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* Reasons not to file Bankruptcy or Settle Your Debts

Should I file Bankruptcy or Settle my Debt?

By Debt Prison on November 26, 2008

**Disclaimer – Debtprison.net does not administer legal or financial advice. The contents of this website are my opinions on collection agencies and how to deal with them. Nothing on this website should be interpreted as legal advice or council. No opinions on this website should be used to replace the advice of your financial advisor or your legal council.

A reader at How to settle your debts on your own asks if she should file bankruptcy or try and settle her debts on her own. She doesn’t have enough money to make minimum monthly payments and the collection calls have began. They make too much to file Chapter 7 bankruptcy but not enough for a monthly payment plan. They have $50,000 in unsecured debt.

I got behind on all my bills and took on a second job, then realized that even with the second job I couldn’t pay all the bills. I tried Credit Counseling and was told I don’t make enough money for a pay off plan. I was told I have to file bankruptcy. I make too much money (on paper) to qualify for a Chapter 7. Is there any thing I can do on my own?

A bankruptcy lawyer said I would have to do a Chapter 13 but to me that just seems like a payment plan with worse credit. I dont want a trustee looking over my shoulder for 3-5 yrs and taking tax refunds and christmas bonus. My husband and I owe $50,000 in loans and credit cards. All unsecured. We have a house and truck payment. Our house isn’t worth anymore than we paid for it and we pay $362/month in PMI. So theres no equity to tap. Our credit is in the 500’s since we’ve been behind on everything and the collection calls started this month. They’re non stop. We have no savings but a few hundred after mortgage, food etc, per month its just not enough to go around.

We owe 21 creditors not including truck payment, mortgage and regular bills like phone insurance etc. Please can you give me any advice? I have two children who keep asking why I won’t answer the phone. I understand I made this mess and must own up to it which I will – I’m just not sure how to and still live a semi-normal life.

TM

Hey TM,

You’re either need to make more money and get caught up… or make less and file chapter 7. Otherwise this sounds like you’re going to be stuck in the middle. You’ve probably already asked yourself this but…

Can you sell anything to generate cash?
Can you move in with a relative who charges no rent and then rent out your current house for income?
Can you sell the truck and drive a junker for two years?

You’ve either got to drastically lower your bills or generate more cash.

Your in the same position I was in… but your debt is higher. Another option is to not pay and try and settle with them later on. But you’ll need some cash available to settle with the original creditor or collection agency. I would also recommend changing your phone number and dealing with these collectors via mail. Many people stop paying, meanwhile they save up money (outside a bank of course), in hopes of settling the debt later on when the collectors are ready to accept 50% or less on the debt. Granted it’s very aggravating negotiating with these folks on the phone but the other option for them is to try and get a judgment against you to repay the debt. Even then there’s no guarantees that they can get the money out of you.

So if you can’t see anyway to generate more cash I would save money like crazy and try and settle the debts later on. To me, this seems a more intelligent choice since the bankruptcy police isn’t standing over your shoulder and your credit is ruined anyway. Meanwhile I would find a way to reduce my bills and bring in as much money to save as possible. These creditors aren’t going away and you (and your husband) need to decide on a plan and make it work. I hope this helps.

Best regards,

Barry

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Dave Ramsey, Peter Schiff, and Decline of U.S. Economy

Investing Money with Vanguard’s International Growth Fund and Fidelity’s Select Gold

By Debt Prison on November 25, 2008

**Disclaimer – Debtprison.net does not administer legal or financial advice. The contents of this website are my opinions on collection agencies and how to deal with them. Nothing on this website should be interpreted as legal advice or council. No opinions on this website should be used to replace the advice of your financial advisor or your legal council.

A reader at Dave Ramsey, Peter Schiff, and Decline of U.S. Economy asks if he should move his 403b and pension over to Vanguard’s International Growth Fund and Fidelity’s Select Gold.

So I’m starting to think that Schiff’s recommendations sound plausible. Problem is, I have very little savings, and a decent sum of money in my employer sponsored 403b (basically the same as 401k) at Vanguard. I also have an employer paid pension at Fidelity.

Fidelity has the “Fidelity Select Gold” mutual fund. Our Vanguard plan has no mutual funds available for precious metals although they do have some International Funds.

So my thinking is to move my Vanguard funds into the international funds and my fidelity fund into the Fidelity Select Gold fund.

Is this a viable alternative to investing in gold bullion?

Garret

Hey Garret,

First off I’m not qualified to answer your question. Understand that I’m not giving legal advice or investment advice with this reply. I don’t feel I’m well enough read (on investments) to instruct people on how to invest. That being said I’ll share my opinion…

From Fidelity’s website

“Investing primarily in companies engaged in exploration, mining, processing, or dealing in gold, or to a lesser degree, in silver, platinum, diamonds, or other precious metals and minerals. Normally investing at least 80% of assets in securities of companies principally engaged in gold-related activities, and in gold bullion or coins. Potentially investing in other precious metals, instruments whose value is linked to the price of precious metals, and securities of companies that manufacture and distribute precious metal and mineral products (such as jewelry, watches, and metal foil and leaf) and companies that invest in other companies engaged in gold and other precious metal and mineral-related activities. Normally investing primarily in common stocks.”

This is not the same as owning bullion… or as safe. They’re involved in many aspects of the gold ‘market’ without your investment being tied directly to gold. So goes the gold ‘market’… so goes your investments. As you may be aware gold crested earlier this year (in dollars) around $1,000/ounce. Now it’s on a plateau in the low $800’s. Also, the dollar is currently rising in value.. will this continue? Or will Washington print its way into the next depression? I honestly don’t know. But for now the gold mints can’t keep up with the demand for gold coins… that was NPR radio last week. Also, three weeks ago Alan Greenspan spoke before some group of useless bureaucrats and said our economy would get worse. Since he caused the current mess I’d say he probably has a better idea than most on how long it will last. The October 29th Central Bankers meeting was rather gloomy.. they seem to think things may get worse as well.

Members anticipated that economic data over the upcoming intermeeting period would show significant weakness in economic activity, and some suggested that additional policy easing could well be appropriate at future meetings. In any event, the Committee agreed that it would take whatever steps were necessary to support the recovery of the economy.

All this doom is good for gold… at least in the short term (two more years). For now I think gold is stable as a hedge (but as an investment with profit as the goal… the money has already been made). It’s a tough call… and it’s all yours.

So putting money in international funds vanguard…

Vanguards IGF (on the surface) looks good to me

I still have no faith in the dollar and I fully expect 2009 to be worse than 2008 for the U.S. economy.

To answer your question… this strategy is a decent one for the circumstances you are in (my opinion). I do not expect our economy to repair itself rapidly… we’ve had too much bad behavior and the spanking is long overdue.

Good Luck and Happy Hunting!!

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Should you cosign for a friend or family member?

By Debt Prison on November 18, 2008

**Disclaimer – Debtprison.net does not administer legal or financial advice. The contents of this website are my opinions on collection agencies and how to deal with them. Nothing on this website should be interpreted as legal advice or council. No opinions on this website should be used to replace the advice of your financial advisor or your legal council.

Whether it’s a car or a motorcycle, co-signing on a loan for a friend or family member is a bad idea. First of all… you are helping someone throw money down the drain via interest charges. Now before you bring up the ‘helping to build anothers credit’ fallacy… I’d quickly point out that a lifetime of credit use is a lifetime of throwing dollars out the window (for lack of a better metaphor). Also, when we cosign, the price of the item is almost always grossly inflated and often brand spanking new. Never buy new… let someone else loose thousands in minutes as they drive the purchase from the inflated price arena (also known as a Dealership).

See also, How to buy a used vehicle

Why help someone ruin your credit?

When you cosign for a friend you are telling the bank “If they don’t make the payments I will”. Bear this in mind because this happens quite often. As a co-signer you are responsible for the loan and if this debt isn’t satisfied according to the agreement, your credit report will suffer. The following two examples are from Debt Prison readers who were faced with issues regarding co-signers. The first cosigned for a boy friend… to later have him default and dragged into court. The other is from a young man who is defaulting on a debt in which a friend’s father graciously posed as the co-signer.

Hi Debt Prison,

I apologize in advance…this is a lengthy question. I just want to provide as much info as I can. I have been documenting all my communications to be prepared as a friend told me to do this.

I cosigned a loan for an ex-boyfriend on 11/26/2002. (Yes – I have painfully learned my lesson to never cosign again!) I was 20 years old at the time, attending college, and very naïve and unaware of what the consequences of my contract obligation would be. The ex was also pretty oblivious when we did this. We were stupid college kids. I signed it because my ex-BF promised he would make his payments on time. The loan was also quite upside down at the time but I did not realize this until after the fact years later when there was a problem…I signed away just trusting the ex would pay the payments and did not think twice. It is an 84 month loan for a used 1999 Jeep Grand Cherokee. He traded in two lease cars for this loan. The amount financed on this date was 27.7k and 37.2 for the total sale price.

Anyway, of course, he started not making payments in 2004 and 2005 and not telling me this. I found out when the bank sent me a letter that payments were 60 days late. At the time we lived together and I was notified. I paid these immediately after being notified and scolded him not to do this again as it was leaving negative marks on my credit report. He was paying for a few years until recently the credit union actually called me in May 2008 asking for March and April’s payments. At this time, I am out of college and working but living paycheck to paycheck as many Americans now are. I can only afford to pay for my “own” financial obligations and cannot pay on his car anymore. (I only did this 3 times or so the payment was so high and I have been eternally broke since college paying my own way through).

We have been broken up now for 4 or 5 years now and have not lived together since. I did call him and ask why he had not paid for March or April and not told me. He told me that he gave the keys to the car to the bank in late April and intended not to pay anymore. I called the bank to verify this and they told me that they had not received the vehicle. At first I tried to negotiate a settlement but they said they could not do a settlement without the car because they need to sell the car then have it go to the recovery department. I told the bank they could repossess the car (which I didn’t know they needed my permission to just say so! I found this out by fluke). I did not know much of his whereabouts just his mailing address that they already had and his cell phone number. I called the bank a week later and it had been repossessed. I gave her my address so she could send me the letter of notice to sell the repo. It went to his address but not mine so I called to clarify that we had not lived together for 5 years and to mail any future correspondence to my current address.

A week letter I receive a letter with new amount owed after selling the repo. As of May 2008 the remaining balance was 15.7k and they say the sale of the vehicle resulted in proceeds totaling $2k for a remaining deficient balance of $9441.86. My credit report is showing this as a charge-off as bad debt in May 2008. Still being unable to pay I let the bank know that I could not pay it. By luck, the ex called to let me know that he received a summons to go to court about this and that my name was also on the letter and that I should go too. I asked him to send me a copy of the letter so I could have more detail but he never did. Therefore, frightened that I would miss a court date I called the bank to ask them to send me the info.

I was pretty upset because what if the ex never called me and assumed I also received the letter? They were not keeping me in the loop and finding out from the ex is not the most reliable info. They would have thought I did not show up to court on purpose when in fact I never knew I needed to. When I called, at this point, they said it was now with a collection agency and I needed to call them. I called the agency and it was like pulling teeth to figure out whether I needed to show in court or not. I asked them to send a copy of the letter. They admitted they sent the letter only to his address and not mine. I gave them my info. I received the notification that they are representing the credit union to collect the debt from me and that I can dispute the amount in 30 days.

The letter was dated Oct 29, 2008 so I still have time to respond if need be. But I don’t think I need to dispute the debt it is real. Should I send a response letter that I have received their communication but cannot pay? Or is this detrimental and maybe I should just not respond? Guess I just need to wait and see if I really do need to go to court? They told me that I was not being summoned at all just him and my name was just on the letter he received since I am the cosigner. Turns out he never showed up in court either. Not sure what his plans are. I don’t know what I can really do here. Do I just sit and wait to be summoned? They said they will try to collect from him first but this whole situation is just stressing me out. I don’t want to have to file bankruptcy over this or go to court for that matter.

Thoughts? Comments? Thanks for even taking the time to read this. Any words of wisdom are truly, truly appreciated.

Debt Prison response…

Wow Cosigner,

I had to break your comment up into sections to more easily read it. So let’s see if I’ve got it. Old debt on a jeep, repo, left over debt from sale of jeep and previous balance on the loan…
You are cosigner.

As a cosigner you are obligated to see that this debt is satisfied or your credit report will suffer. Thats why we have co-signers… to help others ruin our credit…. Just kidding…

In this case your credit is on the line. You’ve been doing an excellent job of trying to stay in the loop. You should. I would go to court as though my ex bf didn’t exist. I would talk to the judge about the circumstances… the one’s that you’ve briefed me on above.. Then try and cooperate with the court. But place as much pressure on ex bf to satisfy the debt as possible. In fact the court should place the blame on the ex and try and work with him mostly… let’s hope.. however, you are responsible for this debt.. as much as him.

The court will understand that you are in the middle of this situation without having caused it… so they’ll likely look kindly on you… the problem is your credit report. I honestly don’t know how this will play out on your credit file. Perhaps you will come back and let me know later on (thanks in advance!!) But to get to my overall point.. go to court and participate as much as required. Remember it’s your credit on the line…

Hi Debt Prison,

I was 19 when I got my loan with a co signer my friends dad, it was a 20000$ dollar commercial loan we did not put anything down but I made payments as much as I could then I wasn’t able to make payments due to financial reasons and my friends dad is tired of having to make payments and so I was wondering if I am not able to make the monthly payments what should I do..cause monthly payment is 700 $ month and I only make 750 a month from which I have to pay rent and food and bills so leaves me with like 200 a month which I save but a not able to pay it off ….what should I do?

Debt Prison response…

Hey Bobby,

In this case the creditor comes after your friends father. That’s the price he has to pay for co-signing – and that’s what co-signers are for, to give the creditor someone else to chase after for a payment. This is what I would do; I would pay my friends dad what I could each month, and keep a tally of what I owe him. Then as the years go by I would repay the man until I had paid back all that I owed him plus more.

Your other options are:

Sell something to generate cash

Earn more money each month

Discuss this article and share ideas at Debt Prison Forums.

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Should Granny pay the Collection Agency?

By Debt Prison on November 17, 2008

**Disclaimer – Debtprison.net does not administer legal or financial advice. The contents of this website are my opinions on collection agencies and how to deal with them. Nothing on this website should be interpreted as legal advice or council. No opinions on this website should be used to replace the advice of your financial advisor or your legal council.

A reader at How to Deal with Collection Agencies asks if her grandmother should continue trying to make payments on a debt sold to a collection agency.

I have a question; my grandmother had an account that has now been turned over to collections. Just by not knowing what else to do because they are very rude to her she has started paying on the debt, but they continue to charge interest on the account and they tell her they cannot send her payment information and such on the account. They said she could pay on it 6 years and still not have interest paid off?? She always pays her bills and this got lost somewhere 3 to 4 years ago when she was sick with her heart? Is this right, and what can we do if anything…..

Julie

Debt Prison response…

Hey Julie,

First off, your bill should state the principal amount of the debt as well as the interest rate. The problem here (and I’m making an assumption) is that she doesn’t have the money each month to make large payments. As a result, she is caught in a cycle of basically paying the interest on the principal each month. Is there anything she could sell to pay this debt off?

Now it seems that she owes the money and therefore wants to make good on it. However, the problem is that these collection vultures are getting rich off the interest fees and making it impossible for her to satisfy the debt. After all this is how they make their money. But it sounds like your grandmother is easy prey for these vultures and they aim to feast!

I would demand all interest charges be dropped. I would inform them that I would make a monthly payment against the principal only. They must agree to these terms in writing. If they don’t want to agree to the terms… No problem, they don’t get another dime. They could then pursue a judgment against your grandmother via civil court. In which case she (and you) could simply go and inform the judge that it was impossible to satisfy this debt due to the outrageous interest charges. Likely such actions would put an end to the interest charges and make it easier for grandmother to finish paying this thing off while she’s still young. Either way she’d have to conform to the terms of the judgment.

Also, if she makes little or no income she can’t be collected on. There’s a federal minimum (and if she makes under it) she can’t be touched. They could still get a judgment, they just couldn’t collect it.

Another option is to continue to pay what she can on the debt each month. We all need to pay our debts… I’m not debating that. But what I am debating are outrageous interest charges and fees. Collection Agencies often tack on as much money in fees and interest as they possibly can. It’s your job to inform them you won’t pay it…

Also, another option is to seek legal advice from a local lawyer you trust. It doesn’t cost much and could possibly save her thousands of dollars and fewer sleepless nights.

If more questions feel free to ask.

Good Luck!!!

What are the restrictions on wage garnishment?

The amount of pay subject to garnishment is based on an employee’s “disposable earnings,” which is the amount left after legally required deductions are made. Examples of such deductions include federal, state, and local taxes, the employee’s share of State Unemployment Insurance and Social Security. It also includes withholdings for employee retirement systems required by law.

Deductions not required by law—such as those for voluntary wage assignments, union dues, health and life insurance, contributions to charitable causes, purchases of savings bonds, retirement plan contributions (except those required by law) and payments to employers for payroll advances or purchases of merchandise—usually may not be subtracted from gross earnings when calculating disposable earnings under the CCPA.

The law sets the maximum amount that may be garnished in any workweek or pay period, regardless of the number of garnishment orders received by the employer. For ordinary garnishments (i.e., those not for support, bankruptcy, or any state or federal tax), the weekly amount may not exceed the lesser of two figures: 25 percent of the employee’s disposable earnings, or the amount by which an employee’s disposable earnings are greater than 30 times the federal minimum wage (currently $6.55 an hour).

For illustration, if the pay period is weekly and disposable earnings are $196.50 ($6.55 × 30) or less, there can be no garnishment. If disposable earnings are more than $196.50 but less than $262.00 ($6.55 × 40), the amount above $196.50 can be garnished. A maximum of 25 percent can be garnished, if disposable income earnings are $262.00 or more. When pay periods cover more than one week, multiples of the weekly restrictions must be used to calculate the maximum amounts that may be garnished. The table and examples at the end of this fact sheet illustrate these amounts.

What about child support and alimony?

Specific restrictions apply to court orders for child support or alimony. The garnishment law allows up to 50 percent of a worker’s disposable earnings to be garnished for these purposes if the worker is supporting another spouse or child, or up to 60 percent if the worker is not. An additional 5 percent may be garnished for support payments more than l2 weeks in arrears.

Are there any exceptions to the law?

The wage garnishment law specifies that the garnishment restrictions do not apply to certain bankruptcy court orders, or to debts due for federal or state taxes.

If a state wage garnishment law differs from the CCPA, the law resulting in the smaller garnishment must be observed.

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Collection Agency Demands “Lump Sum”

By Debt Prison on November 11, 2008

**Disclaimer – Debtprison.net does not administer legal or financial advice. The contents of this website are my opinions on collection agencies and how to deal with them. Nothing on this website should be interpreted as legal advice or council. No opinions on this website should be used to replace the advice of your financial advisor or your legal council.

A reader asked for advice in response to a collection agency demanding a lump sum and refusing to accept a payment plan..

Hi Barry,

I have a question for you regarding a collection agency. I have a credit card account with Bank of America, which just went 6 months past due. I have been unemployed and now have a job. I’ve been working with Bank of America through a payment program, but they recently sold the debt to an outside agency. I just received a call from this outside agency stating they are willing to settle for $7,000.00, but they want it in full by tomorrow (which can’t happen). I attempted to ask them if I can be placed on a payment program until I am willing to pay the balance in full in June 2009. I attempted to be proactive and make payments, but they will not accept. The man on the phone was extremely rude, stated they do not accept payment programs, and are planning on taking legal action. Any advice? Thanks so much-

Debt Prison response..

Tell them they can settle for oh say… $300 bucks or they can take you to court and have the judge put you on such a payment plan. There’s nothing these guys can do in court but get a judgment, in which case, if you pay some on it each month there’s nothing they can do. These collectors know this and are betting on your ignorance of this matter… they are counting on you coming up with the $7,000 cash. You’d be surprised just how many get stressed out and cough up the cash. These guys can really get your blood boiling. Unless you plan on paying the $7,000 I’d just write them a letter… let’s see what we can come up with here….

Write a letter (registered) and say that you can pay $500 a month (or whatever you can pay)… and that you are attempting to satisfy this debt but they are making it impossible by demanding a lump sum. Tell them that when they are ready to put a payment plan IN WRITING that you’ll be happy to discuss the matter with them further, and until then to leave you alone… If they would like to start acting like adults you’ll be glad to work with them.

I’d then keep copies of the letter and the receipts from the post office showing where they signed for it. I’d also mention in the letter that if they decide to take this to court that you’ll be showing this letter to the judge..

Good Luck and hope this helps..

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