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Top Ten Consumer Debt Myths (#8 will surprise you)

debt myths Arizona

debt myths ArizonaSome time again I wrote a small e-book that went excessive ten myths I heard repeated time and again by shoppers coming into my workplace.  As I proceed to listen to these considerations voiced by shoppers I assumed it might be value going over them once more.

Fantasy #1 – If a Creditor “Charges-Off” a Debt I No Longer Owe it

This can be a widespread misunderstanding that always comes up with my chapter shoppers once I go over what money owed they owe.  They will typically reply that they don’t owe a specific debt as a result of it was “charged off.”  Often they’ve gone over their credit score report and observed that the account was closed or charged off and are lulled into a way of complacency.  The thought is now that the debt has been charged off there isn’t a want to fret as a result of the creditor has given up.  You win! Proper?  Incorrect…

Silent However Lethal (“SBD”) can tackle new which means in terms of charged off money owed.  These are the money owed that often disappear for some time after which reappear—this time all dressed up in a wage garnishment!  Understanding the cost off course of will make it easier to perceive why these money owed are alive and properly and what it is best to do about them.

A debt is charged off (or written off) when an organization makes the interior choice that the debt is not (or unlikely) collectible.  There isn’t a set time for this to happen however with most corporations they will cost it off as soon as it turns into 90 – 180 days late, or when a willpower is made that the debt will not be collected.  When an organization makes the choice that a debt will be charged off it merely signifies that the debt is not thought-about an asset on its books thus decreasing its taxable revenue.  It is very important perceive that that is accomplished to scale back the tax the corporate pays and actually has nothing to do with you.

The corporate is free to proceed trying to gather the debt or might determine to promote the debt to an outdoor debt shopping for firm who can then proceed with the gathering course of.  Most of those “debt buyer” corporations pay little or no – typically as little as 2 cents to 20 cents on the greenback – for the charged off debt they’re buying.  Because of this for a $1,000 debt the “debt buyer” firm paid about $20 bucks.  As soon as bought the brand new “owner” of the debt can now name you on the telephone, sue you, and even garnish your wages.  And something they recover from the $20 they paid for it’s revenue – good work if you will get it!

No matter whether or not they gather it themselves or promote it, “charge off” doesn’t imply that you simply don’t want to fret concerning the debt.  It’s nonetheless on the market lurking and it is advisable handle it, whether or not you pay it, file for chapter, or settle the debt for lower than what’s owed.  Do one thing.

Fantasy #2 – Submitting Chapter Permits Me to Remove the Debt on My Automotive and Home

This fantasy is considerably comprehensible as a result of logically you’re submitting chapter to get rid of money owed, so why not your mortgage and your automotive mortgage?  The technical reply is you could remove these kinds of money owed; nevertheless you will not have the ability to maintain your home and your automotive on the similar time.

The very first thing I do once I meet with potential chapter shoppers is break down their secured and unsecured money owed.  Secured money owed are any sort of mortgage that’s secured by collateral/property similar to a home or automotive.  Unsecured money owed are sometimes money owed like bank cards, medical payments, and so on.

In chapter, if you wish to maintain the collateral hooked up to your secured money owed it’s a must to proceed to pay them.  So, if you wish to maintain your home, you retain paying on it.  Should you don’t make the month-to-month cost ultimately the chapter courtroom will permit the financial institution to take your property.  You’ll be able to nonetheless remove unsecured money owed like bank card debt by way of chapter regardless that you’re holding your home or automotive together with their related money owed.  You may as well remove the mortgage and your automotive mortgage, however you need to hand over the home or the automotive.

  • Chapter Can Decrease Your Cost

Each chapter 7 and chapter 13 chapter have highly effective instruments that assist you to scale back the quantity that you simply pay on your automotive.  These instruments are referred to as redemption and the cram-down.

In a chapter 7 chapter you could have the choice of redeeming your automotive.  What this course of does is permits you to pay what your automotive is value, not what you owe.  For instance, when you’ve got a automotive that you simply owe $20,000 however it is just value $12,000 the chapter courtroom would assist you to pay the $12,000 it’s value and also you get the title free and clear.

However, there’s a catch.  It’s a must to pay the complete $12,000 in a single lump sum cost.  You might be asking your self how on the earth can somebody who’s in chapter provide you with that sort of cash.  It’s true.  Most people who find themselves in the midst of a chapter 7 chapter should not have the money obtainable to pay for the automotive.  That basically leaves you with two choices: you possibly can mortgage the cash from a member of the family or pal, or you possibly can mortgage it from a financial institution.

Typically individuals will get a mortgage from a member of the family to benefit from this course of.  If a household mortgage isn’t an choice (or for those who don’t need it to be an choice!), then you’ll be able to look into acquiring financing.  Once more this results in the query of how you will get a financial institution to provide you a mortgage while you’re in chapter.  There are lenders on the market with particular redemption loans which might be arrange for this very objective.

A great lender I refer my chapter shoppers to is .  The loans via this website are financed via U.S. Financial institution.  They mortgage you the quantity that you must repay the worth of your automotive and you then pay them such as you would your prior financial institution or lender.  The rates of interest are greater than regular in these loans however the general financial savings might be vital.

The cram-down is similar to redemption.  Nevertheless, the cram-down is just out there in chapter 13 chapter instances.  In a chapter 13 chapter case you will be required to make month-to-month funds to your collectors based mostly on numerous elements.  In your chapter 13 case you possibly can suggest to pay the worth of your automotive over the lifetime of your case.  The standard chapter 13 case can take anyplace from three (three) to 5 (5) years to finish.

Which means in case you owe $20,000 in your automotive however it is just value $12,000, that you simply will be capable of pay the $12,000 over a 3 (three) to 5 (5) yr interval.  Additional, you possibly can scale back no matter your rate of interest is right down to about four% to five%.

However…there’s a catch.  So as to cram-down your automotive mortgage by way of the chapter 13 it’s essential to have bought your automotive at the very least 910 days (about 2 ½ years) earlier than you filed your chapter.  Should you purchased it before which you can’t reap the benefits of the cram-down.  This stops individuals from shopping for a brand new automotive after which submitting a chapter 13 a number of months down the street.  You’ll be able to, nevertheless, nonetheless reap the benefits of the discount in rate of interest regardless of once you purchased the automotive.

There isn’t a free automotive in chapter. There isn’t any free home in chapter.  If you wish to hold it, it’s a must to pay for it (however chances are you’ll find yourself paying so much much less!).

Fable #three – If I Don’t Pay My Money owed I Will Go to Jail!

Within the previous days (and I imply previous days) in case you didn’t pay your money owed you possibly can be despatched to a debtor’s jail.  Debtor’s prisons have been outlawed in the USA again in 1833.  Debtor’s prisons by no means made a lot sense to me.  In the event you can’t pay the debt, they throw you in jail till you possibly can pay the debt?  I assume they determine should you have been in jail it will present a whole lot of incentive for your loved ones to get some cash collectively.

There are nevertheless, occasions when neglecting your obligations may end up in you being put within the slammer.

  • Baby Help:    In most states in case you don’t pay your youngster help you’ll be able to face potential jail time.  Should you reside in Arizona, like I do, you little question have seen Sheriff Joe Arpaio exit on his annual spherical ups for dads who usually are not paying their youngster help.  Not solely do they find yourself in jail however they typically get their 15 minutes of fame on the nightly information report.
  • Taxes:    Wesley Snipes.  Let’s all study from Mr. Snipes.  Should you don’t pay your taxes, you possibly can find yourself in jail.  Not far more to say on that.
  • Civil Arrest Warrants:    In some states not abiding by a courtroom order may end up in a civil arrest warrant being issued.  In Arizona this most frequently occurs after a creditor has sued somebody and been awarded a judgment.  The creditor will request that you simply seem in courtroom to reveal all your belongings.  For those who don’t seem, the creditor can ask that the courtroom challenge a civil arrest warrant, which signifies that the subsequent time you get pulled over for rushing you would find yourself going “downtown”.

Every state has their very own particular legal guidelines with regards to not paying your money owed and the potential of going to jail.  Nevertheless, basically should you can’t make your bank card cost or fall behind to the orthodontist you don’t want to fret about ending up in jail.

Fantasy #four – If I Don’t Pay My Credit score Card Cost My Wages Will Be Garnished

That is one I hear so much.  Somebody falls behind on their bank card funds after which falls instantly into panic mode that their wages are going to be garnished.  The creditor will typically name and threaten to garnish wages – which they will do – ultimately.

Collectors similar to bank card corporations are often unsecured collectors.  Because of this there isn’t any property/collateral securing the mortgage.  Widespread examples of secured loans are mortgages or automotive loans.  Should you don’t make the month-to-month cost your automotive will get repossessed otherwise you will lose your home to foreclosures.  Nevertheless, if there isn’t any property securing the mortgage the creditor has to leap by means of much more hoops in the event that they need to take stuff from you.

Earlier than a creditor can garnish your wages they need to sue you in a courtroom of regulation.  And if the system is operating proper you will have loads of discover that that is occurring.  You will obtain a grievance and summons from a course of server, have a chance to object to it, and probably even undergo a trial.  In any case of that if the creditor is awarded a judgment towards you then – and solely then – can they search to take your stuff or garnish your wages.

For this reason unsecured collectors like bank card corporations are so loud and annoying when cost is just not made.  They don’t have numerous energy over you till they sue you.  So, should you fall behind in your funds they’re left with calling you and usually being annoying.  As soon as they get that judgment, be careful!

Fable #5 – If I File Chapter I Will By no means Have Good Credit score Once more

This can be a huge concern.  Many individuals want the aid that a chapter submitting will convey however worry that it will imply they will by no means be eligible to purchase a automotive or a home once more.  This merely isn’t true.

With regards to automotive loans many individuals are shocked that they will qualify for a automotive mortgage virtually instantly (and in some instances even whereas they’re nonetheless within the chapter).  The rates of interest will be nothing to brag about, but when you want to finance a automotive you will have the ability to do it.

On the subject of shopping for a house there will be an extended ready interval however it’s shorter than most individuals assume.  Here’s a chart that a native mortgage firm gave me some time again:

Typical        FHA                             VA

Chapter 7 Chapter four years from discharge or dismissal date. 2 years from discharge or dismissal date with exception for extenuating circumstances. 2 years from discharge or dismissal date.
Chapter 13 Chapter 2 years from discharge date or four years from dismissal date. 1 yr of the chapter 13 payout should have elapsed with on time funds. 1 yr of the chapter 13 payout should have elapsed with on time funds.
Foreclosures 7 years from completion date. three years from completion date. 2 years from completion date.
Deed-in-Lieu of Foreclosures four years from completion date. three years from completion date. 2 years from completion date.
Brief Sale 2 years 80% max LTV4 years 90% max LTV7 years Max LTV allowed 1 yr from sale date if there have been no lates funds, in any other case three years from sale date. 2 years from sale date.
Consumer Credit score Counseling 1 yr of payout should have elapsed with well timed funds. 1 yr of payout should have elapsed with well timed funds.


Based mostly upon this chart in the event you file a chapter 7 chapter and have good cost historical past after your case is discharged you could possibly qualify for a brand new residence mortgage inside two (2) to 4 (four) years.

Chapter has lasting penalties.  It will keep in your credit score report for ten (10) years and will decrease your credit score rating as quickly as you file your case.  However for those who use your chapter case because the “fresh start” it’s meant to be, you will get well a lot ahead of you may assume.

 Fantasy #6 – There’s Nothing I Can Do About All These Assortment Calls!

The primary dose of actuality that you simply get whenever you fall on arduous occasions is you instantly turn into highly regarded.  Your telephone is ringing off the hook!  Your collectors will name you.  Quite a bit.  I’ve heard horror tales from shoppers which are receiving 50+ telephone calls each day.

These telephone calls are a continuing reminder of the robust state of affairs you’re in and make you are feeling decrease than filth.  Worse, should you truly reply them you’re typically berated on the telephone by somebody who might care much less concerning the state of affairs you’re going via.  Many individuals consider that there’s nothing that may be completed concerning the telephone calls and that they’re one thing merely to be endured.  Improper.  There’s a federal regulation referred to as the Truthful Debt Assortment Practices Act (“FDCPA”) that governs these annoying calls and it locations strict guidelines on the collector on the opposite finish of the road.

For instance, do you know collectors can’t:

  • Name you after 9:00 p.m. or earlier than eight:00 a.m.
  • Contact you if the collector is aware of you’re represented by an lawyer.
  • Name you at work whether it is inconvenient or they know that your employer prohibits such calls. (critically, when would this not be inconvenient).
  • Contact your mates, neighbors, relations, or employer about your debt.
  • Interact in any conduct that’s harassing, oppressive, or abusive.
  • Threaten violence or legal conduct.
  • Use obscene, profane, or abusive language.
  • Name you repeatedly with intent to harass, abuse, or harass.
  • Collectors might not use false, misleading, or deceptive representations.

It is very important notice that these guidelines apply solely to assortment businesses and a few assortment legal professionals.  If the corporate you truly owe the cash to violates considered one of these guidelines you will doubtless not have a declare beneath the FDCPA.  Nevertheless there could also be legal guidelines in your state that might nonetheless assist you to file a declare.

So, what in the event that they do break considered one of these guidelines?  The FDCPA permits as much as $1,000 in damages plus lawyer’s charges.  Most FDCPA attorneys take these instances for no cash up entrance and make the collector pay any lawyer charges.

Fantasy #7 – The Creditor is All the time Proper

This fable permeates a lot of society.  Most individuals consider that if a creditor is hounding you for a debt, it have to be reliable and you’re a filth bag for not paying it.  I even see this bias in judges.  On multiple event I’ve argued on behalf of my shoppers in courtroom that a debt was merely not owed by my shopper or at a minimal that the creditor has not confirmed that the debt belongs to my shopper, solely to get a glance from the bench that appears to say “c’mon, we all know that they owe this.”

Ethical judgments of these individuals who discover themselves within the crosshairs of a debt purchaser are often harsh.  That’s till the shoe is on the opposite foot and it’s them that will get the knock on the door and the lawsuit served by an organization they’ve by no means even heard of.

In occasions previous there might have been some fact that when an individual was sued the debt was possible owed.  However with the rise of the debt shopping for business this assumption wants to vary.  The debt shopping for business purchases previous money owed in teams numbering within the tens of hundreds.  The knowledge they buy is often restricted to a reputation, tackle, phone quantity, quantity owed, and is usually outdated.

I’ve had shoppers which were victims of id theft or  the place the debt consumers have merely sued the fallacious individual.  That is notably prevalent for individuals who have widespread names or who’ve a father or baby with the identical identify (i.e. Jr., Sr.).  Simply because a collector is looking or a lawsuit has been filed doesn’t imply the creditor is in the appropriate – and it definitely doesn’t imply the debt is owed.

Collectors, notably debt consumers, should show that they’re the rightful proprietor of a debt and that the debt is definitely owed by the individual they’re suing.  With out documented proof the creditor/debt purchaser is admittedly asking us all (together with the courtroom system) to imagine that they’ve the best to gather cost.  That isn’t how the debt amassing or authorized system works.  If they need cost, they should show it.

Fable #eight – Logic Governs the Debt Assortment Course of

You’d assume that with all of the sensible guys on the creditor’s aspect that each one insurance policies and actions by a creditor or debt purchaser can be based mostly on sound reasoning and logic.  You’d assume that till you truly should attempt to resolve a dispute with them.

I see this so much with debt settlement.  Most individuals need to pay their money owed.  Most individuals (if not all) don’t need to file for chapter.  So earlier than individuals ever come to satisfy with me about submitting for chapter they typically attempt to work with their collectors to settle their money owed.  They could not have the complete quantity however want to a minimum of attempt to pay what they will.

So, they strategy the creditor and supply both a cost plan or a lump sum.  The creditor turns it down, requests extra (regardless that they know the individual can’t afford it), after which continues with the gathering course of.  The individual finally ends up coming to go to with me, realizes that they will remove the debt utterly via a chapter 7 chapter submitting and proceed to take action.

It will appear, logically, that the creditor would somewhat obtain one thing within the type of a cost or lump sum cost moderately than have the debt be eradicated utterly in chapter.  However they don’t.  Often, they take the $zero.00.

Why is that this?  It doesn’t make sense.  There are a few causes.  I’ve a relative that works for an enormous nationwide firm and I picked his mind on this matter.  His response was that massive corporations cope with a whole lot of staff and clients.  Due to this the insurance policies of the corporate are gospel.  If a nationwide firm tried to deal with every of the variables in every buyer account it might take an unlimited quantity of manpower and admittedly might not even be potential.

Due to this, insurance policies are put into place and no matter whether or not they make any sense in any respect, that’s what the corporate does – even when it truly hurts the corporate.  I can perceive this (sort of).  I was a legal prosecutor early on in my authorized profession and we had an enormous coverage guide as to how crimes can be charged and prosecuted.  Whereas it didn’t match each case completely, the extra essential precept was that everybody be handled the identical – even when it produced some loopy outcomes each from time to time.

The second purpose why collectors will typically take $zero over the cost you’re proposing is that when a debt turns into delinquent the corporate can merely cost off the debt and by doing so will get a tax deduction.  The cash owed is not an asset however is written off as a loss, thus decreasing the corporate’s complete tax legal responsibility.

I’m positive every firm has their very own causes and insurance policies for every little thing they do, however simply keep in mind when you’re making an attempt to maintain a debt drawback that what appears proper and logical to you could not even register with the creditor you’re talking with.

Fantasy #9 – You Will Lose All the things If You File for Chapter

Some individuals needlessly delay submitting for chapter, regardless that they actually, actually need it, as a result of they’re afraid that they will lose every thing they’ve.  Goals of eliminating all their debt are overcome by nightmares of homelessness with not a single asset to their identify.

Most individuals that file for chapter file beneath chapter 7.  Whereas chapter 7 is a liquidating chapter, and by liquidating I imply that you would be able to lose non-exempt belongings, most individuals that undergo the method don’t lose a factor.  The reason being exemption legal guidelines.

There are two units of exemptions, the federal set of legal guidelines and the state set of legal guidelines.  Most states have crafted their very own exemption legal guidelines that exempt sure belongings from the attain of your collectors.  A standard exemption most individuals are conversant in is the homestead exemption that protects your house.

Along with the homestead most states (and the federal exemptions) shield issues like retirement accounts, family items, your automotive, and different basic gadgets.  In my chapter follow the folks that lose belongings are those that have toys like boats or ATV, however in some states even these varieties of property could also be protected.

Previous to leaping in a chapter it’s worthwhile to rent a lawyer that practices chapter regulation to evaluate your belongings to find out when you have any danger of dropping them.  You need to know going into your chapter what could also be in danger and what’s not.  That is among the many advantages of hiring a chapter lawyer to help you thru that course of.

Chapter just isn’t a totally painless course of, however for many the method doesn’t depart you destitute.

Fantasy #10 – You’re a Dangerous Individual As a result of You Are in Debt

If this one is true, not solely are most people within the nation dangerous, however the nation itself is significantly dangerous.  Debt.  Nobody likes it however all of us appear to hold a few of it round.  Through the years I’ve actually sat with hundreds of households and listened to their tales as to why they discovered themselves needing chapter.  I’ve by no means as soon as requested a shopper why they ended up in my workplace, however individuals inform me.

All of my chapter consultations begin out with me asking how I might help them.  All are very uncomfortable with the truth that they’re assembly with me.  Too many are scared that I’m judging them or considering poorly of them.  One factor that assembly with all of those households has taught me is that monetary disaster can occur to anybody.

Regardless of how accountable you’re in your funds, regardless of how a lot cash you make.  Someday, one thing might occur and also you too will be confronted with the disagreeable actuality of getting intense assortment exercise targeted on you.  For many it’s a discount in revenue, a lack of job, or a medical situation that arises that leads to a monetary disaster.  These are issues that may, and do, occur to anybody.

Being in debt is not any enjoyable.  Feeling like you must take the abuse of debt collectors is humiliating.  Many individuals I meet with are in a real melancholy due to their monetary state.  The one factor I inform individuals time and again is that you need to do one thing.  You have to act.

It sounds silly (and deep down we all know it’s) however a shocking variety of individuals simply completely ignore their debt points hoping they will simply go away.  You might go weeks or months and even years with out listening to from a specific creditor and this will lead us to consider that perhaps, simply perhaps they’ve forgotten about us.  However in right now’s aggressive world of debt consumers, assortment efforts might resume at any time and on a number of fronts.

You aren’t a nasty individual as a result of you end up in debt.  However you do have to act.  It’s worthwhile to educate your self on the principles of the sport and put collectively a recreation plan to get your self again on the correct monetary monitor.

So, there they’re. The highest ten misunderstandings of the regulation and outright myths in relation to shopper debt.  Greater than ever you should be vigilant in taking good care of your funds and periodically checking what’s displaying up in your credit score report.

In the event you run right into a debt drawback, do one thing. DON’T’ IGNORE IT.  Get assist.  Inform your self. Empower your self.  You have to act.





















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John Skiba, Esq. John Skiba, Esq.

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