Sunday, June 29, 2014

Illegal Lies Debt Collectors Tell

If you haven't been living in a mountain cave in Zambia for the past two decades, I don't need to tell you that debt collectors lie. You already know that. What you may not realize, however, is that some of these lies are illegal and, as such, violate federal consumer protection laws. This gives you the right to legal recourse should you choose to pursue it.

Illegal Lie #1. If you don't pay this debt, you'll go to jail

Unpaid debt won't land you in jail.
Once upon a time the state of Georgia was a debtor's prison. Australia started out this way too. In this day and age, however, no one is going to handcuff you and haul you away when you stop paying your credit card bills.

The Fair Debt Collection Practices Act is a lovely little document that gives you, the consumer, a summary of your rights and the collection agency's rights. One act that the FDCPA prevents is false representation.

A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section...

The representation or implication that nonpayment of any debt will result in the arrest or imprisonment of any person or the seizure, garnishment, attachment, or sale of any property or wages of any person unless such action is lawful and the debt collector or creditor intends to take such action...

The false representation or implication that the consumer committed any crime or other conduct in order to disgrace the consumer.

There you have it. Your nightmares about being tried, sent to the pen and dropping the soap are over. Not only can a collection agency not imprison you, debt collectors can't even threaten imprisonment while attempting to wrangle a payment out of you. They can't even tell you that you committed a crime. While not paying your debts isn't particularly responsible, it isn't illegal.

Illegal Lie #2. I'll tell your friends, family and/or employer about your debt. 

Anyone who ever attended middle school knows what a powerful motivator humiliation is, and unpaid debt
Collectors can't tell your boss about the debt.
is embarrassing. Even if your collection accounts are the result of circumstances that were completely out of your control, you'd rather go naked in public (okay, well, maybe not that far) than have your boss know that you shirked a hospital bill last year. Collection agencies are well aware of this and have been known to use it to their advantage. If you're out-of-your-mind afraid that your deep, dark debt secret will finally see the light of day, you're more likely to pony up whatever amount the debt collector asks for.

Fortunately for you, the FDCPA is very clear about this. Not only does this threat fall under the "false representation clause" above, debt collectors aren't even allowed to contact your loved ones unless its in an effort to locate you. And they certainly aren't allowed to tell anyone about the debt.

Believe me, no matter how personal it may seem between you and the collector who's been calling you night and day for months, you're just another number on a list of numbers he has to call every day. He's probably not stupid enough to put his job on the line. Probably.

Illegal Lie #3. I'll sue you and foreclose on your home, garnish your wages, levy your bank accounts, seize your 401k and repossess your car. So pay up. 

Fear, like humiliation, makes us do things we wouldn't normally do. Threatening to take your wages, savings and property is at attack on your very stability. The logic here is simple: If you don't pay, there are some horrific consequences coming your way--or, maybe not.

Only a judge can give collectors the right to seize assets.

It's true that a debt collector has the right to sue you for the debt. State laws vary but most will allow collection agencies who win a lawsuit to attach liens to your property and seize your liquid assets--but only some of them. Here's a list of just a few of the assets you may have that are exempt from debt collection (unless you owe a defaulted federal student loan, but if that's the case you're already familiar with the flames of financial hell and the fact that nothing is exempt doesn't faze you anymore) and that collectors cannot threaten to take:

  • Social Security
  • Your 401k
  • Most retirement benefits
  • Unemployment benefits
  • Welfare
  • Veteran's benefits
  • FEMA funds
  • Child support 
  • Your IRA

In a twisty bit of legalese, the FDCPA prohibits collection agencies from threatening to take an action they either cannot take or do not intend to take. No seizure of property can take place without a judgment and a judgment requires a lawsuit. Thus, if the statute of limitations has expired on your debt, threatening to sue you and/or seize your assets is a big no-no for collectors.

Filing a Lawsuit Against a Collection Agency for Lying 

People expect to get lied to by collectors. Like daredevil cab drivers and bad sushi, its an all-too-common fact of life for many Americans. Filing a lawsuit is too much work for most to bother with. If a debt collector decides to risk his job by lying to debtors and breaking federal regulations, odds are he'll get away with it.

The FDCPA still gives you the right to sue for infractions, but if the collection agency can prove that the violation was unintentional and that its policies don't allow for such behavior, the court can throw out the lawsuit.

Related Posts:

Debt Collection Lawsuits: Statutes of Limitations by State

The Debt Collection Lawsuit Threat

What Are Your Odds of Being Sued By a Collection Agency?

Tuesday, June 24, 2014

Will Settling With a Collection Agency Improve My Credit Scores?

If you have debts in collections, sooner or later settling with the collection agency will be an option. Collectors don't generally offer settlements up front but after realizing that you're not going to pony up the full
Settling collections? Be careful.
amount, most would rather settle with you and get a portion of the debt you owe than nothing at all. Unfortunately, settling debts only benefits the collection agency and, in some circumstances, can be a devastating financial decision that you'll live to regret.

Settling with a Collection Agency Doesn't Improve Your Credit

The most important fact you should know about settlements is this: settling a debt with a collection agency doesn't improve your credit scores. Debt collection letters almost inevitably include the statement that "Your credit report will be updated accordingly." Consumers often mistakenly translate this to mean that making settlement arrangements will lessen the negative impact a collection account has on your credit score--and this simply isn't true.

I've said it before and I'll say it again: paying collections doesn't improve your credit scores. Federal law requires collection agencies to report accurate information to the credit bureaus, but a collection account is always going to be negative. The account's payment status--paid, settled, etc--doesn't affect this at all. You could pay the entire collection in full and, unless the collection agency agrees to remove it from your credit report, doing so won't improve your credit scores.

Settling Collection Debt May Restart the Statute of Limitations

State laws concerning the statute of limitations for debt collection lawsuits vary, but in most states making a payment on the debt is enough to restart the statute of limitations from day one--even if its already expired. This is very beneficial to collection agencies. As soon as you make the first payment on your settlement agreement, the collection agency can file a lawsuit against you for the full remaining balance. Now, if you have a settlement contract with the collector that spells out the terms of the agreement in writing, it may provide you with protection against such a lawsuit. Most debtors who opt to settle, however, never request a formal settlement agreement. They simply make arrangements over the phone and begin making payments--leaving themselves vulnerable for a terrible bait-and-switch.

Collection Agency May Sell the Unpaid Settlement Balance to Another Collector

I've discussed this before, but it bears mentioning here as well. Without a written settlement agreement stating otherwise, a collection agency can increase the amount it collects on your debt by accepting your settlement payment and then selling your account to another collection agency.

What makes this so insidious is that the new collection agency immediately gets to work collecting the unpaid portion of your debt. After all, you didn't settle the debt with them. You settled with the debt's previous owner, and your pleas of "but I already paid this!" will fall on deaf ears.

Settling Collections Could Lower Your Credit Score 

A new collection will hurt your credit rating
To make matters worse, the new collection agency may report the debt to the credit bureaus. Although consumer protection regulations do not allow the credit bureaus to report two collections on your credit report for the same debt, it happens all the time. All the new collector has to do is assign the debt a new account number. The amount reported will differ because you paid part of it in your original settlement. You can fight a duplicate collection and eventually have it removed, but doing so is a headache you don't need. And in the meantime, your credit scores suffer.

Get a Written Settlement Agreement to Protect Yourself

Settling isn't always a bad deal. Although it doesn't help your credit, if you negotiate properly, you could end up with the collection agency off your back. That in itself is worth it for some harried debtors. If you're considering a settlement, its always a good idea to get the terms of the agreement in writing from the collection agency before you start making payments. In order to protect yourself, your agreement should contain the following provisions:

  • The collection agency agrees not to take legal action against you during the course of paying off your settlement. 
  • The collection agency agrees not to sell the unpaid portion of your debt to another collector after you've paid the settlement amount
  • The collection agency agrees to consider the debt paid and not attempt to collect the unpaid balance after you finish paying off your settlement (you wouldn't believe how often collectors suddenly "forget" that you had a settlement agreement in the first place). 
  • If possible, get the collection agency to update your credit report to reflect that the debt has been "paid" rather than "settled." Your credit scores remain unaffected but a paid debt looks better to future lenders than a settled one. 
There is one way that settling a collection account can improve your credit. If the collection agency agrees to delete its tradeline from your credit report in return for payment, your credit scores will improve. This is known as a "pay for delete." Pay for deletes aren't common because they are frowned upon by the credit bureaus. You're also a lot more likely to get one if you pay the debt in full or settle in one lump sum (debt collectors have quotas to meet, after all) but if you're successful, this is the only way that settling with a collection agency will improve your credit scores. 

Related Posts:

Friday, June 20, 2014

Q&A: Foreclosure Not Showing Up in Public Records Section of Credit Report


My house was foreclosed 10/2012. I pulled my credit reports and seen that its not in the public records section on my credit report. Is that good or bad? Why was the foreclosure never reported? Is there some way that this could still show up as a public record on my credit report? If it does will it still stay there for seven years? I'm trying to clean up my credit and a foreclosure that could pop up at any time is a big worry for me. 



Foreclosure is an interesting beast. Just like bankruptcy or tax liens, its a public record. That is, anyone can go to the courthouse (or, these days, hop online) and verify that you lost your home in a foreclosure. What makes foreclosure different is that you aren't likely to find foreclosure in the public records section of your credit report.

The reason you even have a public records section within your credit history is that there needs to be an area for negative records that aren't born directly from your current or past financial accounts. Take bankruptcy for example. Filing for bankruptcy tells lenders that you have problems managing your money and pose a high lending risk--but bankruptcy doesn't directly derive from any one existing account. A collection account, by contrast, appears on your credit report as a separate entry but originates with a single delinquent debt that probably appears elsewhere on your report.

As a matter of fact, when you examine your report, you may not even see the word "foreclosure" anywhere. You might and you might not. What lenders see, however, are a set of codes. Your original mortgage loan will show that you defaulted on the debt and a code exists within the tradeline that lets a lender's computer system know your home was subsequently foreclosed on by the lender. The credit bureaus also recognize the codes and adjust your credit score accordingly. It's highly unlikely that the bank didn't report the foreclosure. If you aren't seeing any evidence of it in the tradeline for your mortgage its almost certainly in the code.

Let's say, just for the sake of argument, that your bank never reported the foreclosure. After this long the bank would be in no hurry to "fix" their error--even if they were to discover it (which is also unlikely. Foreclosure is the most unorganized area of banking, imho). No matter how much it might feel otherwise, the bank doesn't have a personal vendetta against you. They report foreclosures to the credit bureaus because they signed a contract with the credit bureaus agreeing to do so. After two years, nobody really cares anymore.

If by sheer chance some bank employee were to notice that you had a previous foreclosure that wasn't reported and update your credit reports, the entry wouldn't remain for seven years. The reporting period begins with the event, not when the event was reported. So the foreclosure would be removed from your credit report in 2017.

Best of luck,

Wednesday, June 18, 2014

How to Build Your Teen's Credit

Help your teen build credit
One of the smartest financial moves you can make is to help build your teen's credit. You're not only teaching your children good old fashioned responsibility, you're giving them a foundation they're going to need. Too many parents see no point in building credit for their children, but one day soon those kids are going to turn 18 and strike out on their own. Regardless of whether your teen heads to college or into the workforce, having a developed credit history gives him a significant advantage over other kids his age.

Why You Should Build Credit For Your Teens

Before I tell you how to build credit for your teen, I have to tell you why you should. You know, really sell you on the idea. If you're already in my camp and don't need to be preached at, feel free to skip to the next section.

Guess what happens when a child leaves home and finds himself out in the great big real world? He needs things. Sure, he may have a job, but his part-time college job or starting position in the company he hopes for a career in isn't going to pay him enough to get the things he needs. Take a car, for example. Let's say your child wants to buy a car. He needs to finance it and make payments. Without an established credit history guess who he's going to turn to to co-sign that loan? You. You love your child, you want to help but co-signing anything is accepting a risk that carries no rewards, you get me?

If you build your kid's credit ahead of time, he won't need to lean on you quite so much when he's finally out of his own. This doesn't just spare you the headache of having to worry that your much-loved offspring's inexperience will leave a few black marks on your credit before he finds his feet financially. It also gives him a sense of maturity and responsibility. He'll be proud of the fact that he can stand on his own--and you will too.

How to Build Your Teen's Credit Score

When you're building up bad credit, you have a variety of options. When you're building your teen's credit, you really have only one: a credit card. Wait. Stop. I can hear you saying to yourself, "But Lee, no credit card company is going to give a minor with no credit history a credit card." And you'd be right. But a credit card company isn't going to give your teenager his first credit-building card: you are.

Most credit card companies allow cardholders to add their children to their accounts as "authorized users."
Build your teen's credit with an authorized user card.
An authorized user isn't a full cardholder and can't make changes to the account like a joint cardholder can, but they do receive a card of their own connected to the primary cardholder's account. Most credit card companies also report the primary cardholder's account tradeline on the authorized user's credit report (Most, but not all--make sure your credit card company reports authorized users. If they don't, adding your child to your account is pointless).

This provides you with a golden opportunity to help your teen build credit. Provided your account is in good standing, your child will have a positive credit report as soon as the credit card company reports the new authorized user account to the credit bureaus.

Warning: Don't Accidentally Destroy Your Teen's Credit Scores

No one is perfect and circumstances can change. If you suddenly find yourself unable to make the payments on your credit card, you've got to contact the credit card company and remove your teen as an authorized user before you default. Missing a payment by a few days will leave you with a fee but no credit damage. Being 30, 60 or 90 days' late on your credit card payment is devastating for your credit scores. If your teen remains an authorized user on your credit card account when that occurs, his credit will suffer as a result of your financial mistakes.

If you decide to strategically default--that is, you make a conscious decision to stop paying your credit card debt rather than merely forgetting--you can and should remove your child as an authorized user first. The tradeline will still remain on your teen's credit report, but the credit card company will no longer update it. This protects your child from the negative consequences of your default while also allowing him to keep some credit history he can build on in the future.

One Tradeline and Your Teen Can Build His Own Credit From There

All you need to do to build your teen's credit is to give him one tradeline. A single authorized user account is enough to create a credit report and score for your child. The longer the account remains open and reporting, the more weight it carries (the age of an account factors into your credit score). Once your child turns 18 he can take the reins and the foundation you've given him and use it to build his credit score up even further. Here are just a few basic credit-building methods a person with limited credit can use to increase his tradelines and, ultimately, his credit scores.

  • Student credit cards---These often have lower requirements than standard credit cards and can help your teen build more credit once he starts college. 
  • Secured credit cards---Allows your teen to pay a deposit he can then borrow against to build credit. Make sure the credit card company reports accounts to the credit bureaus. Not all secured cards do. 
  • Borrowing against his own money--If your teen has a savings account, his bank may agree to give him a small personal loan in the amount he already has in his account (or slightly less if you factor in interest). He can use his savings to repay the loan and build credit. 
  • Finance a car--Just about anyone can get an auto loan these days, bad economy or not. Auto loans almost always appear on your credit report. Just make sure to shop around for a decent interest rate. 
  • Store cards--Store cards often have less-stringent approval standards than regular unsecured credit cards yet still report payments to the credit bureaus.
  • Get a job--Getting a job doesn't directly affect your teen's credit, but lenders are a lot less likely to work with individuals that don't have a steady income. A steady job, even a part-time job, makes your child a better candidate for credit cards and loans and, in turn, helps him build his credit. 
The right age to start building your kid's credit is up to you. Obviously a ten-year old doesn't need a credit report. And its up to you whether or not to actually give your child the authorized user card and let him use it. Although having his own card helps your child learn more about managing money, don't put yourself in a sticky financial situation in the hopes of teaching your children more about money and credit.. Whatever route you choose, give some serious thought to helping build your teen's credit--it could make a world of difference for him as an adult.

Related Posts:

Monday, June 16, 2014

Yes, a Debt Collector Can Take Your Car

Yes, collectors can seize your car.
I'm getting tired of stumbling over seemingly professional articles telling consumers that a debt collector can't take their car (I'm looking at you Bankrate). The simple fact of the matter is yes, a debt collector can take your car, it just has to jump through hoops of fire in order to do it.

Debt Collectors Have to Sue You to Take Your Car

The first thing the debt collector has to do before it can seize your vehicle is sue you and win. That sounds simple enough, but lawsuits are a last resort for collection agencies. Lawsuits require a collection agency's time and money--neither of which they want to devote to you unless they're almost positive of a payoff. So if you're unemployed, living on exempt income like Social Security, already under a garnishment order or poor with few assets, you aren't a good lawsuit risk. That doesn't mean you're safe from a lawsuit--especially if the debt you owe is high--but the chances of being sued are much higher if you have a stable job and ample assets.

Cars generally aren't the first asset that debt collectors go after. They're going to pursue your wages and bank accounts first. They may also place a lien on your home. Seizing and selling a car is a complex process that often doesn't net much profit for the collection agency. This is particularly true if you're still making payments on the car. Many, many people owe more on their cars than the vehicles are actually worth. If you're in this situation and are "upside down" on your auto loan, taking your car is a completely pointless endeavor for the debt collector, but that doesn't mean they don't have the ability to do it.

Enforcing a Judgment to Seize a Car

Here's how it works: The debt collector sues you in court and gets a judgment against you. They then have a variety of options for enforcing that judgment. One of those options is attaching a lien to property you own. There's judgments against real property--that's real estate--and judgments for personal property--that can include your car.

The best way to avoid having a collection agency take your car is to owe money on it. Saying that makes me cringe because I'm a big advocate of driving a car until the wheels fall off (why subject yourself to a car payment if you don't have to, right?) but in this case owning your car outright can hurt you. Without another lien on your car, it becomes much easier for a debt collector to seize the car via a judgment lien and sell it. Any proceeds from the sale that exceed the amount of the debt have to be returned to you, but I wouldn't hold my breath on that one.

State Laws May Limit Collectors' Ability to Seize a Car After a Judgment 

State laws come into play here, but most states do allow judgment creditors to seize personal property.  Massachusetts, for example, is a cesspit of collection agency car seizures. It happens fairly frequently in California too. Heck, in California debt collectors can even take your spouse or domestic partner's car.

Some states allow collection agencies to seize vehicles but place limitations on the process. New York,
for example, permits judgment creditors to seize a automobile, but only if the debtor has a minimum of $4000 of equity in the car. If you're driving a 10-year old Hyundai that's fully paid off yet only worth $3500, you're safe. This is by no means the standard. Different states have different exemptions and regulations regarding vehicle seizure.

A collection agency can only seize your car if its lien is valid. Judgment liens eventually expire. In most states (but by no means all) judgments are valid for ten years. Many states also give judgment creditors the right to renew their judgment if it hasn't been collected. If you live in a state with a ten-year enforcement period that allows judgment creditors to renew a judgment for another term, you could be looking at 20 years of living in fear of losing a variety of assets--not just your car.

So there you have it. Just because you don't hear about it that often that doesn't mean it doesn't happen. Debt collectors can and do take cars.

Related Posts:

Can a Collection Agency Take My House?

Can a Collection Agency Place a Lien Against Property With More Than One Owner?

Statute of Limitations for a Collection Agency Judgment Lien

Saturday, June 14, 2014

How to Protect Your Credit While in Prison

Headed to prison? Protect your credit scores!
Earlier this week we discussed the basics about debt and incarceration. Fortunately, there are ways to protect your credit while in prison (to some extent, anyway) and that's what we need to address today.

.If you're headed off to prison, your credit is probably near the bottom of your laundry list of concerns. If you don't take precautions, however, you could end up with a disastrous credit history when you finally end up back on the outside. If getting a good job with a prison record isn't difficult enough, tacking on bad credit makes finding gainful employment that much harder. If you take preventative measures to minimize the damage, you can protect your credit for the day you get out of prison and rejoin society.

Pay Off As Much Debt As Possible Before Being Incarcerated

For many convicts, imprisonment is a surprise. After being arrested, inmates who are unable to post bond may spend months in jail awaiting trial. If you're found guilty, you're then hauled away to prison. If you're one of the lucky ones who manages to make bail or you plan to self-surrender, now is the time to get your affairs in order to preserve your credit during incarceration.

If you're financially able, paying off as much of your debt as possible before going to prison is a must--especially if you don't have someone on the outside willing to make payments for you during your incarceration. When a debt is paid off, you don't have to worry about a slew of nonpayment notations, charge-offs and eventual collections showing up on your credit report and destroying your credit score. Remember: your creditors don't care that you're in prison. They just want to get paid.

Don't Close Credit Cards While In Prison

Paying off your debts before entering prison is commendable and can protect you from the credit consequences of default, but the effect any account has on your credit report lessens as that account ages. As long as your credit card accounts are open (and receiving payments) they don't "time out" and fall off your credit report. An open credit card can remain on your credit report indefinitely. If you've got someone on the outside making the payments for you, this works in your benefit.

If you pay off your debt and close the account it immediately begins to "age." As it ages it has less impact on your scores and, if the account was in positive standing when it was closed, your credit scores will begin to decline. Closing the card also hurts you by eliminating the available balance. Part of the FICO scoring
Don't close credit cards before being incarcerated
formula depends upon comparing the debt you carry to the available balance. This is known as your debt-to-limit ratio. By closing a card and eliminating this available balance, your debt-to-limit ratio increases and your credit scores decrease.

Get Help With Your Debts While Incarcerated

One of the best ways to protect your credit from harm during your prison term is to have someone on the outside pay your bills for you while you serve your time. This option isn't available to everyone, but if you have the money available, you have the option of allocating a portion of that to a person you trust in order to help you pay your bills each month and preserve your credit scores.

If you have the funds but lack a trustworthy person to help you pay the bills, signing up for automatic bill pay is also an option. This allows your creditors to deduct your payments directly from your bank account and prevents you from falling behind on your bills while incarcerated. You also have the option to award a trusted friend or family member temporary power of attorney over your affairs. This gives that individual the ability to do your banking and take care of any issues that pop up while you're stuck in prison--preserving your financial stability and your credit for the day when you return to the outside world.

Related Posts:

What Happens to Your Credit When You Go to Prison?

Improving Credit Scores After Collections

Remove Late Payments: How to Write a Goodwill Letter That Works

Thursday, June 12, 2014

What Happens to Your Credit When You Go to Prison?

For most convicts, credit is a non-issue. They've got bigger things to worry about. Your credit scores, however, are a huge part of your day-to-day life whether you realize it or not. Credit scores, for example, determine whether or not you'll have to pay a hefty deposit to have utilities hooked up in a new home or get a cell phone contract. These and other mundane things are a crucial part of restarting your life after a prison stay. Your credit report and scores, however, can go through big changes as the result of a lockup. Just because you have decent credit now doesn't mean you still will after you're released. 

What Happens To Your Credit in Prison?

The standard credit reporting period--the amount of time an entry can appear on your credit report--is seven years for most debts (Chapter 7 bankruptcy, unpaid tax liens and civil judgments are an exception to this rule). Once the credit reporting period on an item expires, the credit bureaus automatically delete it from your credit report and it no longer factors into your credit scores. 

In the outside world, your credit is in a constant state of flux. Accounts drop off of your credit record while
Prison can erase your credit history.
new accounts are added.. The credit reporting period for your debts doesn't freeze just because you're incarcerated, but you are unable to open any new accounts. Over time, this can result in your credit history vanishing entirely--especially if you're sent up the river for a long stay. Numerous convicts have gotten released from prison only to discover that simple tasks like renting an apartment have become next to impossible. Landlords willing to take a chance on an ex-con with no credit are few and far between. 

Credit Score Changes as Items Age

The degree to which any entry on your credit report affects your scores depends on a variety of factors, but the amount of time that has passed since "last activity" on the debt plays a large role. While you're in prison, you aren't capable of managing your own debts and those accounts begin to age. The bad news is that positive accounts that you paid in a timely manner, such as a credit card that you paid on time every month and hopefully had the sense to close before you entered prison, will lose its ability to prop up your credit scores as the years go by. 

The good news is that negative entries, such as charged off credit cards and collection accounts also age. As their impact on your credit scores decrease, your credit scores could possibly improve while you're in prison. This is overwhelmingly uncommon, but it can happen. 

Leaving Prison With No Credit

When you get out of prison, the best way to check on your credit is to pull your annual free credit report. The only federally-approved site for free credit reports that doesn't require you to input a credit card number is If the system cannot find your file, you'll know that your credit history has vanished during your imprisonment. You can pull all three of your credit reports once each year. Each credit report may contain different information, so its possible that at least one of the credit bureaus still has a credit report on file for you. Otherwise, you'll need to rebuild your credit from scratch after being released from prison. 

Tuesday, June 10, 2014

Remove Late Payments: How to Write a Goodwill Letter That Works

Make a goodwill letter work for you
Late payments on your credit report can wreak havoc on your credit scores and prevent you from qualifying for the best rates when you go to finance a home or car or apply for new credit. These late payments remain a part of your credit history for seven years unless you take action.

One method for removing late payments that many consumers have had good luck with is the goodwill letter. A goodwill letter is exactly what it sounds like: a plea to the creditor to delete the late payment notations from your credit report out of sheer good will.

Unfortunately, goodwill letters can fail for a variety of reasons. One common reason is that debtors, unsure of how to pen their own, unique, goodwill letter, simply copy and paste sample goodwill letters from the internet. After awhile, creditors recognize these copy-and-pasted letters as nothing more than form letters. This shows the creditor that you don't really care enough to take the time to pen your own letter.

I'm going to provide you with a step-by-step formula that will allow you to write your own unique goodwill letter without the frustration of trying to figure out just what to say and how to say it. I'll then show you an example of the completed formula as a completed goodwill letter.

Step 1: The greeting. Yep, this is starting to feel like the "how to construct a friendly or business letter" lesson from your third grade English class, but the greeting is important. If you've done a bit of research and know exactly who you're sending this letter to, use that individual's name. For example:  "Dear Mr. X" Don't use their first name. You want to demonstrate that you're showing respect right out of the gate, and this person isn't your next-door neighbor. You're not on a first name basis.

Step 2: Introduce yourself. Humanize yourself. Make the individual reading the letter view you as a real person and not just a name on a page asking to have perfectly legitimate late payments removed. Keep it brief and keep it believable. No credit card company is going to believe that you spend your life traveling to third-world countries teaching blind children to read Braille--even if its true.

Step 3: Mention your history as a customer. The longer you've held the card, the better. Credit card companies spend millions of dollars each year trying, not just to attract new customers, but to keep their existing client base. Loyalty points are important when asking a credit card company to remove your late payments.

Step 4: State that you want to remain a customer and compliment the company. This compliment can be simple or as complex as a short anecdote about a good experience you had with customer service, card security, etc. Don't \overdo it, but a little bit of well-placed flattery will always work in your favor.

Step 5: Explain the circumstances surrounding your missed payment or payments and own your mistake. You don't have to go into extensive detail (because credit card companies have heard every sad story in the book, I promise) What's important here is merely demonstrating to the credit card company that you made a simple mistake.

Step 6 : Refer back to your good payment history prior to the late payment occurring, and ask that the credit card company delete the negative entries as a gesture of good will. . Invite that the credit card company to take a look at your credit report (you have an account with them so they're free to pull it whenever they wish) to see what a responsible person you are. Your task here is demonstrating to the credit card company that you are not the type of customer to skip payments.

Step 7: Note the damage to your credit scores and how that has affected your life. Point out that, given your positive payment history with this company and others over the years, the amount of damage your credit sustained doesn't accurately affect your creditworthiness.

Step 8: Promise to never let this happen again and follow that up with a little "proof." Signing up for automatic payments, for example, eliminates the possibility that you could miss payments again due to simple human error.

Let's look at a sample letter broken down into the above elements. I'm going to use a random job and Capital One as my target, just for the purposes of the example.

Step 1: Dear Ms. X:

Step 2: My name is Lee Edwards. I have a wife and three children and I'm a high school math teacher.

Step 3: I'm proud to say that I've had an account with Capital One for the past ten years.

Step 4: I've been surprisingly pleased by the service I've received. Just last year a suspicious charge showed up on my credit card statement. When I called your offices to find out more about the charge, the customer service representative was kind enough to simply remove it. There was no hassle, and I'm very grateful for that.

Step 5: Unfortunately, my past experience with your company isn't my reason for writing you today. I pulled my credit report recently and discovered a late payment notation for my Capital One card for the months of March and April. In February, my wife developed a serious illness and was hospitalized. When she returned home, she required round-the-clock care. Her illness eclipsed everything else in my life and, for the first time ever, I missed two credit card payments. I'm not trying to make excuses, but its important to me that your company know that my missed payments weren't a result of financial trouble or irresponsibility.

Step 6: In ten years of being a responsible card holder who always paid on time, this is the only time I've been so late paying my credit card bill. If you pull my credit report, you'll see that I have a good history of paying my debts and that the late payments are not indicative of my behavior as a whole. Because of this, I humbly ask that you consider these factors and remove the late payments from my credit record.

Step 7: After pulling my credit scores, I discovered that these late payments have caused my credit scores to fall by roughly 150 points. It took many years of hard work and timely payments to build my previously excellent credit rating and a single illness to knock it down.

Step 8: These two late payments are an anomaly for me and a situation that will never repeat itself. Please give me a chance to prove that I am still that good customer I've been for the past ten years.

Thank you,

Lee Edwards

Sunday, June 8, 2014

Q&A: Will I Lose My Rent-Controlled Apartment After a Judgment?


My husband and I seem to be judgement proof according to what I have read on the internet. Our yearly income is derived from monthly Bank deposited SS direct deposit checks and quarterly by mail small retirement annuity checks. We have no savings, and barely get by each month on my husband’s retirement income outlined above.

I am also in my early 60’s and an ill housewife confined to the home, with Acute Asthma, Incontinence, COPD, and Degenerative Rheumatoid Spinal Arthritis. I can barely stand long enough to walk a few steps. I became ill shortly after 9/11 transpired and could no longer breathe, walk, or function properly to seek employment. (Husband also has life sustaining medical problems).

We can no longer pay our monthly credit card debts as we are already doing without many food items, other basic survival necessities, and many life sustaining meds. (Also our medical bills through the years have been quite numerous).

We do not want to end up like Mrs. Santiago who had her rent stabilized lease and succession rights taken away from her last year which made televised newscasts and public headlines, when her landlord paid the trustee for all of her credit card debt after she filed for chapter 7 bankruptcy. 

Also they still raise credit card limits without even asking if the person wants a higher limit, knowing people are aging and there may come a time when due to situations beyond their control, they find themselves unable to continue making high interest credit card payments.... (there is an element of risk credit card companies are willing to take to make higher interest earned profits), and yet there were never any real safeguards enacted by them, in order to prevent giving out unrequested higher credit limits??

Where are the safeguards for the average citizen in all of the above??? This is indeed very sad.

If we could continue to make the monthly CC payments, believe me we would. Now our American pride is gone, and death seems to be the only escape, but we could never result to that. It is sad we have no living relatives to offer any advice or other options, but find ourselves all alone. If one of us dies the other will probably not be able to survive alone, but so far prayers seem to keep us here. (We believe where there is life there still may be some hope).

Questions and options of concern are outlined below, and greatly appreciated would be your advisement Lee, of which I thank you in advance for any options you may feel we could safely utilize.

1) In view of this situation since we are elderly, ill, and judgement proof should we stop all credit card payments and in writing return receipt requested notify both credit card companies of these circumstances? Please kindly advise.

2) I read some internet web sites stated to notify them all in writing that we are judgement proof, and can no longer make payments, and some web sites stated do not call or notify anyone at all, and to stop answering the telephone, and also just stop all credit card payments. (Please kindly advise).

3) Also we do not wish to make newscast headlines and also need to know if we are sued anyway, should we go to court if we are served with legal documents, and if we do can we still lose our rent stabilized Scrie entitlement apartment legal rights? (We also cannot pay legal fees for legal court related representation, so if we should still go to court what is the most advantageous way to defend ourselves, and also present our situation to the Judge, and hopefully win?). (Please kindly Advise)

Thanks again Lee and please know you have helped so many people in this type of situation and I am sure you will receive just rewards when the time arises, and rightfully so.......Bless you and many thanks Lee!


Dear Anonymous,

For starters, you're not going to end up like Mrs. Santiago. Mrs. Santiago ended up in the situation she's in because she filed Chapter 7 bankruptcy. In a Chapter 7 bankruptcy, the court has the right to seize all of the debtor's non-exempt assets and sell them in an effort to pay off as much of their debt as possible before discharging the rest. In her state, her rent-controlled lease counted as one of those assets. You aren't filing for bankruptcy, and the odds are you don't live in a rent-controlled apartment in New York.  You're simply considering strategically defaulting on your credit cards.

The eventual consequences you're so worried about aren't even a factor unless the credit card company or the collection agency that will eventually buy your debt sues you. There's no guarantee that's going to happen. And if the collector waits too long, the statute of limitations passes and POOF! You have an airtight defense in court. You didn't mention how much you owe, but not every collection debt ends in a lawsuit--especially if the collector knows you're judgment proof (and we'll get to that in a minute). First we have to figure out if you're actually judgment proof.

It's important to note that exempt income alone doesn't make you judgment-proof. If you own a home and the creditor sues you and wins, it can place a lien on your property. If you plan to stay there forever and ever amen then this really isn't that big of a deal. A lien simply means that the creditor is claiming a right to a portion of your home's value. If you sell the property, the lien holders get paid before you do. You don't mention your state, but most liens expire after ten years (although in some cases they can be renewed).

If you own a car, the same thing can happen (although, for some reason, this is a lot less common). If you own the car outright and aren't still making payments on it, the judgment holder can attach a lien to the car, seize it and then sell it to recoup some of your unpaid debt. This is a factor you have to consider. But none of these things are even possible until the creditor sues you and gets a judgment.

That being said, I'm going to do my best to answer your specific questions.

1) In view of this situation since we are elderly, ill, and judgement proof should we stop all credit card payments and in writing return receipt requested notify both credit card companies of these circumstances? Please kindly advise.

Legally, I can't sit here and advise you to stop paying your credit card payments. I don't know how much you owe and without that information, I don't know what your risk is of being sued. What I can tell you is that, if it were me and I were elderly, judgment proof and living on a fixed income, the credit card payment would have to go. I've always had strong feelings about the lack of care given to the elderly in this country. Social Security is simply not enough. No one should choose between eating and paying their credit cards. You, and everyone else out there like you, deserve to live comfortably. If it comes down to the wire, prioritizing your debt is smart.

Now where on earth did you get the idea that you need to notify the credit card company via CRRR that you plan to stop paying? That's just kicking the hornet's nest. Letters sent CRRR are done solely for the purpose of creating a paper trail that you can use later, if necessary, to back yourself up in court. You don't need to back up the fact that you stopped paying your credit card bills. Don't bother notifying them. Trust me, they'll figure it out soon enough.

2) I read some internet web sites stated to notify them all in writing that we are judgement proof, and can no longer make payments, and some web sites stated do not call or notify anyone at all, and to stop answering the telephone, and also just stop all credit card payments. (Please kindly advise).

This is my opinion and nothing more, but the only reason to notify a company that you are judgment proof is if you're in danger of being sued. Nine times out of ten, the lawsuits come from the collection agencies, not the credit card company. I wouldn't notify the credit card company of anything. The last thing you want is for your letter to be read by someone who wants to play hero and assumes your letter claiming that you're judgment proof is smug. If you're planning to strategically default, calling attention to yourself in any way whatsoever right now is just going to cause more of a headache for you. You don't need that. You and your husband have had enough. And answering the phone when they call? Even more of a headache. Consider getting a new number. After the statute of limitations passes and the main lawsuit danger passes. you can send the collection agency that has your debt a full cease and desist order. Then you can start answering the phone again without fear. 

3) Also we do not wish to make newscast headlines and also need to know if we are sued anyway, should we go to court if we are served with legal documents, and if we do can we still lose our rent stabilized Scrie entitlement apartment legal rights? (We also cannot pay legal fees for legal court related representation, so if we should still go to court what is the most advantageous way to defend ourselves, and also present our situation to the Judge, and hopefully win?). (Please kindly Advise)

Your biggest worry is your rent-stabilized apartment, that much is clear. So listen carefully: If you get sued and lose, you end up with a civil judgement against you. A civil judgment is an entirely different beast than a Chapter 7 bankruptcy and will not result in the loss of your rent-stabilized apartment. The worst case scenario for you here is the judgment--which, again, will NOT cost you your apartment. 

I don't know what state you're in, but most states offer Legal Aid services of some sort for those who cannot afford them. Now, if you start getting intent to sue letters that's when you want to make the creditor aware of the fact that you are judgment proof. You certainly don't want to come out and say, "I'm judgment proof so you can't touch me!" because that's a challenge. You merely want to make the creditor/collector aware of the fact that you have NO assets with which to pay the debt either before or after a lawsuit. No property, no non-exempt income, etc. 

Also, many states offer low-cost or free legal aid to residents who can't afford a full-priced attorney. I don't know what state you're in, but consider looking into that ahead of time just in case. And be calm. You're not going to lose your apartment simply because you chose food over your credit card bills. 

Best of Luck, 

Thursday, June 5, 2014

Can Debt Collectors Call Your Boss?

No one wants to look bad in front of the boss--and there are few things as embarrassing as having your boss discover that, not only do you have bad debts, but that debt collectors are so focused on recovering them that they're willing to call you at work. Sure, a debt collector can't just call up your boss and say, "I'm Dave from XYZ Collection Agency and your employee, Gina, owes us $3,000. Just thought you'd like to know." But the fact that a debt collector can't openly disclose your debt to your boss doesn't mean that your employer won't find out indirectly.

From a legal standpoint yes, a debt collector can call your boss, but only in its search for you. The collector may identify himself on the phone, but he cannot volunteer information about the company he works for--unless your boss asks for it. If your boss wants to know just who it is on the phone looking for you, the collector will disclose the name of his/her employer. Now that may be all fine and good if the collection agency's name is something elusive, like XYZ Corporation, but if its XYZ Collections or XYZ Acquisitions, it doesn't take a rocket scientist to make the leap from "A collection agency wants information about my employee" to "My employee must owe the collection agency a debt."
Collectors may call your boss.

Although your boss might be a big enough idiot not to put two and two together, its highly unlikely.

If the collection agency knows where you live and work, it no longer has a legal reason to call your boss directly, but the company will still try to call you. If a debt collector finds your work number, you can rest assured that you'll receive a barrage of collection calls throughout the day--especially if those calls frustrate you. The reasoning is simple: Once you're frustrated enough you'll agree to make a payment on the debt just to make the calls stop. This is particularly beneficial for the collector if the statute of limitations on your debt has expired. By making a payment, you once again make yourself vulnerable for a lawsuit.

Your boss will likely take notice if you start receiving a much higher-than-normal volume of personal calls at work and look into the matter. You don't want that to happen. The name of the game is keeping the boss in the dark when it comes to your personal business--and collection calls are very, very personal business.

How to Stop Collection Calls at Work

The FDCPA prohibits debt collectors from calling you at any time or place they know to be inconvenient for you. It also makes a special allowance for collection calls at work.

a debt collector may not communicate with a consumer in connection with the collection of any debt --..
at the consumer's place of employment if the debt collector knows or has reason to know that the consumer's employer prohibits the consumer from receiving such communication.

This means that all you have to do to stop collectors from calling you at work is to tell them that you are not allowed to take personal calls at work and that calling you at work is an inconvenience. Most collection agencies train their collectors to adhere to the FDCPA in order to avoid FDCPA-violation lawsuits.

Unfortunately, sometimes verbal communication doesn't go over very well with debt collectors. Unscrupulous third-party debt buyers may ignore your requests not to call you at work. This may be due to ignorance of the law, but whatever the reason, you can cover yourself and ensure a paper trail exists by notifying the collection agency in writing that you cannot receive collection calls at work. Send the notice Certified Mail, Return Receipt Requested and keep the return card. This provides you with proof that the collection agency received the request if the harassing calls at work continue and you're forced to take legal action.

Debt Collectors Can Inform Your Boss About Your Debt After a Judgment

If a collection agency sues you and you don't show up in court with a defense, the court grants the collection agency a judgment against you by default. State laws vary, but a court judgment generally gives the collector the right to seize your assets. One common method creditors use to collect judgments is wage garnishment.

If a collection agency decides to garnish your wages, it no longer has to hide your debt's existence from your boss. The collector will serve your employer with a writ of garnishment or writ of execution, depending on your state. Your employer must then direct a portion of your paycheck to the judgment holder until the debt is either paid off, the judgment expires or you quit your job. As embarrassing as it may be for your boss to know that you are under a garnishment order due to an unpaid debt, your employer cannot fire you based on the garnishment alone. Strangely enough, your employer can fire you if you receive a second garnishment order. The moral of the story? if a collection agency is tailing you, tread carefully and act fast to keep your job stable and your boss oblivious.

Related Posts:

Can Bill Collectors Call Your Family?

What Happens If a Collection Agency Sues You and Wins?

Debt Collection Lawsuit Statute of Limitations By State

Monday, June 2, 2014

Q&A: Missed Payment to Collection Agency: Will They Sue?


I have a Capital One Debt of ~$6000. It's been sent to Machol and Johannes a Debt Collection Law firm in Denver, CO. I have been making monthly payments of $50 per month to them for the last 2+ years.

 I had set this up to pay automatically through my banks online bill pay. For some reason, the auto bill pay stopped when Jan 1, 2014 came. They called me in early to mid February to tell me that they hadn't gotten January or February's payments. I checked the bill pay and they were right. So I immediately set it back up and made 2 payments in February. One within a week of them notifying me of January's missed payment and one when I got paid again in February. I get paid twice a month. 

About a week or so ago, I got a letter from them saying that since I had not paid them in a "timely manner as my contract with them obligated me to do" that I had to now pay the full amount due by a certain date, which I don't recall what that is/was and I no longer have the letter, or they would pursue further courses of action, which i assume could be garnishing my pay or putting a lien on my bank account. Can they do this? Should I contact them and explain what happened with the bill pay and try to work something out, or what should I do? Please help. Thank you



For starters, alluding to "further courses of action" is nothing new for a debt collector. And even if this notice was sent to you by an attorney, that attorney is still acting as a debt collector. Nine times out of ten, its a scare tactic. The simple facts of the case are that you've been making timely payments to the collection agency--which is more than most people bother to do. 

If they've been getting timely payments from you, they may reason that you're in good enough financial shape to pay the rest of the debt off in one lump sum. Believe me, they'd much rather have a lump sum than the partial payments you've been making. Your slip-up in January gave them the perfect excuse to demand that you pay off the remaining balance in full. To me, this sounds like a test. A "Let's see if we can get the whole thing out of him" test. 

You see, the law does not allow them to put a lien on your house, garnish your bank account, garnish your wages, or seize any of your assets without suing you in court and obtaining a civil judgment. That's quite the process. Sure they could do it, but its usually not worth it for a collection agency to devote the time and resources toward suing you if you're already making payments. 

Consider contacting the collection agency (or the collection agency's attorney if that's who is making the threats), explain the situation and why you missed a payment, and offer to increase your monthly payments. The bottom line here is that the collection agency wants more than $50 a month. They took what they could get out of you at the time, and now they see an opportunity to get even more. You have to decide whether or not you want to play ball. 

You should also evaluate just what they could get out of you if they did take you to court. Many forms of income, such as Social Security, retirement pensions, unemployment and welfare are all exempt from garnishment (unless the debt in question was a government debt). If you rent, you don't have to worry about a property lien. And the forms of income that are exempt from garnishment are also exempt from a bank levy. In that case, you're pretty much "judgment proof." This means that a collection agency can sue you, but they're not going to get anything out of it. The judgment would, however, appear on your credit report and damage your credit rating. In general, if a debt collector knows ahead of time that you're judgment proof, they won't waste time and money suing you. 

If you have a copy of that original "agreement" the collector is referring to, you may want to take a second look at it. It's possible that the agreement provides you with a payment grace period (unlikely, but possible) or doesn't mention missed payments and their consequences at all. 

Best of Luck,