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Bank of America Refuses a Hardship Application

By Debt Prison on January 3, 2009

I was recently contacted by a full time college student with five credit card accounts. He doesn’t make enough money to pay all the minimum payments and was wanting to salvage his credit as much as possible. All of the credit card companies, with the exception of Bank of America, accepted him into hardship programs. The hardship program stops the fees and lowers the interest rate so that he can continue to afford payments.

First off, I have a great appreciation for your advice, I have scoured the net for info regarding my debt, and yours is definitely one of (if not the most) helpful compilation of articles I have found. So… THANK YOU! I have five credit cards with totaling balances upwards of $15,000 which are all in my name, but were compiled between my girlfriend and myself (I know, ridiculously stupid to do this). When I was 19 (I am now 22) I received a car loan for $14,000 with no cosigner at a 10% rate. I currently owe about $5,000, have paid almost all of the interest, and will be paid in full in June of 2010, which is also about the same time I will graduate with my bachelors.

In the last year I lost employment, and desperately took a job making significantly less than my monthly obligations. I have been living with my parents and working as much as possible, but I am also a full time student. My debt has ballooned because of use for necessity, late payments and skyrocketing interest rates. I have looked into settling but decided I would negotiate with the companies on my own and do my best to honor my agreements.

All of my creditors have accepted me into hardship programs which stopped all fees and lowered the interest to at or below 10%, except for Bank of America. I owe them the most money at 5k+, with interest currently around 23%. They told me that because my monthly income is less than my obligations they cannot enter me into one of their programs, and I literally cannot afford to pay them at what they are charging me right now.

Given my situation, and that in June of 2010 I should be in a position to make substantially more money because I will graduate and no longer be paying $300 for a monthly car payment, I was hoping to avoid settling or having my account charged off and settling with a collection agency and further damaging my credit. But to me this seems a better option than filing bankruptcy or selling my almost paid car (worth about 8-9k) as I need reliable transportation for a long commute to work and school. I would really appreciate your feedback on this.

All Best, Tyler

Debt Prison response…

Perhaps a two or three year struggle with debt, in your early twenties, can serve as a life long reminder of why using credit should be avoided. Keep your car and complete your bachelor on time if you can. Otherwise, work two jobs and pay most of this debt down.

If you are able to ‘get along’ with four of your credit card accounts for the next year and a half then do so. If you can afford to make payments to them then do so. Bank of America can hit the road. This is not legal advice; this is my opinion on how I would handle your circumstance. I would simply write BOA a letter, explaining that you can no longer make payments, and that later on you will satisfy this debt with them. That’s all I would tell them. Now here’s the bad part.

If they have your home phone number they will auto-dial it for probably six months, most likely, several times a day. Your parents won’t like this. They will also bump your interest to probably 32% and pile on the fees. Collection agencies will do the same, possibly for years.

Within a year they’ll most likely sell the debt to a collection company. 2009 is expected to be a record year for charge offs on credit card accounts – one in ten Americans. That’s a lot of people. When you graduate college you can pay off your debts, and work on settling with the collection agency. They’ll settle for a percentage of the debt they claim you owe.

Yes this will put a negative strike on your credit report, but under your circumstances I fail to see how you can avoid such negative strikes. Besides, you’ll be better off if you avoid using credit. I can’t stress that point enough.

Hope this helps.

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Can a Creditor Collect on Discharged Debt?

By Debt Prison on January 2, 2009

Original creditors and collection agencies will often collect on discharged debt, charge offs, debt absolved by bankruptcy, and even debt that’s been settled. This is debt that can’t legally be collected on via a civil court judgment. However, collection agencies won’t let a little thing like your legal rights stand in the way of their profits. See also, What is a junk debt buyer?

Often creditors will continue to report a discharged debt as a ‘live’ debt on your credit report, making it appear that you still owe the debt and that it’s active. They do this in hopes that you’ll need new credit for a purchase (like a home), and you’ll have to come back and pay them to get your credit report cleared up. If you sue the creditor, they’ll claim they have no record of the discharge, or that the court didn’t notify them of the bankruptcy.

A couple of months ago I wrote an article about a debtor who was trying to settle a debt with Chase Bank. Chase had ‘assigned’ the debt to a collection agency and the CA agreed to settle the debt. Desiring to guarantee this debtor handled the settlement properly I gave her the following instructions:

1) She contacted the original creditor to insure that the collection agency legally represented them (the creditor).

2) She documented the names and positions of the representatives and supervisors with whom she spoke to on the phone (original creditor).

3) She requested that the collection agency fax her a statement saying that this settled amount would 100% satisfy this debt and that the loan would be reported as ‘paid in full’ to credit reporting bureaus.

4) She then called the original creditor to insure that they agreed to these terms and documented the phone call with their names, their positions, their supervisor’s name, and date of conversation.

Despite following these instructions Chase Bank still sent her a bill the next month for the settled amount. She had to fax them a copy of their settlement agreement twice before the matter was settled. What if she hadn’t kept a copy of the settlement? Chase Bank would have continued to bill this consumer for the settled debt. Later on, Chase would have sold this debt to a collection agency and likely reported it as a charge off on her credit report.

If you have an agreement with a creditor make sure you get it in writing before you pay them. Otherwise, they will act as though no agreement occurred, they will still attempt collection on the debt, they will report the debt to credit reporting agencies negatively, and then they will sell the debt for pennies on the dollar to a collection agency.

Yes creditors and collection agencies are collecting on discharged debt. They accomplish this by using loop holes in the law, or by going around the law altogether. The best way to fight abuse from collectors is to keep a paper trail of all documents related to the debt. In order to make creditors follow the law – you may have to employ the services of a law office. Sometimes there’s just no way around it.

How long can collectors try and collect on a debt?

Collection agencies are collecting on debts far past the Statute of Limitations and other debts that have been legally absolved for years. Two weeks ago I was contacted by a reader who had a collection agency trying to collect on a debt from 1989. The State in which she lives has a Statute of Limitations of 4 years. That means this CA is trying to collect on a debt which is 15 years past the legally allotted time for debt collection in her state. The debt doesn’t even appear on her credit report. See also, Debt past the SOL but collection agency still suing.

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Should you respond to a collection letter?

By Debt Prison on December 29, 2008

Recently a family member sought my advice on a collection letter he had received. He’s only 20 years old and racked up some ridiculous debt from a sport bike purchase. In order to finance the bike, the dealership placed the interest from the loan and some accessories on a credit card they provided for him. After he sold the bike (the sale covered the remaining principle balance), he was still left with several thousand dollars of debt on the credit card. Since he went back to college he has no money, and has therefore defaulted on the debt.

The debt was sold to a collection agency, charges were added (the debt grew by $1,000), and the collection letter was mailed. The collection agency also calls daily, which is annoying others at the home. Like many larger collection agencies, they have a lawyer on staff that writes their letters and handles any disputes. The collection letter appeared to come from a law office. However, an internet search of the law office revealed that it’s simply a lawyer working within a collection company.

Further web research (reading online forums) revealed many former employees who provided intimate details about the way in which the company operated. Every source I found suggested that the collection agency’s lawyer would only sue if your home was located in the same state as their office. Now I realize getting information in such a fashion isn’t always going to be 100% accurate. However, it is often dead on. And since big companies won’t disclose their collection policies, listening to ex-employees is often a great source for valuable information on their collection practices.

I have also noticed that all collectors claim that debt validation letters draw unwanted attention to your account. Which brings up the question of when a debt validation letter should be applied by the debtor? I’ve come up with the following short list of when a debtor might want to apply a debt validation letter:

You need a clean credit report (and are willing to hire a lawyer to insure you get one).
You don’t legally or morally owe the debt.
You have no knowledge of the debt.
The dollar amount has been increased with bogus charges.
The debt is past the Statute of Limitations.

In the case of my family member, he doesn’t need a clean credit file, and the collection agency isn’t likely to seek legal action against him in the state of Mississippi (the SOL in MS is 3 years). So for the time being, I suggested he ignore the phone calls and letters, and be patient until it’s sold to another collection company. When the debt is sold to another collection agency we’ll take some time, research their company, and make another decision on how to handle the debt.

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What is a Junk Debt Buyer?

By Debt Prison on December 26, 2008

Junk Debt Buyers, also known as Debt Acquisition companies, buy debt by the bulk in large portfolios. Often, original creditors are selling debts that were absolved due to bankruptcy or debt settlement. And collection agencies also sell debts in bulk to other collecting companies. Why would anyone buy debt that legally can’t be collected on? Because many people pay up!

Why would anyone pay on a debt that they don’t legally owe?

There are some laws, that should be on the books that aren’t (I cannot believe I just said that), and therefore creditors are able to use leverage to force consumers to pay such debts. For example, the law does not clearly require creditors to report to the credit reporting bureaus that debts are no longer valid as the result of bankruptcy or debt settlement. Creditors are using loopholes in the law to still ding your credit report with a debt that has been legally absolved. They often claim they never received the proper ‘paperwork’ that would have obliged them to report the debt accurately. As a result, many people who still want to use credit (idiots) will pay off the old debt to clear up their credit report. They do this, because having not learned from the perils of credit already, are actively seeking to make additional purchases using credit. Bankruptcy law prohibits efforts to collect on discharged debt. These collections take place below the radar screen despite being a huge industry.

DebtConnection.com posted on June 20 an offer to sell a batch of Chapter 7 bankruptcy accounts with a face value of $200 million. The sale was on behalf of Collect America, one of the nation’s largest debt buyers and collectors.

In some instances these companies use their ability to ding your credit report, which artificially lowers your credit score and history, to persuade you into paying. Therefore if you are trying to buy a house on credit after recently having filed bankruptcy (idiot), you may pay the old debt in your haste to acquire the home, and thus acquire more debt.

Also, many people simply have no knowledge of the Statute of Limitations on debt and will pay a debt past the SOL because they believe the collection agency can take them to court, acquire a judgment, and garnish their wages. These collectors cannot take you to court, and even if they did, presenting the court with proof that the debt has been legally absolved would be the end of the matter. So why do people pay on these debts? They pay because they need a clean credit history (idiots) or because they simply don’t know their rights (the uninformed consumer).

How junk debt purchases work

Here is how the process works. Let’s say that Chase Bank has 40,000 Visa cards that were defaulted on by the consumer. They were unable to collect with in house collections and charged off the debt. The average balance of each card is about $2,000. Chase Bank needs to get some money, any money, for this batch of defaulted debt. The collection process can be expensive and require legal action. Rather than build an empire of collectors and lawyers and have to deal with all sorts of crap – they package and sell the debts.

They gather these accounts into a portfolio and put it on the market to the highest bidder. Let’s say that bidding starts out at 5 cents on the dollar. The junk debt firms have limited info to work with on the portfolios they have. It’s kind of like a storage unit auction. You know there are household goods and clothes, but until you bid and win, you won’t know exactly what you got. The junk debt firms are told the number of accounts, the average balance, the average charge off date, and how many have phone numbers. The junk debt firms have to decide if they are going to lose money on the package - or if it is collectable and profitable. Skip forward… Junk Debt Company A wins the bid at 8 cents on the dollar and now gets the portfolio. The manager of Chase Bank signs a bill of sale and Junk Debt Company A is now the owner of the debt, and has all rights that Chase Bank once had. They now possess the same rights as the original creditor, with the exception that, since they aren’t the original creditor (Chase Bank is), the collection firm is subject to the Fair Debt Collection Practices Act.

Inside a Junk Debt Firm

From debtconsolidationcare.com

How in the world are these junk debt companies coming up with all of this money? Investors. They peddle themselves around and get people to invest in the company. I’m going to digress a quick second to collector behavior. I am not condoning illegal or bad practices on a collector’s behalf, but I would like you to see what kind of conditions collectors work under. Let’s stick with the theme of “It rolls downhill.” OK, so Mr. Investor wants a return. He is going to be mad if he loses money, and won’t be back next year. Junk-debt CEOS don’t like that. They set up aggressive portfolio tracking, goal setting, quotas, financial planning, etc. This gets passed down to the senior managers and directors, who now have to produce results from their subordinates. Senior managers pound team-leaders into the ground with hours of training, and force them to work 50 hour weeks to make sure their teams all hit quota.

The team leader has to answer to the senior managers if his team, as a whole or each individual, doesn’t hit their personal goal. Personal goals add to up team quota and that equals the floor goal. The team leader is on each of their collectors to get the money. The collectors often work over 40 hours, and normally have their calls monitored and recorded by management. They have QA forms they have to meet 100% on. They have training on FDCPA. They constantly have this quota looming over them. Quite usually, it is very high. Collectors, by and large, do not live by salary alone, so they depend on their bonus checks. So, starting from the beginning of the month, all they see is the end of the month, and how many dollars away from their goal they are. If the collector is not at quota… you will hear it in their voice.

Junk-debt buyers are aggressive. They want their money. Their investors want returns. IF THEY CAN SUE YOU, THEY WILL. Normally, there is a legal department working within the agency. They are given a percentage of the accounts to work, just as the other collectors are. It’s the luck of the draw. If the account is suit worthy, and the legal department has it, they will attempt to sue you. I know this isn’t going to be popular, but I am going to state the facts as they are. If you call attention to yourself, and the account is in-stat, you are risking being sued. What do you mean? I mean that if you file a debt validation claim, cease & desist, refusal to pay, etc…you have just called attention to yourself. These accounts are given to a special department. Yes, they will usually try to collect from you. It costs money to sue, but if all else fails…they will attempt to sue you. (I want to note that if you ever have any question about a debt, do not let them scare you out of your rights. You have a right to know what the debt is, who the company is, and you certainly have the right to not be contacted at work.)

Think it can’t happen to you

I have personally been contacted by many readers whose debts are far beyond the Statute of Limitations – only to have collection agencies calling their home daily.

The case of John Pfister provides one illustration. Pfister, 63, a retired AT&T technical supervisor in Denton, Tex., received a Chapter 7 discharge in 2001. Then, last January, while applying for a mortgage, he learned that two discharged credit-card debts, a Discover Card balance of $6,306 and a former Chase account for $2,683, were showing up on his credit reports. Lenders turned him away because of what appeared to be unpaid obligations, he says.

The FTC has sued several collection agencies over their practices. In 2004, NCO Group – a major buyer of old debt — agreed to pay a then-record $1.5 million civil fine after the FTC accused it of reporting inaccurate information to credit bureaus. In 2005, the FTC won a $10.2 million judgment against National Check Control for, among other violations, threatening consumers with lawsuits and jail for purported debts. In many cases, the consumer didn’t owe the debt, or the amount had been vastly inflated.

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Does Debt Validation Actually Work?

By Debt Prison on December 25, 2008

A recent reader at Sample Debt Validation Letter questioned as to whether or not requesting debt validation would prevent a collection agency from pursuing a judgment. Since his debts were nearly past the Statute of Limitations he was hoping to prevent payment and a possible appearance in civil court. Debt validation often works on Junk Debt Buyers. Junk Debt Buyers (Debt Acquisition) often buy packages of defaulted debt from an original creditor or another collection agency. Therefore as this debt is passed from collector to collector, some crucial details regarding your debt may become lost through the various transfer of hands.

A collection agencies initial letter to you should indicate the original creditor and the dollar amount you owe. If your name, original creditor, or dollar amount appears incorrect you may want to consider debt validation. However, debt validation is not simply a means of getting out of paying your debts. In fact, a debt validation letter will draw attention to your account. Therefore, if you owe the debt, you may be better off simply ignoring their calls and letters. Whether or not this is a good idea will depend on many factors. You should use debt validation only when necessary. Since you probably don’t know anything about the collection agency… you won’t know if they:

Don’t have legal representation in your state in which to represent the collection agency in civil court.

Don’t have a track record of suing debtors.

Don’t have a track record of winning judgments.

Some collection agencies have no legal representation in your state. The smaller the collection agency the more likely they will not have legal representation. If their office is located inside your state then obviously they have legal representation. However, if the collection company has no legal representation in your state, they won’t bother suing you in civil court. They will not attempt a judgment. The only circumstance that may cause them to attempt to file suit, would be if they acquired knowledge that you, the debtor, has access to monies or assets which they could acquire. And the monies and assets are significant enough to warrant their time and expense.

Dear Barry,

Let me start by saying thank you for the website. It was extremely insightful and I had no clue that there were so many rights afforded to consumers, especially those who had gone through hard times. To make a long story short, I have received a letter from a collection agency, (Nelson, Watson and Associates, LLC) who claim to represent Palisades Acquisition. I checked my credit report and Palisades is on there and dinging my report. However, there is no mention of the other collection agency anywhere and the amounts are vastly different (hundreds of dollars).

I won’t lie about it this was my fault. About 2 to 3 years ago, after being laid off, I went to a free counseling service. They very subtly told me to get my student loans and such paid current as I would never get out of it. However, they advised to let the smaller balances go to see if they would be written off (not morally right, I just didn’t have it). I was told to get a pre paid credit card that reported to the Credit Bureaus. They helped me plan a budget and told me in time the smaller balances might drop off. It would still affect my credit, but in time I could rebuild. I did everything they asked and things are improving, and my credit score is going up, very slowly but is improving.

I found your website and am very curious about the Debt Validation process and what the success rate is, if any. Also, if there are any negative repercussions that can come from this. In theory it sounds correct, however, I am a newbie at the collection game and am a little gun-shy. This account is also approaching the SOL for the state of Texas, where I live and while I know this was wrong I want it to go away. I am frustrated because things are finally starting to look up and here I am hit up again for money that is almost past the statue of limitations.

If I may I have a couple of quick questions….. I checked my credit report last night and Nelson, Watson and Associates are not on it anywhere, however, Palisades Acquisition is….. but Palisades Acquisition is not the original lender, it was originally XXXXX XXXX. In essence it appears to have changed hands three times. I feel that I have two decisions, I can attempt to settle, however, like you said, it starts the SOL clock all over and I am about three months away from paying one of my student loans off and maybe a DV could stall them until then, and then I could take that money and apply it towards the new bill…. I thought about what you said about the appearance of looking undesirable to them. I really don’t own much, but I do have a decent job and I don’t want my wages garnished. Any thoughts you wanted to throw my way would be appreciated. Thank you again and good luck towards your own endeavors to get debt free. You’re an inspiration to all of us in prison block D (debt)…. Can you believe all this trouble is over a $600.00 tab I racked up a few years ago?

Best Regards, Terry

Debt Prison response….

Debt validation is often used to get rid of junk debt buyers. JDB’s are agencies that often buy debt past the SOL or was absolved by bankruptcy. Since a lot of people don’t know what their rights are… many just pay up when they shouldn’t… and that’s how the JDB s make their money. Or maybe you never heard anything about this debt before and you want to know exactly from where and when it originated. Many consumers who take the time to research and write a debt validation letter (those who know their rights) end up never hearing from the agencies again (though the agency may sell the debt to another CA).

Debt validation is used to insure that the CA actually obtained the legal right to collect the debt from the original creditor. It should also be clear how much is owed and the dates of default etc etc… In your case the CA probably has the right and can produce such paperwork. You have the right to ask them to validate in which case they’ll send a letter stating that you owe certain creditor x amount of dollars. Likely this is what they’ve already done with the first letter you received. Debt validation won’t get rid of a legitimate collector with good paperwork and a SOL on their side. And remember that any response from you – admitting you owe the debt or are willing to make payments – resets the clock on the SOL, which in TX is 4 years on a contract.

You could choose to ignore the letters in which case the CA may seek a civil judgment against you. If you receive a summons for court you can go show up and dispute any part of the amount you feel like is questionable. If you are looking to prevent the CA from pursuing and want to stall them you could try a simple debt validation letter like this one only if the original letter didn’t already answer these questions.

Date

Your Name Address City, State Zip

Debt Collector’s Name Address City, State Zip Re: Account Number

Dear Debt Collector:

I am writing in response to phone call/letter received from you on date xx/xx/xx. Pursuant to my rights under federal debt collection laws, I am requesting that you provide validation of this debt. Note this is not a refusal to pay, but a request that your offices provide me with evidence that I have a legal obligation to pay you.

Sincerely,

Your Name

This is a basic DV letter and the original letter may have provided this info. If you are hoping to stall a civil court date I doubt such a letter alone would prevent them from filing. One thing that might keep them from filing suit is if they believe it would be a waste of their time. If they believe.. that even with a judgment against you it would be difficult to collect the debt… they may not bother suing you.

I’m not giving legal advice, but rather my opinion. I forget to throw that in sometimes.. not that it’s necessary but in the world we live in today it seems you can get sued for anything.

Yes it sounds like the Watson Assoc group works debt collection. And PA is a collection agency with a heck of a fancy name… Yes I would request validation of the debt immediately. Now likely this company has gotten these letters before and is expecting it. I would request validation by sending a registered letter (keep a copy of the letter for your records). I would use a simple letter like the one I emailed you before. You just want to make sure that PA has the legal right to collect this debt and that their paperwork is in order. Also, I would contact the original creditor and ask them if they sold the debt to PA.

Now you stated that the original amount was $600. You can dispute any amount above the $600 if you feel it is unfair or not legitimate. You can dispute any part of their claim you’d like and even your credit report. For example, if the original amount was $600, but now its $1500 due to interest and fees… well I’d inform them (if they validate) that I am willing to pay $600 through monthly payments (or lump sum if you could afford it) and nothing more. If they won’t agree to your terms you can just ignore them. If they pursue civil action, that would be another opportunity for you to lower the amount by persuading the judge that some of the balance is not legitimate. “Hey your honor… this debt was originally $600 and now its $1500… this isn’t right” You could explain about your struggle with debt and how you had to make hard choices and couldn’t pay all your debts back at once. As a result you’ve been focused on paying one back at a time. Meanwhile the creditors and collectors ran up your balance with interest and fees. Any paperwork you have would be helpful.

Just bear in mind that civil action is not the end of the world, but may be another opportunity to lower the amount you repay. Also, if the amount is $1500 they may not even pursue a civil suit because of the time and expense involved. So you can further delay payment (possibly) if you dispute any part of their claim. Also, if the law firm seems hell bent on going to civil court.. you could write a letter to them explaining your desire to cooperate if only they’d come around and agree to your terms. You could tell them that their terms are unjust and unfair, and that if they’d agree to dismiss the part of the debt you feel isn’t fair… you’d glad begin payment on the debt.

However, agreeing to repay the debt under any circumstances is a last resort just prior to civil court. And if you do write such letters make copies, send registered mail, and make sure you show these to the judge so that it appears that were trying to satisfy this debt but the CA’s are unreasonable.

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