum amounts that are protected from any garnishment. I will cover both consumers earning regular wages, and then consumers on fixed Social Security income.

Please note that PRIVATE student loans require a court order and a judgement against the borrower before the lender can garnish. Also note that the total amount of garnishment for debt allowed by law is 25% of the debtor’s wages… meaning, I am going to talk at the 15% rate in this article, but if the consumer already has a garnishment from somewhere else, the total garnishment cannot exceed 25%, so the federal student loan garnishment may be less than the full 15%.

For Consumers Earning Wages

The rule is 15% of wages after deductions, but what exactly does that mean? First of all, there are minimum amounts that are “exempt from levy” meaning, that amount cannot be touched for any reason by federal student loan garnishment. The current amount, as of this article, is 30 times the minimum wage after deductions. This means, at the current minimum wage, which is at $7.25 an hour (15 USC §1673), the consumer “keeps” the first $217.50 per week. That is the amount “exempted” from any garnishment calculation. The government can then take the LESSER of either the amount that is left after the $217.50, OR 15% of the consumer’s total income. It can be confusing, so a few examples are in order.

A. Consumer’s net income is $300.00 per week. After the exempted $217.50, the consumer has $82.50 left over. 15% of the $300.00 is $45.00. The government can take the LESSER amount, or $45.00 per week. In perspective, out of $1200.00 net income per month, the government can take $180.00. (This is why us student loan/ consumer law types want to do everything possible within the law to prevent garnishment for student loan delinquency.)

B. Consumer’s net income is $500.00 per week. After the exempted $217.50, the consumer has $282.50. But, 15% of $500 is $75.00, so the LESSER is $75.00 a week, or $300.00 per month. Another ouch. This is one reason that over a certain threshold, the calculation is almost always just 15% of disposable income.

One more thing, both Federal Pension and Private Retirement payments that are exempted from garnishment for debts in most states, is also subject to garnishment for delinquent student loans.

For Consumers on Social Security Retirement and Social Security Disability

Unfortunately, most of the time when I run into the “offset” (garnishment) of social security payments, it is because the consumer co-signed someone else’s student loan. If the borrower becomes permanently disabled, there are administrative actions that can be taken towards forgiveness of the federal loan debt. This is true for federal loans where the student passes away as well. But there are many cases where the Department of Education is offsetting Social Security Retirement Income (SSRI) and Social Security Disability Income (SSDI) payments. SSI, the program for the indigent, is exempted from “offset”.

Social Security Retirement and Disability are subject to an “offset” to recover federal debts since 2001 under the “Debt Collection Improvement Act of 1996.” The Department of Education can offset up to 15% (31 USC §3716). The amount offset is the LESSER of 1. The total amount of the debt 2. The amount that exceeds $750.00 per month, OR 3. 15% of the total benefit amount.
Here are the actual examples from the legislation:

Example 1:
A debtor receives a monthly benefit payment of $850. The amount that is offset is the lesser of $127.50 (15% of 850) or $100 (the amount by which $850 exceeds $750). In this example, $100 would be offset.
Example 2:
A debtor receives a monthly benefit of $1250. The amount that is offset is the lesser of $187.50 (15% of 1250) or $500 (the amount by which 1250 exceeds 750). In this example, the offset amount is $187.50 (assuming the debt is $187.50 or more).
If the recipient receives $750 or less, nothing will be offset.

(from: 31 C.F.R. § 285.4(e)(3)(i), 31 C.F.R. § 285.4(e)(3)(ii), & 31 C.F.R. § 285.4(e)(3)(iii))

Alternatives to Default, Garnishment or Offset

I have covered in previous articles how dangerous it is to a consumer’s financial future if they default on student loans. There are currently nine, that is right, NINE repayment options available through the Department of Education for student loans, and while nobody qualifies for all of them, many qualify for more than two. So PLEASE readers, know your options. Please do not let your student loans go 269 days past due. Call your servicer or a student loan attorney if you need help. If you have private student loans, the payment options may be limited. But contact the lender if there is a problem making your payment. As for the topic that inspired this article, legislation proposing the 10% monthly payment option. You can see how it would begin to prevent defaults, and the amount proposed is less than the current garnishment scheme. But then again, I believe consumers should control their income and not have to choose between food and federal debts. A garnishment is imposed because federal student loan notices were ignored, or nine total monthly payments were missed in a row.

Why I Advise Most People to Try Coaching Before Filing a Chapter 13

Posted on by Dawn Kennedy

I am a lawyer, so it may be odd that I recommend to many people that they should try financial coaching as an option before filing for Chapter 13 bankruptcy. It is also, in many cases, an unpopular opinion with both consumers and some lawyers. I’ll get this out of the way upfront. Yes, I can take a bankruptcy matter, but I find there are many cases where it may do more harm than good. It is also tax refund season, and many people wait for their refund to file so they can afford the bankruptcy filing fees. In fact, I have received a few calls in my practice about it lately, so I thought I would get my rationale into an article.

First, a few bankruptcy basics. When most people think about filing bankruptcy, they are referring to a Chapter 7. A Chapter 7 bankruptcy (meaning filed under Chapter 7 of the Bankruptcy Code) wipes out or “liquidates” almost all of the debtors unsecured debt, but there are exceptions. As well as some rules regarding secured debt such as cars and mortgages. It’s not just a wave of a magic wand, and since 2008, requires the debtor “pass” means test, if the household income is below certain thresholds. There are of course special exceptions, and what law doesn’t have exceptions?

What if the consumer “fails” the means test? Then the bankruptcy code they are eligible to file under is a Chapter 13. A Chapter 13 is basically a court approved repayment plan to creditors. The bankruptcy filing creates an estate, and a bankruptcy trustee manages the repayment for three to five years until it is completed and the bankruptcy (estate) is discharged.

So now we know the basics, why coaching before filing? My top three reasons.

First, the consumer keeps control of his or her income while debt is paid. When a consumer files bankruptcy, all of the debts and all of the income are listed on various “schedules.” The consumer’s assets, meaning property, bank accounts, disposable monthly income, etc. become the “bankruptcy estate.” This includes the consumer’s income, because it is what the filer is promising the bankruptcy court he or she will use to repay the debts. A repayment plan is submitted to the court, and if approved, the estate (with the payment plan) will be managed by a bankruptcy trustee, who works for the court.

So, the consumer no longer gets to control his or her income. It is an asset promised to pay debts, and all debts are paid from this estate for the length of time that bankruptcy is in repayment. This also means that any income increase, such as a raise or bonus, at any time the estate still exists will belong to the trustee. The trustee may demand that more money be paid to the creditors, particularly if the increase exceeds 10% of the consumer’s current income. And you cannot lie to the court. Never a good idea. And most of the time the consumer must submit personal tax returns to the court annually anyway. This is for as long as the estate exists.

Only after discharge will the consumer regain control. While it is true a certain percentage of the debt can be discharged at discharge, most of the debt must be repaid. The general rule is that at least as much of the debt that would have been discharged if the consumer qualified for a chapter 7, and the court can order more based on disposable income and assets.

Another note, if the consumer owes family money, and pays some of it back in the months preceding a bankruptcy filing, the trustee, under what is known as a “claw back,” can demand the family member return the money so it can be added to the estate. This is because the court will presume that the money was paid to a “preferred” creditor.

Second, coaching can help change attitudes and habits, a bankruptcy often doesn’t. Consumers are already required to go through a credit counseling type personal finance class before filing any bankruptcy and again before it can be discharged. I can’t speak to the effectiveness of these courses. But you can potentially see the limited change in money habits these courses have by looking at the average of Chapter 13 bankruptcies that successfully make if the full five years to discharge.

Only about one in three approved payment plans makes it through to discharge. Yup. Only about 33%. Yikes. Another statistic? Approximately 8% of bankruptcies are from re-filers, which account for about 16% of annual filings. More than 1 in 20 filings each year are from consumers who already filed once before. Yes, life can happen to anyone, and I am not here to judge, but if the consumer worked with a Ramsey Preferred Coach, I would take a bet that there would have been an emergency fund prior to that second filing.

When someone works with a coach, the repayment of debt comes not from fear of the court or trustee, but from a sincere desire to change from habits that can be personally harmful, to those habits that give peace of mind. The “not owing a monthly payment to anyone who charges a $39.00 fee if you are one second late with a payment” peace of mind. Also, a coach can keep you accountable. How can you forget to budget if you meet with a coach each month for a while? What if something comes up and you have a question? There is a coach walking beside you for support. Coaching is not forever either, and many people don’t even need three to five years of coaching, unlike a Chapter 13.

Third, the consumer may be asked about filing a bankruptcy long after it is removed from a credit report, and it may affect future opportunities. I find this to be a heartbreaking fact that many people do not really consider prior to filing. Everyone is thinking about the credit report, the “ten years” hit in the “public records” section. But that is just one part. Consumers are often asked on a job application, mortgage loan application, security clearance application, “Have you ever filed bankruptcy?” Which is not the same as, “Have you filed bankruptcy in the last ten years?” And the “have you ever” question must be answered YES. This can lead to loss of some future opportunities that were never even thought of before.

Jobs in law enforcement, for example, are difficult to obtain after filing. Not to lie, even getting a license to practice law can be a challenge because an applicant may not pass the Moral Fitness requirement. Military or government jobs requiring a clearance may be an issue. So, while there is protection against losing your job during a bankruptcy, and protection from discrimination at your current employer, no such protection exists if you try to change jobs later in private industry.

And that’s it. My three biggest reasons for advising consumers to try coaching first, before filing a chapter 13 bankruptcy. If you or someone you know is in a financial situation where bankruptcy has been raised in conversation, you (or they) may want to have a chat with a financial coach, first.

Consumer Debt Collection Laws to Change in 2019

Posted on by Dawn Kennedy

The National Consumer Law Center (NCLC) recently published a report on debt collections and complaints surrounding those collection actions for 2018. This report includes an online interactive map, which can be searched by state, showing the statistics on the percentage of the state residents in collections, along with the top complaint types against debt collectors. Honestly, it’s an ugly state of affairs. And if you, my reader, are currently in collections, you may want to take a look at the information for your state. I promise, you are NOT alone in the frustration and fear surrounding collections, particularly when bad actors break the law. The top three complaints reported by the NCLC?

> “Calls After Getting ‘Stop Calling’ Notice” (227,917 complaints),
> “Calls Repeatedly” (210,238 complaints),
> “Makes False Representation about Debt” (192,704 complaints),

I also promise you, dear reader, these numbers are way underreported. A vast number of consumers won’t complain. Won’t assert their rights. And collectors know this, which is why they continue to violate federal law. The Urban Institute reported in July 2018 that 71 million American adults had at least one account in collections. 71 million Americans in collections, yet under one million complaints against collection agencies who violate the law.

There is a very honorable, yet misguided reason, many people won’t report harassment from collectors. Because they owe the money. But do they really? One of the biggest complaints is that consumers are harassed about debts that don’t owe, or that are time-barred form a lawsuit when the statute of limitations runs out. That’s right. The debt can become too old for a lawsuit. Still on the consumer’s report? Sure. Consumer still technically owes the money? Sure. But the consumer cannot be sued in court.

This is a huge distinction under the law and there is one mistake many consumers make. The statute of limitations will be restated if any payment is made on the account, no matter how small. Let me reiterate that very important point: Collectors will harass, call, and threaten a consumer for just, “any payment at all” because if the consumer gives them even a dollar on a debt that is too old to sue on, THE CONSUMER WILL RESTART THE STATUTE OF LIMITATIONS.

And they won’t warn the consumer that the debt they are calling on is too old, sometimes called a “zombie” debt. Why? Because it is part of their business model. They aren’t obligated by the law to tell the debtor. They will call and ask the consumer to settle. If the consumer makes ANY payment or promise, and revives they statute of limitations, the consumer is again are at risk for a lawsuit. Even if the debt was only days from being time-barred. So they do it. Call on very, very old debt. And they will harass the consumer to try to get them to settle again, or start to threaten with a lawsuit. And make no mistake, threatening a lawsuit when they do not intend to follow through is a violation of the law. Credit.com has an interactive map with the statute of limitations for each state. It’s possible that the collector may, however, still report a time-barred debt to the credit bureaus. Unless the debt is too old for the collector to do that either. And they won’t tell the consumer that tidbit either when they call.

But, there is some good news, and some maybe not good news on the horizon for 2019. First, the good news. Many states have debt collection laws that are stronger than the Federal Debt Collection Practices Act. Ans some states are taking aggressive action to force collectors to tell consumers when the debts are too old. California, for example, recently enacted legislation that require collectors to place specific notices on communications to ensure consumers know when the collector is trying to collect a time-barred debt, including an additional notification if the debt is so old it can no longer be reported to the credit bureaus under the Fair Credit Reporting Act. Many states have an “Unfair Practices Act” type set of laws as well that have protections for consumers, these vary by state.

Now, for the maybe good news. On the national level, The Consumer Financial Protection Bureau is expected to take steps this March and release some changes to the rules around debt collection practices on the federal level. Consumer advocates are pushing for those changes to include a rule requiring Collectors give written notification to consumers when a debt is too old for a law suit or too old to be reported on the consumer’s credit report. I’ll let you know what comes out. For now, there are a few things to remember to do if you are in this situation:

1. Check your state statute of limitation for consumer debt before making ANY payment, no matter how small, to a collector.

2. If you are being harassed, or a collector is trying to get a payment on a debt you do not owe, contact a consumer advocacy agency or attorney and find out the federal and state laws available to protect you.

First, Create an Emergency Fund with Your Tax refund

Posted on by Dawn Kennedy

This is the week that the IRS is estimated to process to filers. In the first quarter of every calendar year federal (and sometimes state) tax refunds are issued to qualified filers. In fact the average tax refund for the 2018 filing year (2017 return) was over $2,200.00. I’ve already spoken about how to ensure every dollar you can keep goes into your pocket each month, and not into the IRS coffers (until you file the next year’s return). Another issue, comes from the fact that the money received by many taxpayers is immediately spent paying down debt accrued the previous year. Some of that debt is from short-term overspending during the holidays, accounting for about 39% of Americans using the refund to clear that debt.

It is this cycle of annual debt that needs to be addressed, because if $1,000.00 of that refund was placed into a “baby” emergency fund, many Americans would not have to incur debt for “emergencies.” The stats are incredibly scary. The latest figure is that 78% of Americans live paycheck to paycheck. Almost 8 in 10. Following the logic, everyone knows at least a few people who are unable to cover even the smallest of budget hits without putting another bill in jeopardy. Additionally, a full 70% of Americans are in debt.

The recent government shutdown highlighted that for many Americans just treading water with money, they are one missed payday from being in financial distress. And we all saw the comments and memes about how government workers should have something put away or should be able to cover one month of expenses. Based on the statistics, 8 out of 10 cannot.

So, why am I telling you this? If you have a tax refund coming, and do not have $1000.00 saved for an emergency, you are not taking full benefit of the Uncle Sam Savings Plan. $1,000.00 goes a long way for car or home repairs, unexpected expenses, and other hits to the budget that throw a wrench in how the bills are paid. And once you put $1,000.00 away, be diligent in keeping it that way. Refill it if it gets used. Seriously. Mike and I had a pipe burst recently during the Polar Vortex, and we mopped up the water, grumbled a little, and called the plumber, knowing it could be covered from the emergency fund. (For Ramsey listeners, we are finishing baby step 2.)

Of course, $1,000.00 isn’t a “full” emergency fund, which is three to six months of expenses saved, but it is a good start to cover many, many of the instances where Murphy moved into the spare bedroom for a week. Of course, my next piece advice is to get out of debt as fast as you can, so YOU control your income, not some credit card company or bank. When you commit to payments, you promise to give them a share of your income each month, no matter what life throws at you. And I would strongly urge anyone getting the “average” refund to apply the $1200.00 over that emergency fund starter towards any outstanding debt.

About Your Tax Refund

Posted on by Dawn Kennedy

Somewhere around 80% of taxpayers get some sort of tax refund each year, and that was true again for 2017. The average refund amount was $2878.00. And while many people love to celebrate the lump sum when they get the check, the IRS shouldn’t be used as a savings account. Here are a few reasons why:

1. You could actually have the money to use throughout the year. If an employee paid every two weeks adjusted their withholding to be accurate as to what they really will owe, that average “refund” of $2787.00 becomes $110.00 in the paycheck every payday. This equates to roughly $220.00/ month into the household! With 78% of Americans living paycheck to paycheck, that is a big addition to the monthly budget.

2. The IRS controls the overpayment until they give it back. The IRS doesn’t pay interest on the extra amount you paid or allow you to access your own money until tax time. Once you have it withheld, or you send it in for the self-employed, it is in the IRS coffers until you file your tax return. And the government isn’t paying you any interest on the money they get to use until they have to refund the excess you gave them. In reality, you are losing control of your own income.

3. The cycle of debt/ pay with return is expensive. Many Americans go into debt throughout the year and pay off balances with a tax refund. This allows lenders to charge interest, even short term, and the debt is much more expensive than if the money was in your budget every month to use. An extra $220.00 a month can prevent the need to take on short term and expensive debt, especially if you use that money for an emergency fund.

It’s too late to affect your 2018 tax return and refund, because the 2018 tax year closed about a week ago on December 31st. But you can make changes now to bring home more money in each check, and to prevent a huge sum being refunded in 2019. Check your withholding, by checking your paystub, or ask HR. If you had a change in dependents such as a new baby, kid graduated and moved out, or got divorced, make sure the number of people you are paying taxes for is accurate.

For example, a family of four should be withholding properly for a family of four. One special note for a two-income family-the higher earner should be withholding the proper number of dependents; the second earner should claim zero. This prevents under withholding and a tax bill at the end of the year.

After your adjustments, enjoy the new sum in your paycheck, and for the first few months, why not squirrel the extra away in an account? You haven’t seen it regularly anyway. Only once a year in that government tax refund.

Tis the Season! Tips for Safer Online Shopping

Posted on by Dawn Kennedy

It’s close enough to Black Friday, Small Business Saturday, and Cyber Monday to talk a bit about online shopping. Some very scary statistics from 2017 showed a marked increase in online shopping fraud, using stolen credit and debit card numbers. This is not necessarily surprising because consumers are starting to trust online ordering, and the total number of “eCommerce” transactions were up by 19% over 2016 numbers. Sadly, the number of fraudulent transactions during the 2017 holiday season also increased, to 22% over 2016. And a staggering 1 in 85 transactions online was an attempted fraud. GAH!

Online retailers are taking steps to prevent fraud such as collecting IP addresses and requiring the “CVV” or verification code on the back of the card used for a purchase. But, while they do their part to protect their businesses from fraud (yes, they sustain incredible losses from fraud, it isn’t only the consumer), there are easy steps you can take to minimize the risk of being a victim of credit or debit card fraud:

1. Use Unique Usernames and Passwords for Each Merchant

Never reuse usernames and passwords for multiple merchants. If the retailer is compromised, and your login is stolen, thieves can log in to other sites using your information and make unauthorized purchases. This time of year, shipping and billing addresses often differ, so that delivery address discrepancy may not trigger a “potential fraud” flag on the merchant side. Yes, it can be a pain, but so can losing all of your holiday money temporarily until the bank refunds your fraudulent losses.

2. Check the HTTP (S)

The “s” at the end of the hypertext transfer protocol (you bet I had to look that one up) means, https://www.entrepreneur.com/article/281633 “secure.” The security includes data encryption. When you are on a site with only, “http” the data sent to the site can be intercepted by a third party.

3. Use the Code on the Back of the Card

The three or four digit verification number on your credit or debit card is requested to prove that you have the physical card in your possession when making a purchase. In addition to a billing address and card number match, the code can help reduce fraud by requiring a third data point for a purchase.

4. Limit the Potential Financial Loss

This is particularly important for debit card users who shop online this holiday season. Have a second (free) checking account with a debit card for online purchases, and only put enough in the account to cover your shopping budget. This limits the potential loss if the card used online is compromised. And always use the same card, tied to the dedicated account, when shopping online, or traveling.

5. Keep Copies of Everything and Watch Your Accounts and Statements

Print out copies of invoices and receipts. This way you have confirmation of what you ordered, and the total amount paid. If your card is compromised, you will be able to flag unauthorized purchases, while confirming the ones you actually made. And watch your statements and account carefully. Some financial institutions have a feature where you can receive an alert (we get a text) if there is a purchase made over a specific threshold. One word of caution, however, my husband was alerted to his holiday gift by this feature. The bank let him know when I purchased his gift.

There is a real emotional toll on consumers who have lost money and had to file fraud reports over the holidays. Nobody needs that stress and frustration while trying to buy gifts or make travel arrangements. There is one other layer of protection available you should consider: make sure you take advantage of the FREE credit freeze to limit access to your personal information, reducing the risk of a fraudster opening a new account using your identity.

 

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