The Telephone Consumer Protection Act of 1991 (TCPA) was passed by Congress into consumer law for the purpose of limiting the use of automated dialing systems in debt collection practices. Debt collectors have been struggling ever since for control over dialing cell phones in order to collect debts. (more…)
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According to recent news stories, the Mortgage Forgiveness Debt Relief Act has been extended one year through the end of 2013. (more…)
English: Intertitle from the AMC television program The Walking Dead (Photo credit: Wikipedia)
If you haven’t been watching The Walking Dead on the AMC TV station on Sunday nights, you have been missing some great drama. The action takes place in the 21st Century after a weird virus infects human beings causing them to become zombies when they die. I personally am not crazy about the use of the zombie genre, but the storyline and cast of characters are great. The producers of the TV drama have made a comic book series out of the production and no one can better make use of a writing hook than comic book writers. That is, unless of course, you are Junk Debt Buyer (JDB) who has bought zombie debt. Everyone in bankruptcy circles knows JDBs are masters of hooking debtors into paying off zombie debt. (more…)
We frequently get questions from debtors who question when it is time to file bankruptcy or what steps they should take when they facing a financial crisis. We tell debtors one of the first steps they need to take is to identify their debts and make contact with their creditors.If you are like other debtors you may have simply avoided debt collectors by avoiding their calls or not opening their letters, but financial experts agree, one of the most important steps to solve your financial crisis is to understand and know your rights as a debtor under the Fair Debt Collection Practices Act.
The Fair Debt Collection Practices Act was instituted in 1977, and it outlines what creditors are allowed to legally do to collect debts. Abuses curbed by this law include harassing and threatening calls, calling the debtor’s work place or making contact with friends and family members and notifying them of a debtor’s debts.
What are the basic provisions of the Fair Debt Collection Practices Act?
- Debtors have the right to sue debt collectors who violate the provisions of the Fair Debt Collection Practices Act.
- Debtors have legal protection against excessive phone calls, harassment, and threats of violence or harm.
- Debtors may not be contacted prior to or after specific times of the day. For instance, calls before eight in the morning or after nine at night are prohibited.
- Collectors must provide proof to debtors, if requested, that they owe the money the collector is attempting to collect. Information which must be provided includes: the amount of the debt, the name of the creditor, verification of the debt if requested and notification that the debtor must dispute the debt within 30 days or the debt will be considered accurate.
- Collectors are not allowed to provide information about debts to unauthorized parties.
How do I stop the harassing collection agency phone calls?
If you are faced with harassing phone calls or calls to your workplace you have the legal right, under the Fair Debt Collection Practices Act, to send a cease communication letter to the debt collection agency. This letter notifies the debt collection agency to either submit all of their correspondence via letter or not at all.
After the collection agency receives the cease communication letter they will generally either notify the debtor that a lawsuit will be filed or they may choose to dismiss the debt. Consumers also have the right to hire a lawyer and have them negotiate directly with the debt collection agency.
Victim of abuse, can I receive financial compensation?
If you have been the victim of an abusive debt collector you have the legal right to file a civil lawsuit. The statute of limitations for this type of offense is one year from the date of the abuse violation. There are legal caps on all damages awarded for these cases.
What’s the bottom line?
Many consumers have made purchases and have not paid for them. Businesses have the legal right to collect debts. If the original business is unable to collect the debt they also have the legal right to sell this debt to another company who may attempt to collect the debts. The honorable action is for consumers to pay for services and products that they purchase. If they are unable to make payments it is important to contact the company and attempt to negotiate another settlement agreement or payment plan. But with that said, debt collection companies have the legal responsibility to use legal business practices to collect debts.
English: First 4 digits of a credit card (Photo credit: Wikipedia)
I remember the very first credit card I received in my college days some 46 years ago. It was a Texaco gas card. I remember that my uncle was a land buyer for Texaco, and I naively believed he must have told Texaco about me and my bright future, so they sent me a credit card. I am not quiet as naive today as I use to be in those good old days.
During the same years, Shell Oil Company also sent me a gas card. I used both gas cards for well over 30 years, always careful to pay my bills in full and on time.
This story is not about good credit ratings or admonishing slackers to pay their bills, but this is a personal story about the credit card that went bad.
After my children had grown, finished college, and moved away, my wife and I decided to fly the coupe and move closer to our daughter. After selling our home, we temporarily moved in with our single daughter who quickly and rightly let us know we must be moving on to our permanent destination, anywhere within a radius of 300 miles. So, off my wife and out further flew until we landed in Wyoming, about a five hour trip from our daughter at 70 MPH.
Having now moved twice within a time frame of six months, my wife and I had left a forwarding address and notified all of our creditors of our moves. We still had the Texaco and Shell gas cards, and through the years we had added a Chevron gas card, a Diamond Shamrock gas card, and a Visa card. That is a lot of cards to keep up with and pay on time, but we managed and enjoyed excellent credit until the credit card that went bad.
For over a year we had not lived in an area where Shell gas stations were prominent until we moved to Wyoming. In approximately 2002, I filled up with gas at a Shell convenience store to find out just how bad the Shell card had gone. The clerk told me the card would not work, and I was told to call the credit card company. She said she would have to take the card. I remember telling the young woman there must be some mistake because my bills were all paid up. I remember feeling very embarrassed. That attempt to purchase gas was the first indication that I had a credit card that was going bad.
That evening, I contacted the Shell Oil Company card to correct the obvious mistake, and I find out Shell claimed I had not paid my last bill they sent that was almost a year old. I told the girl over the phone I paid all my bills when I left my home state, and if there was one outstanding, I had not received any knowledge of it. The bill was for around $32 for the original amount, but now Shell was claiming the bill had grown to over $120 with penalties for late charges and interest.
I told her if she could verify that I owed them the original $32 I would be happy to pay the bill. We had no record of ever having charged that amount to their card. She replied that she could not receive money from me now because they had already turned the alleged debt over to collections. After that, I informed her I would not pay the bill unless verified it was indeed my debt, and I sent Shell a return receipt verification letter in which I never received the verification.
After years of dealing with junk debt buyers who bought the alleged debt, a lawyer friend of mine forced the last debt buyer to abandon their claim in 2011 and restore our good credit.
I never could understand why an oil company I had done business honorably with for over 30 years could be so vindictive toward such a minor misunderstanding, but I have never knowingly patronized any Shell owned product since that time.
But thanks, Shell, for making me very pro-consumer active today. I have learned all about consumer protection laws since that encounter, and will take you to task if you try to tread on me again.
I still pay my bills and have good credit, but many of you out there do not. Because I understand how you can get into a financial bind beyond your control, you may need to reach out to an attorney like I had to do.
What if there was a shady side of the law that allowed federal bankruptcy court trustees to hide things from you for up to a year before you found out you lost your assets to your creditors after filing for bankruptcy protection? What kind of protection would that be for debtors?
No one would like that I don’t think, but in the state of Washington, a current debt collection rule of procedure heavily favors the debt collectors who are in the process of using the courts to prove their claims against debtors. This rule of procedure can have the affect of allowing the debt collectors to hide the fact they have a judgment against you for over a year before they make attempts to collect.
Having a court judgment against a creditor for over a year in Washington is important because of two reasons. First of all, it is more difficult to undue a judgment more than a year after the judgment was issued, and it is advantageous to allow the minimum interest on judgments to accrue for the year. This matured judgment makes it easier to attach liens and seize accounts.
What is so special about Washington’s legal collection procedures that makes this shady side of collections work?
The one advantage debt collectors have over debtors is legal collections, and when debtors fail to respond to lawsuits, a judgment is normally always rendered in favor of the debt collectors. A judgment in the hands of a debt collector is the legal means they need to attach liens or seize debtor’s assets. Both is the backbone for making money in the collections industry. Once a lawsuit judgment has been entered by the court in favor of the collection agency, it is just a matter of time before they collect the debt plus interest and sometimes, legal fees.
There is nothing shady about going through courts to legally collect a debt, but there is something shady about the process when the debtor is not aware a judgment has been issued against them, and that often happens in the state of Washington.
In Washington, debt collectors are allowed to serve the debtor with the Summons and Complaint of a lawsuit before filing with the court. This means the summons and complaint will not have a case number when the debtor receives it. The debtor may call the court to confirm the lawsuit, but the court will not have recorded that the lawsuit exists and will answer accordingly. Many debtors might mistakenly think that no response is required to the summons and complaint because they do not understand in Washington a lawsuit does not have to have a filing number to begin the legal process.
As a result, the debt collectors need only wait 20 days without a response from the debtor and then file the lawsuit. Since the summons and complaint is the debtor’s legal notice of any legal actions, the debtor may never hear from the court again. The debt collectors will lay in waiting for a year, and the debtor’s worse nightmare then begins.
Shady? I believe anytime you hide things in a court of law, it is shady for one side or the other. I think debt collectors must have a lot of money and great lobbying in the state of Washington to get away with that type of advantage. Shame on you Washington! Where is your since of fair play?
dump the debt (Photo credit: Friends of the Earth International)
I have been blogging against debt collections abuses ever since I started blogging as a legal content writer over 3 years ago. Strangely enough, I am not against debt collections are debt collectors. After all, my brother is a debt collector. What I am against is the abuses in debt collections and of debt collectors. I think my brother is also.
The largest group of debt collections abuses come from junk debt buyers. In my opinion, the whole system is set up for abuse. Lenders, who have already tried to collect their debts over a period of time and failed, write the debts off as losses on their income taxes. Then, they sell their debts to third and sometimes fourth parties for just pennies on the dollar.
I suppose creditor’s thinking is to maximize their efforts on recovery of lost money. What penalties and fees they have already collected on the debt, what money they realized in taxing savings by their write offs, and what money they get in selling the debts is all added up to maximize their losses. Good business, but it also has a seedy side.
Large creditors like credit card companies write off millions of dollars of bad debt each year. Technically, the creditors are suppose to subtract the sell price, the penalties charged, and the fees levied from the write off price that they charge off for tax purposes. That is because they get business tax write offs for each category, and to not do so might be considered double dipping by the IRS. I can’t help but wonder how many of these creditors just turn in a lump sum still owed in their write off claims without deducting these two very important amounts from their total claims.
Too, as chronicled in the Columbia Journalism Review on April 3, 2012, creditors who specialize in credit card accounts rarely support the amounts of debt they sell to third parties, often providing no records or documents of such when sold. This fact prompted one lawyer who makes his living defending debtors having been falsely accused of owing some of these debts to say, “In every single case I have involving a debt buyer, they refuse to produce a forward flow agreement. When push comes to shove, the case disappears.”
In defense of many of the large creditors who practice this type of behavior, they often sell their portfolio of debts to the junk debt buyers by disclaiming that they “would initially provide no records to support the amounts it said are owed and might be unable to produce them. Some of the amounts are approximate or have already been paid.”
This fact doesn’t stop the junk debt buyers from going right on and trying to collect on the portfolio of debtors including the ones that might have already been paid. Since there is no record left of the transactions, the debtors can often be left at the mercies of relentless junk debt collections agents who cant testify with uncanny assurances that you still owe the debt, and they can do it often.
That is the seedy side of debt collections. The good news is that there are laws in place to stop the abuses. You need to legally avail yourself to help prevent the abuses of debt collections.
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It is no conundrum that debt is the single leading cause of bankruptcy in the United States, but who is it that holds all this debt?
For individuals experiencing bankruptcy in the United States, the debt held for most average Americans is held by credit card banks, mortgage banks, credit unions, and regular banks. When you obtain a debt that is federally backed, the federal government uses one of these types of banking institutions to loan you the money and guarantee the loan. Private loans in the United States, like some pay day loans or automobile manufacturer loans, can also be a part of a debt that ultimately will send you into bankruptcy.
American society as a whole is now in debt to almost the point of complete bankruptcy. The national debt is now over $15 trillion and rising, and it is not likely to be paid off because the United States annual tax revenue currently cannot pay off the interest on the national debt.
The national debt of the United States comes from the federal government borrowing money by selling various investment securities that are backed only by the good faith in our government. These are not secured loans but have historically been low risk because of the financial stability the United States has enjoyed since the Great Depression. But now, bankruptcy looms for us all.
It might surprise you who holds the national debt of the United States. Here is a simple breakdown of the top 10 holders of our national debt.
The Federal Reserve and other government holdings. The United States Government is the largest single holder of our debt at $6.328 trillion. Federal banks own $1.65 trillion in U.S. Treasury securities. Other government entities like the Medicare Trust Fund and the Social Security Trust Fund own the rest.
China. $1.132 trillion of our debt is owned by a foreign country who has been our enemies in the past and recently exclaimed they did not understand unsecured risks.
A large diverse group of investors. Private United States citizens, private businesses, public businesses, and a host of others in the diverse group, both foreign and domestic, have invested in savings bonds and other government securities. This group holds about $1.107 trillion of our national debt.
Japan. One of the United States’ largest trade partners holds about $1.038 trillion of our debt.
Pension Funds. This group includes mostly United States private and local government pension funds that have invested about $842.2 billion in our national debt.
Mutual Funds. This group of investment holders currently manage about $653.5 billion in U.S. Treasury securities.
State and Local Governments. Currently, the best estimate for this group of investors is about $484 billion.
The United Kingdom. The United States biggest ally within the last two years has increased buying U.S. Debt by 8 times to a current $429.4 billion.
Depository institutions. Commercial banks, savings banks, and credit unions now own about $285.4 billion of our national debt.
10. Insurance companies. Property-casualty and life insurance companies hold about $250.1 billion in Treasury securities
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More so than ever before it seems creditors are writing off debt and sending a 1099-C to the debtors, but there often becomes a problem when you consider bankruptcy and debt cancellation.
The Personal Bankruptcy Story
This excerpt of a personal bankruptcy story was shared online at a bankruptcy forum website on February 2, 2012: “I received my first 1099-C debt cancellation today…The debt had the amount of $6000…I am insolvent in that my net worth is several thousand dollars in the negative. [The original debt was a] $2000 debt that the credit card company sued me for over 5 years ago. My wages were garnished to pay this off, [and the company] sent me a $1000 check for overpayment…[before their] lawyers filed a satisfaction of judgment.”
Tax Implications of Receiving a 1099-C
The man giving the personal bankruptcy story was concerned about IRS tax implications over receiving a 1099-C. In the IRS instructions for a 1099-C, the IRS suggests you received the form because a lender has “discharged (canceled or forgiven) a debt you owed, or because an identifiable event has occurred that either is or is deemed to be a debt cancellation of $600 or more. If a creditor has discharged a debt you owed, you are required to include the discharged amount in your income, even if it is less than $600, on the “Other income” line of your Form 1040.”
Exceptions to the IRS Rule
There are exceptions to the IRS rule for reporting a 1099-C, and two of those exceptions are when a debtor has filed a bankruptcy or insolvency has occurred.
IRS publication 4681 covers the details for any identifiable event that has occurred.
The 4681 publication is entitled Canceled Debts, Foreclosures, Repossessions, and Abandonments. Under Chapter 1 of the publication, you can find Canceled Debts Exclusions listed on page 4. These instructions tell you how the IRS handles the exclusions under the IRS laws. The first exclusion listed is for bankruptcy, and
the second exclusion listed is for insolvency.
Debt discharged in a Title 11 bankruptcy case is not included in income. If the tax burden has been discharged, all you need to do is file an IRS form 982 with your federal tax return and check box 1a. Then, follow the directions.
You do not have to include debt cancellation in income to the extent you were insolvent immediately before cancellation. The IRS defines insolvency as the total of all your liabilities when it is more than the fair market value of all your assets.
Assets includes the value of everything you own including assets used for collateral, any exempt assets beyond the reach of creditors under the law, and any interest in a pension plan or retirement account. Liabilities include any recourse debts and certain non-recourse debts.
Help for Debt Cancellation and Bankruptcy
If you end up getting a 1099-C from a creditor, you most likely will need the help of a good tax accountant and/or lawyer. If you are anticipating filing bankruptcy, you will most likely need the help of a bankruptcy attorney.
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Debt Collection in the News
Yesterday it was announced that one of the biggest debt collection firms in the United States, Asset Acceptanced, LLC was dished out a $2.5 million fine by the Federal Trade Commission for misleading consumers while trying to collect old debts. Asset Acceptance, LLC specializes in debt buying for the purpose of debt collection activity. In the opinion of this blogger, the actions of the FTC was a mere slap on the wrist for what it should have administered for these type of infractions.
JDB Industry Described
Debt collection companies who specialize in debt buying are often referred to as Junk Debt Buyers (JDB). They buy both newer and older debts from a wide range of creditors at pennies on the dollar. Debt buying companies range in size from a Mom and Pop operation to large corporations like Asset Acceptance, LLC, and they purchase portfolios of debts from creditors that can range in size from being a very small business operation to a large financial institution like a credit card bank.
Likewise, the portfolios bought by the debt buyers can range from a very small portfolio of debts to a very large portfolio. No one knows exactly how financially large the junk debt buying industry is in the United States, but some estimate it collects billions of dollars annually.
How the JDB Industry Works
Usually, a JDB bids on a portfolio from a creditor who has already spent time trying to collect on the portfolio’s debts. After the creditor has tried for a time to collect these debts, the creditors write the debts off for income tax purposes, then they put the debts up for bid on the JDB block.
Because of existing and complicated consumer laws the ownership of a debt can get very murky to say the least. Many creditors can assign the ownership of the debt because they have assignment clauses within the contracts they issue when the debt is first made. That means when it comes to collections of the debts, they or their assignments have a right to collect the debt.
Not all creditors have the right to assign your debt to another party, though. It all depends on the consumer laws the creditor is working within and the contract the creditor is working under.
After having written off the debt, the creditor reports his loss to the IRS and technically can send you a 1099 for the unpaid balance. The reason a creditor can do this is because the money you received not paid back can be viewed as income. The IRS sees the forgiveness of debt as income to you and can expect you to pay the income taxes on the write off.
If debt buying buys your written off debt, and you have somehow paid the taxes on the write off, is it placing you in double jeopardy for the debt buyer to now collect the debt in full?
Other JDB Trouble
Junk Debt Buyers like Asset Acceptance, LLC have been accused of abusing the Fair Collection Practices Act by not telling the debtors the debt they are trying to collect have passed the statute of limitations within their state jurisdiction. That is one of the reasons for the fine levied against Asset Acceptance, LLC yesterday.
Other alleged violations of junk debt buyers include filing lawsuits with no documentation, harassment, and a whole host of others. If you are currently being harassed by debt collectors, you may need the help of a lawyer.
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