February 8th, 2010

Debtor Collects from Creditor Harassment

Anyone who has ever been hounded by a debt collector has probably fantasized about giving the collector a taste of his or her own medicine. That fantasy may be much easier to realize than most people imagine, as the story of a Dallas debtor shows.

Background: Your Rights as a Consumer

Laws are in place at both the federal and the state level to protect all Americans from overly aggressive debt collection practices. In fact, between the Fair Debt Collection Practices Act, the Fair Credit Reporting Act and the Telephone Consumer Protection Act, a lot of behaviors typical of debt collectors are prohibited.

In addition to other things, debt collectors cannot:

Lie about their ability to take legal action to collect on a debt
Call you repeatedly with intent to annoy or harass
Call you outside of 8 am and 9 pm local time
Contact you directly when you have indicated that you have legal representation
Contact you by any embarrassing media (like postcards)

Unfortunately, many consumers are not aware of their rights and so do not take legal action against collectors who break these laws.

A Man with a Plan

According to the Dallas Observer, a man named Craig Cunningham has taken it upon himself to stand up for his consumer rights.

The Observer reports that Cunningham made some poor investment choices when credit was easy and ended up with more than $100,000 worth of debt. But, when collectors began contacting him and asking him to pay up, he decided to fight back.

Essentially, here’s how Cunningham has managed to make the most out of a bad situation:

He hired a lawyer to represent him and help him understand the intricacies of the consumer protection laws that were relevant to his case.
He began recording calls from his creditors and saving all forms of contact he received.
With the help of his attorney, he filed lawsuits whenever a debt collector violated a national or state consumer protection law.
He began receiving court settlements from successful cases.

Most collection agencies, it seems, prefer out-of-court settlements (which often involve a statutory fine) to taking a case to trial, since settlements save them money. The Observer notes that Cunningham has thus far earned $20,000 from suits against law-breaking collectors.

If you think your rights have been violated by a debt collector, consider contacting an attorney to determine whether you could take steps to receive compensation for the violations.

Additional Resources

Fair Debt Collection Practices Act (PDF)

Share and Enjoy:

Tags: consumer rights, creditors, debt collectors
Posted in Financial Literacy | 1 Comment »

February 7th, 2010

The Week in Finance From the FTC

The Federal Trade Commission announced this week two new measures to address lapses in consumer protection for U.S. citizens.

Mortgage Lender Required to Hire Consultant

According to a news release, the FTC has modified a settlement with Gateway Funding Diversified Mortgage Services, L.P., a mortgage lending company earlier cited for improper and discriminatory lending.

Gateway will now have to:

Hire a third-party consultant approved by the FTC to verify that the company complies with fair lending regulations
Introduce any remedial changes suggested by the consultant
Submit to annual assessments and detailed analyses of lending information for five years

The new measures are intended to prevent the sort of mortgage lending abuses, such as reverse redlining and predatory lending, that occurred during the subprime boom and paved the way for the real estate bubble, its burst and bankruptcy filings across the country.

Support for Bill Expanding Consumer Funeral Rights

Following a funeral scandal last summer in which workers in the funeral industry stole money from grieving families and disposed of bodies in unsavory ways, the FTC has announced its support of a house bill (H.R. 3655) that would expand consumer rights in the funeral industry.

The incident reportedly involved four gravediggers in the Chicagoland area pocketing funeral money after performing funerals for families. After the ceremonies, the four allegedly dug up bodies and dumped them wherever they found space.

The bill, if it passes, would do the following:

Give the FTC the authority to regulate cemeteries across the country
Expand consumer protections under the FTC’s existing Funeral Rule by expanding its application from funeral homes to crematories and sellers of caskets, urns, monuments and markers
Require those in the funeral industry to disclose and itemize prices upfront and identify any state laws that require certain purchases or expenses

The funeral industry has historically been one in which strict consumer protection is essential, since people are often forced to make financial decisions in a short amount of time and while under great emotional stress.

Share and Enjoy:

Tags: consumer alerts, federal trade commission
Posted in Financial Literacy | 5 Comments »

February 5th, 2010

Understanding Credit Card Cancellations

Finding out your credit card has been canceled can be frustrating, embarrassing and worrisome.

Unfortunately, tough economic times may mean card cancellations become more common and more likely in the coming months.

Why Credit Cards Matter

Hopefully, you already know that your credit score is a number calculated through a formula developed by the Fair Isaac Corporation (FICO) and determines what kind of interest rates you’re likely to receive from lenders.

But what you may not have realized is that your credit card usage plays an important role in your credit score:

Age of accounts: The longevity of various credit accounts, including loans and lines of credit, is a factor in your credit score. So maintaining a credit card for a number of years is better than opening up new ones and canceling old ones.
Variety of account types: Another factor of your credit score is the diversity of your credit portfolio. Credit cards are one of the only tools that offer revolving credit, so they demonstrate how well a borrower handles this particular credit product.
Credit utilization ratio: Finally, credit cards help by giving you more credit available. Part of your score comes from a comparison between how much credit you have available to how much you’re using (using less is better).

So having a card canceled on you may damage your score in three different ways, and there is no law that requires credit card issuers to notify consumers about cancellations.

Reasons for Credit Card Cancellation

Even if you’re a responsible credit card user - meaning you pay your bill on time every month - your credit card company may cancel your card. Common reasons include:

Ratio shift: If your available-credit-to-debt ratio changes - that is, you start using significantly more credit - a card issuer may cancel your card due to "increased risk."
Lack of profitability: Sadly, if you pay your bill in full every month, the issuer isn’t making much money from you, and may cancel your card.
Lack of use: If you haven’t used your card in several months, it could get the shaft. Charge something small every month or so and pay it off immediately to prevent this.
Bad economy: Market conditions, like unfavorable interest rates or housing prices, may cause card issuers to close accounts.
Credit report information: Negative information in your credit report, whether true or not, can make an issuer pull the plug.

In some cases, you won’t be able to prevent cancellation, but you can stay on top of your finances by checking your credit report regularly and fixing any errors you notice. This will help you stay on top of any credit card problems before they arise.

Share and Enjoy:

Tags: credit card debt
Posted in Credit and Bankruptcy | 3 Comments »

February 4th, 2010

Obama’s Plans for Your Retirement Savings

In an age of disappearing pensions and rapidly shrinking Social Security funds, individual retirement accounts are more important than ever – but many Americans have no official retirement accounts, connected to their jobs or otherwise. The Associated Press reports that President Obama is launching a plan to change that.

The plan has at its center one serious statistic: almost half of American workers have no retirement savings option through their jobs. That’s frightening, considering that, as a nation, we don’t have a great track record of saving money.

Four Main Points for Retirement Savings

The retirement savings legislation, still in the drafting phase, at this point includes four main parts to improve Americans’ chances of living comfortably after they stop working. The four prongs are:

Automatic IRAs at work: Employers who do not already offer Individual Retirement Accounts (IRAs) to their workers would be required to do so. All employees would be automatically enrolled in such programs, with a chance to opt out. Studies have shown that participation in retirement savings plans is much higher when it’s automatic. To ease the administrative costs associated with the program, employers would reportedly be offered tax breaks for introducing the IRA plans.
“Saver’s credit” for contributions: Sources indicate that the Obama Administration wants to include a provision that would incentivize retirement savings for lower-wage workers by introducing tax breaks and potentially including government-sponsored matches for initial contributions. Some critics suggest that this measure will face too many obstacles because of the potentially high cost to the government.
Lifetime income: One aspect of the retirement measures that has been proposed would introduce investment products into retirement accounts that work on annuities and guarantee income for an investor’s lifetime. This measure would be intended to eliminate the possibility of a person’s money running out before their life, but could face challenges since accounts that offer such returns are often laden with fees. This might even include stronger retirement account protections in bankruptcy.
Heightened 401 (k) regulations: Lastly, the administration has mentioned introducing more transparency into the regulations governing 401(k) plans, so that investors would be better informed about the fees and costs of their accounts and avoid unnecessary expenses.

Remember: it’s never too early to start saving for your retirement, and with fewer guaranteed income sources for the elderly, it’s more important than ever to plan to support yourself financially after you stop working.

Share and Enjoy:

Tags: life after bankruptcy, retirement savings
Posted in Financial Literacy | 1 Comment »

January 29th, 2010

FTC Hails Victory Over Abusive Debt Collection Practices

The Federal Trade Commission announced this month that it has settled charges with three debt collectors accused of various types of abusive debt collection. The settlement, which reportedly includes the largest civil penalty ever levied on a debt collection agency, comes in conjunction with future restrictions for the defendants.

Fair Debt Collection Practices Violated

According to the case, the defendants violated terms of the Fair Debt Collection Practices Act, which outlines acceptable behavior for agencies responsible for collecting on debts. These guidelines prohibit a variety of actions, including:

Contacting a debtor before 8:00 am or after 9:00 pm local time
Contacting a debtor after receiving a written request not to do so
Contacting a debtor at her place of work after being told not to
Calling the debtor with the intent to annoy, harass or abuse
Contacting the debtor directly when he is known to have an attorney
Misrepresenting a debt or using deceit to collect money
Threatening arrest or legal action when neither is an option
Seeking more than a person legally owes
Publishing a person’s name on a “bad debt” list
Reporting information incorrectly to a credit reporting bureau
Contacting a third party about a consumer’s debt
Contacting a debtor by embarrassing media (like a post card)

In this case, the men were charged with threatening arrest and legal action when none was warranted as well as using harassment and abusive contact to collect debts. The men in question were senior managers at debt collection agencies and as such either participated in the illegal actions or were responsible for such actions among their employees.

The Settlements

One of the three defendants, Keith Dickstein, owner of Academy Collection Service, Inc., apparently paid a $2.25 million settlement in 2008. The two defendants who settled early this year, Edward S. Bastian and Edward Hurt, were saddled with fines of $375,000 and $300,000 respectively for abusive collection practices.

The fines were suspended after each man paid $7,500, based on their ability to pay; payment of the remainder will depend upon their future compliance with debt collection laws.

Your Consumer Rights

Federal law outlines many protections for consumers. Make sure you have an idea of what consumer rights you have so you can take legal action, if necessary, should they be violated.

Additional Resources

Fair Debt Collection Practices Act (PDF)

Share and Enjoy:

Tags: creditors, debt collection, FTC
Posted in Financial Literacy | 10 Comments »

January 28th, 2010

Tuition May be Tax Deductible This Year

With tax season coming up, everyone is looking for new ways to save, either to get a larger refund or to afford paying taxes owed. Thanks to a new ruling, some graduate students may find extra breathing room come tax time.

The Wall Street Journal reports that, thanks to the persistence of Lori Singleton-Clarke, a Maryland woman, students pursuing a Masters in Business Administration degrees (MBAs) may now find their tuition is tax deductible.

Several aspects of the case could be important to MBA students and others looking to save money this tax season.

Know the code. The Internal Revenue Service’s tax code is complex and detailed, so knowing where to look for potential deductions can help. Tax deductions for education can be found in IRS Publication 970 (see below).
Ask for help. If you aren’t tax-savvy yourself, you may want to enlist the help of a professional tax-preparer or commit to learning how to work at-home tax software like TurboTax.
Stay organized. The WSJ reports that Singleton-Clarke’s case was successful in part because she kept all her paperwork organized and was able to provide adequate documentation for her claim.
Be persistent. Singleton-Clarke’s case was not always easy, sources note. But she stuck it out and ended up saving herself some serious money – and potentially paving the way for other graduate students to do the same.

Does Your Education Qualify?

Educational expenses eligible to be considered tax-deductible must meet certain specific criteria, including the following.

Income limits for single and married individuals affect how much tuition can be deducted.
Parents may deduct certain expenses for children whose education they fund, but only if the parents claim the children as dependents.
Certain institutional fees (like health care and books) are not considered part of tuition and so are not eligible for the tax deduction.
Even a single college- or graduate-level class could qualify you for the tax deduction.

A more detailed review of these regulations is available here, or you can browse this year’s version of Publication 970 (below, as a PDF).

Other Tax Concerns

Whether or not you pursued further education this year, stay alert during tax season. Certain predatory loans in disguise tend to crop around this time of year, including RALs (refund anticipation loans) and RACs (refund anticipation checks).

If you do wind up owing taxes that you can't afford to pay, you can file an extension and possibly work with the IRS to pay your taxes over time. Paying taxes owed is important since they typically cannot be discharged in bankruptcy.

Remember to keep your sensitive information (like bank account numbers and Social Security Number) private!

Additional Resources

IRS Publication 970 (2010)

Share and Enjoy:

Tags: students, tax deductions, taxes, tuition
Posted in Legal Info | 2 Comments »

January 26th, 2010

Elliss Bankruptcy a Riches to Rags Story

Financial lessons are often best learned in retrospect, which can make it difficult to tell when you're going down the wrong financial path. Luckily, we can always learn from the mistakes of others.

The Detroit News reports that former Detroit Lions lineman Luther Elliss was forced to file for bankruptcy thanks to a series of bad investments and debts.

While the story is frustrating to hear—Elliss reportedly earned more than $11 million in a five-year period—it is surprisingly common. So how do the once fantastically rich manage to end up in bankruptcy court? Often enough, simply by making some bad decisions.

Elliss, it seems, got sucked into the real estate bubble and ended up with two homes worth less than what he owed on them. Last summer, he and his wife reportedly filed for Chapter 7 bankruptcy to receive a discharge from their debts.

Taking the Long View on Your Finances

While most of us will never command the kind of salaries professional athletes can expect, we would do well to look at how quickly a fortune can disappear.

Nothing is guaranteed. If the current employment situation has taught us anything, it’s that no job is permanent, but many of us act as if our life circumstances are not subject to change. When making major purchases (homes, cars, schools, etc.) remember that a stretch now could easily become a financial impossibility if your salary changes.
Listen to the right people. In the Tribune article, Elliss notes that he didn’t listen to suggestions from his wife or adviser—and that it cost him in the long run. Unfortunately, nobody is guaranteed to have your best interests at heart except you, so be very wary when people ask for financial commitments and promise unrealistic returns. On the other hand, know who honestly cares about your well-being and take their advice to heart.
It's a marathon, not a sprint. Remember that you're in this thing called life for the long haul. There will always be great investments around, so make sure you learn all you can about one—and feel totally comfortable committing to it—before sinking in your hard-earned cash. It's true that you can't win if you don't play, but you also cannot lose.

There's an old bit of financial wisdom that summarizes pretty much every other guideline for handling money: spend less than you make and save the rest. It's easy to get drawn into upgrades and status symbols and all the rest, but at the end of the day (or the lucrative career as a professional athlete), financial stability is often worth the sacrifices of getting there.

Share and Enjoy:

Posted in Bankruptcy News and Events, Financial Literacy | No Comments »

January 22nd, 2010

Consumer Price Data Paints Bleary Picture of 2009

The U.S. Labor Department released its monthly Consumer Price Index data, and the numbers confirm what most Americans can already sense: the recession continues to exact its toll. Here's a look at the numbers for the whole of 2009.

Overall: Consumer Prices Up 2.7 Percent

During 2009, consumer prices rose a collective 2.7 percent, a jump that, according to the Labor Department, was led largely by increased energy prices. In other areas, prices actually fell over the last 12 months:

Food: In 2009, food prices dropped by 0.5 percent, with food consumed at home dropping 2.4 percent and food away from home actually rising 1.9 percent.
Energy: Here’s where the biggest jump occurs. Energy costs increased 18.2 percent, with a 53.5 percent increase in the cost of gasoline and a 6.5 increase in the price of fuel oil.
Everything Else: The umbrella category that includes all consumer goods but the two above saw a 1.8 percent rise during 2009, with increases in everything from clothing to cars to medical services.

So how does the overall 2.7 percent increase in prices compare to recent years? Not too well, it seems. In 2008, prices rose a scant 0.1 percent – though both last year’s change and 2008’s were heavily influenced by fluctuating energy prices.

The core inflation rate, which adjusts price rises with changes in income levels, rose 1.8 percent in 2009, the same figure as that for 2008, and a relatively small number.

Weekly Wages Fall

In addition to prices inching up, Americans saw their weekly wages dip by 1.6 percent in 2009, meaning their buying power has shrunk considerably since a year ago. Last year’s drop was the largest since 1990.

While the picture overall is still pretty bleak, there’s a spot of light in all the clouds: commentators note that because inflation has remained modest, the Federal Reserve will likely keep key interest rates low to stimulate borrowing and help the economy pick up vigor.

The drop is purchasing power also points to the 1.44 million consumer bankruptcy cases filed in 2009.

Additional Resources

Department of Labor January 2010 Consumer Price Index Report (PDF)

Share and Enjoy:

Tags: consumer price index, economic data, purchasing power
Posted in Bankruptcy and the Economy | 7 Comments »

January 21st, 2010

Stricter Mortgage Lending Regulations Implemented

As many people now know, the current recession was touched off by the collapse of the real estate market, which ballooned out of control in the mid-2000s.

Now, according to CBS News, mortgage lenders have learned a tough lesson and are changing the way they do business. Here’s a look at some notable changes and why they’re cropping up.

Big-Time Losses

During the subprime lending boom, many lenders (including big players like Fannie Mae and Freddie Mac) offered high- or variable-interest loans, no-down-payment loans, and other types of loans that people were unlikely to pay off easily.

Now, many of those loans have gone bad, meaning that the borrowers were unable to make payments and the houses in question have gone into foreclosure. Lenders are thus writing off (that is, accepting as lost) billions of dollars in bad debts – and they have to do something about it.

Credit score requirement: In the era of subprime lending, people with low credit scores were often specifically targeted for high-interest loans. Now, according to sources, Fannie Mae will not issue loans to anyone whose FICO credit score is below 620.
Equity requirement: If you’re looking to refinance your current home loan, lenders now require you to have some equity (that is, some amount of the principal paid off) in your original loan.
Down payment a must: In the olden days, buying a house without a down payment was unheard of; the subprime lending "innovations," though, introduced loans with no down payment required. Major lenders, it seems, are returning to the traditional wisdom that you must pay a significant amount of money up front.
Debt-to-income ratio consideration: Fannie Mae has also reportedly announced that it will not lend to anyone whose debt-to-income ratio rises beyond 45 percent – that is, in order to get a loan, you must not pay more than 45 percent of your monthly income on all debt payments (including car, credit card, student loan, etc.) combined.

So what does this mean for people thinking about buying a home? Basically, it means you need to be at the top of your game financially. You should be checking your credit report regularly and making sure you’re an attractive candidate to home lenders – and if you aren’t right now, it’s time to take steps to become one.

Additional Resources

Home Buying Brochure

Share and Enjoy:

Tags: foreclosure, lending, mortgages
Posted in Mortgage Foreclosure | 2 Comments »

January 18th, 2010

Research Suggests Ways to Spend Smarter

High unemployment rates and sluggish recovery in the job market mean that many Americans are still budgeting carefully and watching every penny that leaves their wallets. It’s times like these when studies like the one conducted by researchers at San Francisco State University can help us make important spending decisions.

Memories Last Longer than Stuff

The new budget study examined recent purchases made by adults enrolled at SFSU. Here's what the researchers discovered:

Happiness from things fades. On average, researchers found, the thrill brought about by new objects faded in six weeks to three months. This means that, no matter how much you love that new computer, dress or TV, you will get used to it in a few months and the pleasure it brings you will dwindle.
Happiness from memories lasts. On the other side of the coin, the pleasure induced by spending money on experiences (like sporting events, plays, hikes, etc.) endures, thanks to our ability to remember and relive these experiences.

So how can you use this information to make the most out of the money you have for leisure? Focus on participating in events rather than accumulating goods. And, suggests the study, recruiting friends and loved ones to join you is a particularly useful way to make sure you enjoy yourself and create enjoyable memories.

Here are some ideas to consider when thinking about an experience (rather than an object) to spend money on:

Take a class. Many community colleges and organizations offer continuing education departments that offer fun classes like ballroom dancing, cooking, yoga or sculpture.
See a play. Check local newspapers or schools for events put on by community and school theatre or music groups. Bonus: these are often low-cost outings.
Plan a picnic. Even in bad weather, you can organize a picnic indoors to shake up the monotony of chilly days. Team up with friends and make everyone responsible for one part of the meal. Or have everyone agree to bring a dish they've never had before.
Be a tourist at home. Spend a day visiting museums or landmarks close to home that you've never actually explored. See what you can learn about your hometown.
Get lost. Team up with a friend and try to get lost. Then spend the day driving or walking around areas you’ve never seen before. Take pictures as souvenirs.

Share and Enjoy:

Tags: budget, saving money, spending money
Posted in Financial Literacy | No Comments »

The Bankruptcy Blog

Debtor Collects from Creditor Harassment

Background: Your Rights as a Consumer

A Man with a Plan

Additional Resources

The Week in Finance From the FTC

Mortgage Lender Required to Hire Consultant

Support for Bill Expanding Consumer Funeral Rights

Understanding Credit Card Cancellations

Why Credit Cards Matter

Reasons for Credit Card Cancellation

Obama’s Plans for Your Retirement Savings

Four Main Points for Retirement Savings

FTC Hails Victory Over Abusive Debt Collection Practices

Fair Debt Collection Practices Violated

The Settlements

Your Consumer Rights

Additional Resources

Tuition May be Tax Deductible This Year

Does Your Education Qualify?

Other Tax Concerns

Additional Resources

Elliss Bankruptcy a Riches to Rags Story

Taking the Long View on Your Finances

Consumer Price Data Paints Bleary Picture of 2009

Overall: Consumer Prices Up 2.7 Percent

Weekly Wages Fall

Additional Resources

Stricter Mortgage Lending Regulations Implemented

Big-Time Losses

Additional Resources

Research Suggests Ways to Spend Smarter

Memories Last Longer than Stuff

Categories:

Total Bankruptcy on Twitter

Popular Posts

Archives:

What We're Reading: