Eliminating Credit Card Debt Advice

A creditor may not use deceptive or misleading means in an effort to collect a debt. That could include the following:

1. Falsely implying that he is an attorney or government representative.


2. Falsely implying that you have committed a crime.


3. Representing correspondence as being from an attorney when it is not.


4. Implying that nonpayment of any debt will result in loss of personal property, wages, or arrest unless (a) it is lawful and (b) the creditor intends to follow through with such action.


5. Threatening to take action that is not legal or that the creditor does not intend to take.


6. Implying that the transfer of interest in the debt to someone else will result in any of the actions in number four.


7. The false representation that you committed a crime in an effort to disgrace you.


8. Misrepresenting your credit or failing to communicate that you are disputing a debt.


9. The use of written communication which simulates or is falsely represented to be a document authorized, issued or approved by any court, official or agency of the U.S. or any state, or which creates a false impression as to its source, authorization, or approval.


10. The use of any false or deceptive means to attempt to collect a debt or obtain information about a consumer.


11. Failure to disclose clearly in all communication that the debtor is attempting to collect a debt and that any information obtained will be used for that purpose.


12. The false representation or implication that accounts have been turned over to innocent purchasers.


13. The false representation or implication that documents are part of the legal process.


14. The use of any business, company, or organization name other than the actual name of the debt collector's business.


15. The false representation that papers being sent to you are not legal process forms when they are.


16. The false representation that a debt collector is employed by a consumer reporting agency.

[Excerpted from How To Use The Law To Instantly Stop Creditor Harassment. The preceding was just one of eight sections from this chapter.]

Just because a business has gone under, or no longer exists, doesn't mean that the debt is no good. Debts are routinely sold by companies at reduced rates, and they are considered an asset of the company.

They are often sold in bulk when businesses close their doors. In bankruptcy proceedings, this is done with court supervision.According to the Fair Debt Collection Practices Act, Validation occurs if the consumer doesn't dispute the debt within 30 days ofnotification. On the other hand, if the debt is disputed within the30 day time frame, the collection agency must stop all collectionactivities until the debt is verified.

For verification to take place, all the collection agency really needs to do is produce a copy of the debt, which can be easily done if they own the original billing tapes or have film copies of invoices. Essentially, they need to show that the debtor actually received a bill. Alternatively, they can produce a copy of a judgment against the debtor. If they do this, then don't need to produce anymore documentation.A common misconception is that they have to produce original signatures. They don't.

A debt collector may pocket all of what they collect for certain debts. But if the collector owns the debt outright, then they are legally entitled to do this. Anyoneconsidering not paying for this reason needs to be very careful asyou can get sued and lose under these circumstances.

If the debt is not yours, then you need to try to prove this. Thisusually means swearing out an affidavit of fraud under penalty ofperjury and may also include filing police reports with theappropriate law enforcement agencies. This information should besubmitted to the CRAs and to the collector(s).

So I was on one of my favorite bullentin board haunts...Collectionindustry.com...and I was reading a thread about how the collection agancy actually handles your objections to your situations.

Some guy is actually writing a book on this. They are putting together a list of the "most common objections" and thier handlings.

Some of these objections are "I don't have a job" or "I can only pay you 'x' amount of doallars a month" or here is one that they all laughed about "I just had both my legs amputated due to a spider bite". Oh, they got a big chuckle off that one. But the sick thing was that it was true. The collection agent called up the hospital (see they do check up on what you say) and they had verified that the guys legs were indeed amputated.

You see, to them, they cannot distinguish between an inability to pay versus a refusal to pay. To them we are all "deadbeats" trying to beat the system. And the unfortunate circumstances that we have run into in life that prevents us from making the payments are just "excuses" to them.

What really did gall me though (as I thought everything else was just funny) was that the world famous sales trainer, the best in the world, Zig Ziglar actually wrote a couple of articles for them. Giving them a sales training to help them "sell" you on paying your debts. The training basically consisted on the collection agent exhausting all your "excuses" and "exposing the flaws" in your excuses.

The Debtors' Handlings

So what can you do to handle the collection agent from handling your "excuses"?

The answer should be obvious. DON'T TALK TO THEM.

You see the longer you are on the phone with you, the more time they have to expose your fears and exploit them. They call it "exhausting your excuses."

So if you are behind in making your debts take these immediate steps prevent from being harassed by a collection agency:

1) Get a privacy maanger program on your phone. this halts computer generated calls dead which the greatest portion of the collection calls. And if it is a live person they have to indentify themselves to you before you even accept the call.

2) If they do reach you on the phone say this line exactly: "Thank you for calling. I am looking into my options to handle this situation. I may be in touch with you soon." Then hamg up. Do not be on the phone any longer than it takes you to say that statement. You'll notice that never once did you ever say that you will pay the bill; you never stated that you agree that the bill is in fact yours; you never stated that you would call them back.

3) Immediately send them a letter by ceritified mail that they are not to call you at work per the FDCPA (Fair Debt Collection Practices Act).

4) Dispute the debt. Send them a sepreate letter disputing the debt. Make them prove in everyway that you actually owe them the money, and they can back up what they claim that you owe them. Make sure you send copies of this dispute letter to each of the credit bureaus by certified letter. If you do owe the money this will send them off and give you enough time to collect your thoughts and get professional help, or to establish enough money to settle the debt.

In Summary

So the moral of the story is that if a collection is "being nice" it is only an attempt to figure out your weakness and "exhaust your excuses" so that they can wear you down so that you pay, or use your fears (usually credit damage or law suits) to make you pay. Even at the expense of you buying food or paying rent/mortgage.

You are under no obligation to talk with these people. There is no law that says you have to speak to them. Unless it is a junk debt buyer, you don't even owe them money. Deal only with the OC (original creditor).

I hope this helps a little bit. Let me know what you think of this article by leaving a comment. Also let me know what else you would like to know so that I can provide this to you.

Jae Burnham,
Dedicated to teaching you how to deal with the bill collector.

This article focuses on the bogus threats and illegal tactics used on a daily basis by debt collectors.

The problem of collection harassment is a nationwide epidemic. There are more than 5,000 registered collection agencies in America, and while it's a highly regulated industry, enforcement actions are few and far between.

In our opinion, the definition of "unmitigated gall" is "the attitude displayed by the average debt collector." Example: One person recently told us that a collector suggested she go sell her blood to raise money to make payments! Another was informed that "we know where your kids go to school."

Leg-breaking and debtor's prison have been out of fashion for quite some time now, but you'd never know it listening to some collectors.

We recognize that many collectors try to maintain a professional demeanor, but let's face it. The only real method they have of squeezing "blood from a turnip" is intimidation.

Fortunately, consumers have the right to fight back.

Collection agencies have been fined or even put out of business because of a pattern of complaints received by regulatory officials. If you're being harassed by a collector, add your complaint to the growing pile!

If you are behind on your bills and on the receiving end of collection phone calls, you will probably hear collectors make some very threatening statements. While most debt collection professionals try to stay within the boundaries defined by the Federal Fair Debt Collection Practices Act (FDCPA), many others cross the line on a regular basis. Last year, the Federal Trade Commission (http://www.ftc.gov/) received more than 58,000 complaints about debt collectors, a figure which represents 17% of the total number of complaints received by the FTC. Consumers complain about the collection industry more than most other industries combined.

Collection professionals would probably respond that the enormous size of the industry and the sheer volume of collection activity accounts for the large number of complaints. However, only a small percentage of violations are actually reported by consumers, so the data collected by the FTC represents only a tiny fraction of the true scope of the problem. Even so, a pattern of abusive and illegal collection activity has been well-documented by the FTC, and it is getting worse instead of better.

Here are some common threats made by debt collectors:

"We're going to take your house unless you pay this bill immediately." This is a bogus threat. Unless the debt being collected is secured by the house in question (i.e., a mortgage or home equity loan), the creditor does not have the power to take your house away from you.

"If you don't pay this bill today, we're going to have a warrant issued for your arrest." Nonsense. Failure to pay a debt is a civil matter, not a criminal matter. Threatening a debtor with jail time or accusing them of committing a crime is totally against the rules.

"We don't care that you sent a cease communication notice. We're going to call you anyway." The FDCPA gives you the right to terminate contact efforts by a debt collector. Failure to respect a cease communication notice is a clear violation of Federal law.

"We're going to garnish your wages to recover this debt." A collector can only threaten action it has the legal authority to take, and the vast majority of collection agencies have zero legal authority. Your wages can only be garnished by a creditor after they have won a judgment against you in a lawsuit.

"We know where you live, so you better pay up." Yes, threats of violence still happen in this industry. Nearly 300 complaints against collectors received by the FTC last year cited the threat of violence as the cause of the complaint. This is absolutely illegal.

Aside from the usual bogus threats, collectors also use other tactics that are illegal. For example, discussing your debt with a third party is a clear violation of the FDCPA. Yet collectors routinely call neighbors, relatives, and employers to obtain information on debtors. So long as the collector does not discuss the actual matter of the debt, they still have their toes on the right side of the line. But as soon as they mention or even hint that they are calling about a debt, they have crossed the line.

Since many debtors have taken to screening their phone calls at home to cut down on the relentless barrage, debt collectors frequently call at work when they can obtain an office number. In theory, a consumer can get the collector to stop calling at the office simply by stating that they are not allowed to receive personal phone calls at work. That puts the collector on notice that such activity constitutes interference with the consumer's employment, which is not permitted. In practice, however, collectors routinely ignore this rule and continue to call at work.

There are many other techniques of harassment and intimidation that cross the line from permissible to impermissible collection activity. Use of obscene or profane language, shouting, constant and unrelenting telephone calls, failure to respond to written disputes, and publication of debtor information all constitute illegal activity as defined by the FDCPA.

So if you are on the receiving end of illegal collection actions, what can you do to protect yourself?

First and foremost, it's important to know and understand your rights as a consumer. A description of your rights under the Fair Debt Collection Practices Act may be obtained directly from the FTC (http://www.ftc.gov/bcp/conline/pubs/credit/fdc.htm).

If you believe that a collector has violated your rights in their attempt to collect from you, then you should not hesitate to file formal complaints with the Attorney General for your state (http://www.zipdebt.com/sendstudio/users/link.php?LinkID=150&UserID=357&Newsletter=61&List=1&LinkType=Auto) as well as the Federal Trade Commission. If enough complaints are received about a particular collector, then these authorities are empowered to bring an enforcement action against them, which may result in expensive fines that will make the agency or collector think twice about using such tactics in the future. You also have the right to bring a lawsuit yourself against a collector that harasses or abuses you, or otherwise violates your rights under the law.

One final point.

The FDCPA technically only applies to third-party debt collectors, which includes collection agencies and collection attorneys. It does not apply to the original creditor when collecting their own debt. For example, if you borrow money from a bank, the bank is not regulated by the FDCPA. However, numerous other public laws protect consumers from deceptive or abusive collection practices even by original creditors, and many states also have laws that parallel the FDCPA but go further and include original creditors in the definition of debt collector. So if an original creditor is harassing you or has crossed the line, you should still file a complaint with your state's Attorney General as well as the FTC. If a clear pattern of abuse emerges, the original creditor can be charged with unfair or deceptive acts or practices, either under state law or under the FTC Act that governs conduct of commerce in our country.

To sum up, if you are on the receiving end of collection harassment, don't just take it. Educate yourself on your rights as a consumer, vigorously dispute debts that you don't believe you owe, and take action yourself in the form of complaints to your Attorney General and the Federal Trade Commission. By standing up for your rights, you can put a stop to bogus threats and illegal collection tactics.

Charles J. Phelan has been helping consumers become debt-free without bankruptcy since 1997. A former senior executive with one of the nation's largest debt settlement firms, he is the author of the Debt Elimination Success Seminar™, a five-hour audio-CD course that teaches consumers how to choose between debt program options based on their financial situation. The course focuses on comprehensive instruction in do-it-yourself debt negotiation & settlement designed to save $1,000s. Personal coaching and follow-up support is included. Achieves the same results as professional firms for a tiny fraction of the cost.

If you are insterested in settling your debts on your own. Then see the link at the bottom of this site.

I have some timely and thought-provoking observations I'd like to share with you.

This is the time of year when people typically take stock of themselves and their lives, and make New Year's "Resolutions."

But we all know most people don't keep their resolutions. That's why my gym is always packed to the gills during January.

My wife and I can't even get on any of the equipment.

But by February, it's back to normal. We always get a good laugh about how quickly those resolutions go out the window.

That is why this article is about COMMITMENT.

Last January, we noticed it didn't even take all month for the "resolution effect" to wear off. It was over in 2-1/2 weeks.

It's about COMMITMENT.

There IS a difference – a BIG one.

It's not enough to "resolve" to get your financial house in order.

You must COMMIT to it. And commitment starts with action.

Why not commit to taking control of your finances and your future security – starting TODAY? You already KNOW you can't count on the government or your employer to secure your *financial future* or retirement. At least I HOPE you realize that.

And you sure can’t count on the stock market... In spite of the year-end rally on Wall Street, we're just catching up to where it was in 1999. If you've been invested in the market, how much agony have you endured along the way?

Did you know that, in the 16 years between 1966-1982, the Dow's net gain was precisely ZERO?

Of course, equities DO have a place in a diversified financial plan.

However, have you considered how your lifestyle, retirement, or planned retirement would be affected, if your investments and retirement plan went nowhere for the next 5, 10 or 15 years? What would you have to give up, or do without, in order to get by?

Real estate investments may have a place in a sound financial plan, too. But, again, you aren’t in control of them. Markets go up and markets go down. You can't accurately predict how much you'll be able to get when you want (or need) to sell. You also can't predict how long it will take you to sell. Guessing wrong could spell disaster.

Here's the deal: Your financial success is up to you. There's no bail-out coming. There's no financial silver bullet from the government that's going to save you from a failure to execute your own plan.

Your financial well-being is your own responsibility. So, what financial strategy can you RELY on to make you *wealthier* each and EVERY year?

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4. Your *money* grows EVERY single year, and you can NEVER go backwards – even in a bear market

5. You have the ability to access the equity in your plan *tax-free*, if you do it right, WHEN you want it, with NO government restrictions on how much you can take, or when you can do it.

6. You can use the equity in your plan to invest in anything you want, or to buy the things you want, and the *money* in your account will continue to grow as though you never borrowed a penny of it.

Because, when you bank on yourself, you can SPEND your *money* and STILL have it working for you! Doesn’t it make sense to have a safe, proven strategy you can COUNT on as part of your financial plan?

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If your financial advisor or CPA isn't properly trained in the Burnmymortgage.com strategy, you could end up with a product that’s not appropriate for this strategy, and your *money* won't grow as fast. Or, you could end up losing all the *tax-free* benefits of this plan, if you don't get proper guidance and advice.

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I have been noticing that a lot of us are dealing--or have recently dealt--with the species of CA known as a collections lawyer or a collections law firm.

I feel that this topic should be brought up for discussion.If you have not dealt with the average specimen of the, eh, "animal", you may be scared out of your wits the first time the lawyer/law firm contacts you.

This is deliberate: the reason that these lawyers/firms are used in the first place is to intimidate and frighten the debtor into coughing up the money!!!

Don't be scared!!

Once you know about the average specimen among these, eh, "creatures", you will see that the average CA lawyer/law firm is comprised of " legal lions" that are TOOTHLESS, DECLAWED, AND 'FIXED' !Here is what you should know:

The Average Collections Lawyer is not the "Brightest Bulb in the Chandelier!":

The majority of lawyers who go into collections are-shall we say--rather dumb!

Yes, there are really bright attorneys who do collections for a living. They are quite rare and NOT the typical specimen of the "breed". The typical CA lawyers are "people" (and I use the term loosely! ) who were the "goats" of their Law School class (they graduated at the bottom). They WERE NOT members of the Law Review. They DID NOT clerk for a Supreme Court Justice. They DID NOT "make partner" in a high-powered law firm. They are NOT law professors. They DID NOT EVEN SUCCEED as a SOLO PRACTITIONER in any respectible field of law practice!

They couldn't even make it as ambulance-chasers!!

These "average" CA attorneys were, in fact, lucky to pass the Bar Exam in the first place!!

The "Attorney" that is Calling YOU may NOT EVEN BE AN ATTORNEY!!:

Most collection law firms DO NOT have a lot of attorneys on staff--maybe one or two in most cases.

Instead, they do as most other CA's/JDB's do: they hire molto "phone drones" at $7.50/hr. to do the dirty work!In fact, the attorney(s) may not even do a real "review" of the cases they are pursuing!

They are just figureheads who, in essence, "sell" their letterhead and "rent" (as Bud Hibbs would say) their law license to extort money from the debtor!!

These lawyers rarely will do a proper review of their cases (which is required by law). As an example, Collect America (CACV-now CACH), in fact, doesn't even allow their attorney franchisees ["rent-a-lawyers"] to hire and/or fire collectors nor lets them supervise them!!

The case of a SC attorney who was with them, and got disciplined for it, "In the Matter of Sean Bannon Zenner" detailed CACV (now CACH) agency practice. Why don't they do the review of the files required of them by law? Laziness? You'd think so, but the answer is even simpler than that:

They normally cannot do so, even if they want to! The only files they get are a simple database with little information--often just enough to "fill in the blanks" of the dunning letters... letters which may or may not even be sent to the lawyer's desk for what amounts to little more than a proofreading!!

The case of "Nielsen v. Dickerson" [98 C 5909, UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS, EASTERN DIVISION, 1999 U.S. Dist. LEXIS 13931 ] illustrated this "no real review" situation very well.The Average Collection Attorney literally gets NO RESPECT among their PEERS!

A lawyer is once reported as having said: "No lawyer willingly devolves to the level of collections attorney. Not one."The average collections attorney is not only an intellectual "dim bulb", but their characters are "less than sterling"--even among their own kind. These " abogados of the filthy lucre" are--as far as other attorneys are concerned--little more than "mobsters" with law degrees!! (We knew that, though!!)

Even the stereotypical "ambulance chaser" has FAR MORE RESPECT among lawyers than the average collections

The joys of being Judgement proof!

Protecting Yourself from Creditors

Your creditors want your money. They want it NOW, and they probably want it ALL.

The fact that you have some of earmarked for such foolish expenses as food, clothing and shelter doesn’t matter to them.

This section of our web site will give you some hints on making it difficult or impossible for a creditor of yours, even if armed with a Judgement, to take your assets.

The Creditor’s favorite target – your wages:

Your income is your creditors’ favorite target simply because, unlike a car or a bank account, wages can be attached time and time again until the debt is finally paid, or you leave that employer.

Some states, like Pennsylvania and Texas, do not allow wage garnishments. Others, like Michigan, restrict each garnishment order to only one paycheck. After that paycheck has been garnished, the creditor has to file another garnishment order to collect again.

Most states, however, allow a garnishment to remain on a paycheck until the debt is paid in full.

Garnishment is the legal term for the court-ordered requirement that your employer withhold a part of your earnings and send that money to your Judgement-Creditor. While the exact percentage can vary from state to state, a Garnishment cannot ever leave you with less than thirty-five (35) times the Federal minimum wage.

At this time the Federal Minimum Wage is $5.15 per hour, so your NET paycheck can not be less than $180.25 per week.

Strategies to frustrate the garnishment:

There is not a lot you can do to avoid a garnishment if your creditor has a Judgement and knows where you are working. Obviously, if you can, changing employers will stop the Garnishment. A creditor can only garnish a paycheck they can find. If they don’t know where you are working, don’t tell them. Don’t apply for credit, and don’t answer any questions they may ask. Just because a creditor asks a question does not man you HAVE to answer it. The ONLY exception to this is an INFORMATION SUBPOENA, which is a Court Ordered Questionnaire which you must answer under penalty of Contempt of Court.

The good news is, in more than 30 years in this field, I have only found TWO collection attorneys smart enough to use an Information Subpoena.

Another way to frustrate a garnishment is to load your paycheck with other deductions that take priority over the Garnishment, and that you will either have to pay or will get back at some future time.

If you owe Alimony or Child Support, get them BOTH onto Payroll Deduction. Increase your Federal and State tax withholding. Try to get your pre-garnishment take home pay below the $180.25 Federal Minimum.

If you owe Federal or State taxes, the excess withholding will pay those debts off earlier. If you don’t then the excess withholding will be refunded to you next February when you file your tax returns. Creditors generally cannot attach your tax refund.

I realize it may not be easy to live on 180.25 a week, but that’s what you will have to do to frustrate a garnishment. A large garnishment can be your best friend in states where garnishments stay in place until paid.

Let’s assume ABC Company sues you for $15,000 and gets a judgement. They file a garnishment order with your employer. You earn $400 per week. Here in Arizona, where the Garnishment rate is 10% of Gross Income, that is $40 per week. Not counting interest, it will take 375 weeks (over 7 years) for the next company to get paid. Factor in the interest at 9% and #2 may never get paid.

That information may just be enough to get all other creditors to negotiate a great settlement deal (more on how to do that later in this section) just to get SOMETHING rather than still be standing on line the day you retire. Then, after all your creditors have settled except ABC, you change jobs and leave ABC as your only creditor, and they can’t find your job to garnish. Of course, if a company YOU happen to own also happens to be garnishing your salary for a large debt owed, then the others will just have to wait in line.

Strategies to frustrate Bank Account Attachment:

Armed with a judgement your creditors can take your entire bank account – if they can find it.

Here are some ways to make as sure as possible that doesn’t happen.

When I was a bill collector one of my best routines was to send the debtor a check for $1.14. Accompanying the check was a letter saying we collected an illegal late charge. When the check came back in my bank statement I knew exactly where the debtor did his banking from the endorsement and stamps on the back. You can bet the next Friday that bank got a Seizure Order. For $1.14 (which I just added back onto the debtor’s account) I got several hundred dollars. The lesson is simple – don’t cash small checks your creditors send you.

If you must, sign them over to a friend or relative and let THEM cash it (in a different bank where you bank, that topic is next).

Bill Collectors routinely contact banks near where you live or work to find out where you bank.
Many larger banks have an “account locator service” that may or may not tell a bill collector if you have an account at that bank. If you live in a small town or small city where there are a limited number of banks, some bill collectors will just serve them all with a Seizure Order and see which one works.

The solution is the Internet. I live in Tucson, Arizona and I do my banking in St Paul, Minnesota! The contents of that account is kept small, and most of my bank deposits are kept in a cyberspace bank. Let the bill collector find THAT. Do a search for "Internet banks" for a list of Internet banks you can use. I do not recommend titling your accounts in your children’s names because if found out that could be construed as “in fraud of creditors”, which is illegal.

Moving your banking to the other side of the world, in your own name, is perfectly legal.

Strategies to frustrate Car Repossession:

The rules here are different for the two types of repossessions. One type is when the Lienholder (the company on the title) repossesses the car and the other is when a Judgement Creditor repossesses.

Lienholders are much more prone to repossess than Judgement creditors for two reasons.

The first is that the Lienholder only has to cover about $350 to 500 in repossession and sale expenses before realizing money towards the debt. A Judgement Creditor has those expenses PLUS the full balance left on all liens on the car. The economics of a Lienholder repossession are much more creditor-friendly than that of a Judgement Creditor.

Second, in dealer-arranged financing it is possible that the lender and the dealer have a side arrangement wherein if the car is repossessed before a certain number of payments are made, or at all, the dealer will pay off the loan and take over the debt. This is called “Recourse” and you will not know if the loan is a recourse loan and what the recourse terms are. Judgement creditors have no recourse.

Making your car safe from the Lienholder merely means that the car note is one creditor you will have to pay. Making the car safe from other creditors means loading the car up with liens.

I have a friend who actually put his dog, named Howard, on his car’s title as a lienholder. No sane judgement creditor will repossess a car with more than one lienholder on it.

Considering that most people who owe money on their cars are “upside-down” (meaning they owe more than the car is worth) with ONE lien, two means you are not only upside down, but probably inside-out also. So…. Get a friend or relative to give you a loan, and secure it with a lien on your car.

Trusts – do they work?

Many people feel establishing a Trust is the way to make yourself “Judgement Proof”.

A Trust is a legal entity that is established to perform certain specific functions. The most common purpose of a trust is to administer the assets of someone who died until they can be distributed to heirs. A Trust can either be revocable or irrevocable.

I caution you to NEVER establish a Trust without the advice of a competent Attorney and Tax Advisor. My experience is that Trusts are an expensive and often unsuccessful tool for this purpose. The reason is because most trusts not administered by professional Trustees become so “transparent” that they cease to exist and a sharp lawyer can convince a judge that the Trust is “in fraud of creditors”.

Let me define some terms:

“Judgement Proof” doesn’t mean you can’t be sued, and that a creditor cannot get a judgement against you. It only means that a judgement is useless against you because the judgement-creditor as no way to collect on the judgement.

I like to compare a Judgement to a hunting license. Every year, millions of people buy hunting licenses. Not all of them are successful in the hunt. The license just gives them permission to look for a deer to shoot, it doesn’t guarantee a deer. Judgements are similar – gives a creditor the right to grab assets, if they can find assets. No assets, or assets out of reach of creditors is Judgement-Proof.

“Transparent Trust” means that the Trust has not been treated as a separate entity from its Grantor or Beneficiaries. As the Grantor (the person who set up the Trust) makes the wall between the Grantor’s affairs and the Trust’s affairs so thin that the wall eventually becomes transparent and nonexistent.

“In Fraud of Creditors” is a transaction that is entered into with the sole purpose of making creditors unable to collect, and usually has little if any other reason. Timing is a key element in this – something done before default is far less likely to be considered "in fraud of creditors" than something done after the judgement is rendered against you but before the Sheriff can grab the asset.

I constantly see questions about companies like Sherman Acquisitions and Arrow Financial (among others). I feel it's time to address how to deal with them.

These companies are in a category called "Junk Debt Buyers" (JDB's). They purchase huge portfolios of defaulted consumer debt at about 2-3 cents on the dollar, and seemingly try to collect a dollar and a half. They increase the amounts claimed by astronomical amounts by reinstating the contract interest rate and re-calculating the amount claimed, adding interest at the contract rate, from the date of charge off (when the Original Creditor stopped calculating interest) up to the time they get paid.

In the portfolio that they purchase will be debts that have been discharged in bankruptcy, debts where there is an Automatic Stay in place because the debtor is still involved in an active bankruptcy case, debts that have been reduced to Judgement, debts that have aged past the Statute of Limitations for Collection (SOLC) in the debtor's State and debts that have aged past the FCRA Statute of Limitations for Reporting (SOLR).

The principal collection tactic of JDB's seems to be a combination of patience and complete disregard for the mandates of the Fair Credit Reporting Act (FCRA). They do this by re-aging the debt so that FICO interprets it as a recent default, not a default that happened many years ago. This causes a HUGE drop in the debtor's credit score (Each CRA has its own name for the score - FICO, Beacon, whatever - it's all basically the same thing). Then they wait for the debtor to complain that he/she can't get credit because this account suddenly appeared on their credit report. At that point they have you where they want you - desperate and on the phone.

They will (as all CA's do) press for immediate payment of some amount. The reason is simple - to bring the debt back into collectability under SOLC. Then they are free to file suit against you and have a chance at winning.

Unfortunately, most consumers don't realize the illegality of what is happening. The JDB has committed at least ONE of the following violations in just about every case:

1. By posting the debt as a recently defaulted case (I have personally been told by BOTH Sherman and Arrow that they consider the date they BUY the debt to be a NEW status date-in direct contradiction to the FTC Amason Letter Section 2), they have violated FCRA Section 605(a) as interpreted in Section 2 of the Amason Letter (All letters are FTC Staff Opinion Letters and are posted on the FTC web site - http://www.ftc.gov/ ). This is the re-aging provision of FCRA.

2. By posting the debt after the debt has been dischaged in Bankruptcy they are violating the Permanent Injunction provision of the Bankruptcy Discharge as well as FCRA 623(a)(1)(A) - Maximum Accuracy mandates on Providers in that if the debt had been dischaged in Bankruptcy BEFORE they purchased it, they should know that the debtor whose credit they are trashing never legally owed THEM anything. I would also consider that they have violated Fair Debt Collection Practices Act (FDCPA) section 807(2)(A) in that they are representing as due and payable a debt they know has been discharged in Bankruptcy.

If either of the above is what happened to you (and the odds are very great that at least ONE of them does apply) then you have solid grounds for a FCRA or FDCPA suit against the JDB. The JDB will probably cave in on the mere threat of a credible suit (both Sherman and Arrow did in my case) and pay you the $1000 damages rather than press it and incur huge legal costs (see my other posts on THAT topic) on an obviously lost cause. They look at these settlements as a cost of doing business, because the vast majority of debtors still don't know or enforce their rights under law. You can pay a lot of $1000 settlements if you can collect $1.25 for each 3 cents you invested in a million dollar portfolio.

You can enforce your rights under law even if you are still involved in a Bankruptcy. Debts in Bankruptcy are allowed to be sold, and the new owner of the debt reporting to the CRA's that they are the new owner and the debtor owes $X dollars is not a violation.

If the debt is still within SOLC you can treat the JDB as you would any CA. The JDB usually will not send you any or many collection letters (their tactic seems to be trashing credit just as the debtor is trying to repair it). If that is the case, demand Validation of the debts, and if it can't be validated, challenge it as inaccurate with the CRA. Of course, it is still highly probable that the debt has been re-aged, so you have suit potential.

IF you offer to settle a debt with a creditor or Collection Agency, the terms will be "Payment for deletion of trade line. No agreement to that, no agreement at all." With that in mind, there are lots of things you should look into before you offer to settle. These are:

1. Is the debt outside the Statute of Limitations for Collection in your state?
2. How close to the 7 year FCRA Statute of Limitations is it?
3. Are you Judgement Proof?
4. What does the creditor know about your place of employment?
5. Do you presently have garnishments on your paycheck?
6. What is your total financial picture? Are you just postponing an inevitable bankruptcy and throwing good money after bad?
7. Are there any FCRA, FDCPA or FCBA violations committed by the Creditor or its Collection Agency?

Let's discuss each of these, one at a time.

1. Statute of Limitations on Collections: This is a no-brainer. The Statute of Limitations on Collections (SOLC) starts with each payment you make, and ends after a set period of time where no payment is made. If you don't make a payment in a certain time, and the creditor has not started a lawsuit, the law states that the SOLC is an "affirmative defense" to any lawsuit that may be started after the SOLC expires. Why? The US Constitution guarantees a speedy trial. Over time, records get lost, witnesses die, move away or forget. The SOLC basically says to a creditor "Sue while the records are available, otherwise forget it". An Affirmative Defense doesn't mean you can't get sued, but it provides a good reason for the Court to refuse to give the creditor a Judgement. If the debt is outside SOLC, then the creditor cannot get a judgement, and you can stand firm in your offer of "no deletion, no money". NEVER try to negotiate a settlement if SOLC has not expired, ESPECIALLY if the creditor is not actively dunning you. Let the sleeping dog lie until it has no teeth left to bite you with. EXCEPTION - see #3 and #7 below.

2. The Fair Credit Reporting Act places a limitation on the time that derogatory information can be reported. I will call that the SOLR - Statute of Limitations on Reporting. This limit is generally 7 years. There are some exceptions (Chapter 7 Bankruptcy is 10 years and certain other types of situations have no SOLR). If the debt is near SOLR and SOLC has expired, there is very little the creditor can give you in return for payment, since you cannot be successfully sued and the law will remove the line from your credit file shortly. If you have a couple of years on SOLR and SOLC has expired, then you may want to see what you can negotiate. My rule of thumb is this - the debt is worth about 10% of its face amount for each year left on SOLR.

3. If you are Judgement proof (doesn't mean you can't get sued, means there is no way of collecting on the suit) you should explore how likely you are to become "not Judgement proof" before the SOLC expires. If you are not likely to become Not Judgement proof before SOLC expires (say you are a Stay at Home Mom for the next 15 years) then settlement is a possibility, whether the SOLC has expired or not. THIS SHOULD BE APPROACHED VERY CAREFULLY IN COMMUNITY PROPERTY STATES. Only treat non-community debt as outside SOLC. Community debt should still be treated as within SOLC. See my post "Making Yourself Judgement Proof"

4. It is very hard to garnish a paycheck you can't find. Contrary to popular belief, non-government creditors do NOT have access to Social Security files. Treat Child Support as a Government Creditor because of New Hire reporting requirements. So, if you recently changed jobs (and even better, residences also) then you are in a stronger position to negotiate a settlement. Obviously, do not disclose your new employer. It might be wise to let the debts lie for a year or so (and don't apply for any new credit - when you open a bank account, DO NOT GIVE THAT BANK YOUR NEW EMPLOYER - it will go STRAIGHT to the Credit Bureaus since most banks run credit checks on new depositors). A debt, like fine wine, gets easier to settle the older it gets.

5. A garnishment on your paycheck, as unpleasant as it may seem, can sometimes be a blessing in disguise. That's because for OTHER creditors to collect through Garnishment, they have to wait in line until all prior garnishments (in order received by your employer) are paid in full.

Here's a true story. When I was a Credit Counselor for CCCS, I had a particularly intransigent creditor to deal with. The debtor, however, had enough garnishments on his paycheck to amount to about 15 years wait. I merely informed the creditor of this and said "I will pay those creditors who will accept the program and not sue. You have a choice - get paid now or sue and wait 15 years to get paid." You can adopt this strategy also. So, if you have, or will have, a large balance garnishment on your paycheck, and you can live with that garnishment, you have some powerful leverage with all the other creditors you may have. Take this now and be happy with it or wait a couple of years......

6. Will this settlement make you able to pay all the rest of your bills or is it just to "grease the squeaky wheel"? If it's grease, then consider a Bankruptcy - it may be inevitable, and paying this creditor may be at best a preferential payment the creditor will have to share with the other creditors in a Bankruptcy, or at worst just throwing away good money that you can use to retain a good bankruptcy attorney.

7. One of the best ways I have found to arrange a settlement with an intransigent creditor where the debt is not outside SOLC is to COUNTERSUE when they sue. If the creditor (or CA) has committed any violations under Federal Fair Credit Billing Act, Fair Credit Reporting Act or Fair Debt Collection Practices Act, a countersuit for those violations changes the whole nature of the suit.

If you don't have any of those violations, read the article "Turning Your Creditor's Law Suit into Cash for You". The goal would be to drive your creditor's costs of litigation so high they will pay their lawyer more than the lawyer will ever collect from you. SOMEONE, SOMEWHERE in the creditor organization will eventually figure that out and agree to a settlement.

Settlements have their place in credit repair, but should only be negotiated when you are in a position of strength, not weakness. That is the way to obtain the most favorable results possible, or at least not to LOSE anything if a settlement cannot be reached.

A TAX TIP ON SETTLING DEBTS:

** Be sure you consult your accountant before using these tips *** (legal garbage I have to say)

Tax Code says that cancelled debt is income taxable to the debtor, EXCEPT in certain circumstances.

One of those circumstances is Disputed Debt. Make sure in the settlement contract that you insert a paragraph something like this: "Debtor disputes, and creditor acknowledges as disputed, the unpaid and cancelled portion of the debt claimed. Debtor is only paying the undisputed portion of the debt claimed."

If you recieve Form 1099C Cancellation of Debt, here's how to handle it(from an Enrolled Agent):

1. IF the 1099C was as a result of the debt being cancelled in Bankruptcy, attach Page 1 of your petition to your tax return with a note that the cancelled debt income is excludable from income under IRC 108(a).

2. IF, after the discharge of indebtedness, you are still insolvent (liabilities exceed assets) then attach a simple balance sheet to your tax return and claim the cancelled debt excludable from income under IRC 108(a)(1)(B).

3. IF you followed the advice I posted on these boards many times and included in the settlement documents a statement that you are only paying the undisputed amount and the unpaid amount is disputed and the creditor acknowledges the dispute, then attach a copy of the Settlement agreement to your tax return and claim the cancelled debt as excludable from income under Zarin v Commissioner (916 F2d 110 - 3rd Cir, 1990).

4. IF the debt is a purchase money debt and you were able to negotiate with your creditor a statement that the portion paid represents an Adjustment of the Purchase price of the goods bought, then attach that statement to your return and exclude the cancelled debt income under IRC 108(e)(5).

5. IF the cancelled debt is a student loan forgiven or partially forgiven because you worked in certain professions under an acknowledged forgiveness program, attach a note saying this and exclude the debt forgiveness income under IRC 108(f).

6. If none of these applies, include the cancelled debt as OTHER INCOME (Form 1040 Line 21).

TURNING A SUIT INTO A SETTLEMENT

What's the worst thing a creditor can do to you? Sue you, because a successful suit gives the creditor a judgement, and a judgement gives the creditor the right to not only look for assets of yours, but to take those assets away when they find them. (If you have read my other threads, you have already made that a virtual impossibility.... hint, hint, hint)

What's the worst thing you can do when a creditor sues you? The answer is - DO NOTHING. You just rolled over and played dead and allowed your creditor to figuratively walk all over you.

This essay will give you some ideas on how to deal with a lawyer representing a creditor. The creditor's lawyer may be an in-house attorney or may be an outside attorney. if the creditor and the attorney are located in different cities or states, the attorney is probably an outside attorney. The difference between inside and outside attorneys is like night and day. The inside attorney is paid a salary. That, and the filing fees, are just about all the creditor's legal overhead.

The outside attorney usually bills the creditor by the case if he gets a Default Judgement, or by the hour if no default judgement can be gotten. The outside attorney relies on the debtors lying down and playing dead, so a default judgement can be obtained.

UNDERSTANDING THE LEGAL PROCESS

<Keep in mind that I am an accountant, not a lawyer. While I have successfully done everything I suggest in this and every other post I make, it is not to be considered legal advice.>>>

A law suit starts when one party to the suit feels aggrieved enough to pay the Clerk of the Court a filing fee and obtain a Docket Number for a Summons and Complaint. The Summons part is notification to the defendant that there is a suit filed, and that an Answer must be filed within a certain time period.

The Complaint gives the details of the reason for the suit. Failure to file the Answer gives the plaintiff the right to seek a Judgement by Default, or Default Judgement. Filing a timely Answer preserves the Defendant's right to a Trial and eliminated the possibility of a Default Judgement.

The economics of a suit are simple - lawyers don't work for free.

The Creditor's Lawyer makes more money per hour going to Court with 100 cases - all of which failed to file an Answer - and getting 100 Default Judgements in the 15 minutes it will take, than he will make working his tail off prosecuting ONE case. Lawyers LOVE Default Judgements, and therefore Debtors HATE them. Don't EVER allow a Default Judgement to be entered against you.

File an Answer to every summons - even iof it's just a General Denial.

When you file an Answer to a lawsuit, YOUR case has to be removed form the lawyer's pile of potential Default Judgements and has to be handled singly. This will result in your CREDITOR being assessed additional legal fees - fees which probably cannot be passed along to you, since most contracts contain a boilerplate "attorneys fees in event of default will be X% of the amount owed."

HOW TO DRIVE YOUR CREDITORS' LEGAL FEES THROUGH THE ROOF

1. File an Answer.

Go to the Court House and ask to see some examples of Answers to Civil Complaints so you can see how they are done. Copy their format and suit them to your case. Even if every allegation made by the creditor is 100% correct and accurate, it isn't so till the Judge says so. Deny everything. It's called a General Denial.

2. File a Counterclaim.

Find ANY reason to sue the creditor in return. No matter how frivolous. Let the Judge decide the issues, don't surrender the victory to the creditor. I have interposed counterclaims for (a) damage to my home caused by an oil company that spilled oil, (b) Loss of sleep and Loss of Consortium (that means sex with my wife because she was tired also) because the creditor's personnel called me at inconvenient hours and (c) the goods sold to me on credit didn't fit, didn't look quite right, were off color, didn't last as long as I thought they should.... ANYTHING at all..... The Answer and the Counterclaim are usually filed in the same document. DO IT. Next..... send your creditor on a paper chase.

In order for a business to have the right to sue a natural person in Court, certain legal niceties must be observed.

You will now give your Creditor a chance to prove they have all been met. You will do this through a process called pre-trial Discovery. Send to the attorney a document called First Set of Interrogatories.

1. The business must be organized in some State. Demand a Certified Copy of those documents.
2. Your creditor, if organized in another state, must be licensed to do business in your state. Demand a certified copy of those documents.
3. The right of a business to use the Courts is conditional on the business' tax filings being current. Demand a Certificate of Compliance from the Plaintiff's home state and YOUR state.
4. Demand a list of Officers. In most States, only Officers of a Corporation, or their attorneys, can sign Pleadings. The answers to your Interrogatories are a Pleading.
5. Demand a full accounting of all money into and out of your account since its inception. You should get the idea by now. make them prove (a) their existence, (b) right to sue (c) right to sue in YOUR state, (d) right to sue YOU, (e) damages, etc....

In other words, send them on a paper chase.

The purpose of this paper chase is two-fold: To tie them up with internal labor costs and (b) to give you ammo for future and additional interrogatories. You can research your state's Civil Court rules of procedure through www.findlaw.com - it is a gold mine for pro-se litigants (people who go into Court without a lawyer).

Next you will set up a ticker system whereby you will watch the calendar.

The Rules of the Courts give a certain time under which the Interrogatories must be answered. If they are not, file with the Court a Motion to Compel.

The Motion to Compel is asking the Judge to Order the plaintiff to answer the Interrogatories, Failure to do so would preclude (prevent) them from using that information against you. By filing enough Motions and enough Interrogatories, you should be able to drive your Creditor's legal bills so high they will be agreeable to a settlement.

As a strategy, a month before trial, I send a letter asking for a settlement Conference. That letter is usually ignored and it looks very damning in Court, since Judges LOVE settlements and HATE parties who force trials. I realize this is general - since there are 52 different legal systems in this country (50 states, DC and Federal) I can't give a specific road map for any state.

If you feel yourself getting lost, go to a Law School near you. It is possible you could get one of the students to guide you or one of the professors. use the Law School Librarian to make the introduction - it works better.

If things get too hot and heavy, you can always file bankruptcy at any time in the process and that would make the suit, and possibly your counterclaim, irrelevant. Makes no difference if you file immediately upon being sued, after you file your answer, in the middle of Discovery proceedings or after Judgement.

The PURPOSE of your Answer and Counterclaim is to drive the legal fees of suing you so high they become agreeable to a settlement.

After you file your Answer, you can expect the other side to either (a) actively pursue the case by filing Motions or (b) ignore the whole thing hoping it will just go away.

If the actively pursue it, they are playing YOUR game, since the more work the lawyer does, the more he bills his client. Let them. Since you are pro se, you can go back to the creditor and advise them that their legal bills pursuing this matter will far exceed anything they can hope to recover and maybe they would like to cut their losses and settle.... If b, then they dropped the whole thing, just make sure you show up for Trial.

If you don't it's Case Dismissed. If you do, then present your case to the Judge. Just because they prove to YOU in pre-trial discovery that they have a case doesn't mean an automatic Judgement. They still have to prove it to the Judge and you can file lots of Motions to make them spend lots of money on legal fees before THAT happens.

After service of a summons, FDCPA doesn't really apply. Court rules and procedures tend to overshadow FDCPA. Can they call you? Yes. But your answer, unless they are talking settlement, is "the matter is in litigation and will be decided in Court".

After an Answer is served, you are DEFINITELY going to trial unless you settle before-hand. That's what the Answer does - says there are issues here that the Judge must decide. Should you call back? Why not? If they dun you and ask for payment, you already know what to say (see the SECOND paragraph above). If they want to talk settlement, listen to what they have to say.

I am engaged in litigation with Sears right now. Every so often their attorney calls me and suggests settlement. I immediately ask him if he has authority to bind his client to an agreement or is merely the message taker. He gives no reply to that, and says he will check with his client.

Meanwhile I have served him with a First Set of Interrogatories (Pre-trial Discovery) that they chose not to answer and have now served them and the Court with a Motion to Preclude them from any testimony or evidence in support of their position at trial. On the supposition that the Court grants my Motion to Preclude, and since their delay has pushed the time frame past the period allowed for Discovery by Court rules (trial is Feb 6th), I have also filed a Motion for Summary Judgement.

Yes, they keep mentioning settlement, but never seem to come up with any offers. I just proceed like nothing has happened. All MY filings are current, timely and proper. Other than a General Denial, they have done nothing.

LATE BREAKING NEWS: On January 27, 2004 the Judge signed both the Order to Preclude and the Summary Judgement.

See... It works.

I have asked the Board moderator about posting the Pleadings on the Board so you can use them as a model. My strategy is simple -make it expensive to sue me. I figure at some point someone in a creditor organization will ask "why are we spending $5000 to collect $500?" Can you imagine the chaos that would be caused if even 10% of debtors followed my advice in this matter? The Courts would become so bogged down that a civil judgement would take a half a lifetime to get, and we all know "justice delayed is justice denied".

That's why creditors refuse to negotiate debt so often, they know they can usually get a quick, cheap judgement for the full amount. Change that and we can change the dynamics of being in.

At one time I was sued by a company (I don't remember which or for what) and was subjected to a Deposition. A Deposition is their lawyer asking me questions before trial, but with a Court Stenographer taking steno transcripts. The party calling the deposition pays --- by the page. I saw the transcript. It took 4 pages for the attorney to just get my NAME straight. Make long and confusing (and generally irrelevant) answers to drag it out. Remember - the other side is paying the Court Reporter by the page and their attorney by the hour.

I do remember one question where in the answer I managed to drag in anecdotes about a dog of mine that had been dead for over ten years. Remember, the Court reporter will take down, and type, in double-space EVERY WORD.

As a general rule, any legitimate information requested in Discovery that is not provided cannot be used in Court at trial. The Discovery process is a way that each party feels out the other's case so that the issues can be narrowed down at trial. Anything that the two parties agree to is "stipulated". All else is resolved at trial. There are no admissions of liability in the Discovery process, just seeing if the other side has a case and how strong that case is.

THE DECISION TO SUE

Suing by a creditor is a decision made with the following thought processes: A. IF the debtor has assets now, can I get them first, or B. Is the debtor likely to acquire assets I can attach in the future, or C. Can I scare the debtor with a summons enough to get the debtor to pay now? If any of the questions to these questions is yes, and the balance is high enough to warrant a suit (something that varies from creditor to creditor) then a suit will be filed.

So, the present condition of unemployment or lack of an attachable bank account is NOT a consideration of the creditor in the decision to sue. It is more the FUTURE prospects of collection.

A Judgement greatly extends the Statute of Limitations to collect. In NY the SOL is typically 5 years. A Judgement in NY has a SOL of 20 years and can be renewed for another 20. Meanwhile the interest keeps accumulating.

An INFORMATION SUBPOENA (IS) is a document that a Judgement Creditor can send a debtor that must be answered truthfully at the time it is filled out. So, if you fill out an IS on Monday listing a job at ABC company and quit that job on Tuesday and take a job at DEF Company on Wednesday, you have done nothing illegal. If you answer the IS on Wednesday you would have to list your new job at DEF Company. Same thing with bank accounts. As long as it is the truth on the date you sign the IS, and you change things the next day, you are within your rights.

You are under no obligation to inform a creditor (Judgement or Otherwise) of any changes to the IS answers after you have signed and dated the IS. Most states limit the ability of a Judgement Creditor to compel an IS to once a year.

A Cyberspace bank is a bank that will let you do your banking through the internet. It may be an actual brick-and-mortar bank, like US Bank in St Paul, MN (the bank I do my principal banking through) or it may exist only in Cyberspace, like Paypal (which I also use).

A Judgement Creditor will look for a bank account in banks hear where you live or work. That is where most people bank. By moving your banking to a Cyber-bank you make that look a lot harder.

I live in Tucson. How many bill collectors would know to look for my bank in Minnesota? I maintain a small balance in a Tucson bank that I use just to pull cash out of, but my principal balances (in the thousands) are in Paypal and US Bank.

JUST AN UPDATE ON HOW THIS PROCESS WORKS-

I just picked up a $1000 check from Sears made out to me at Sears attorney here in Tucson. He admitted to me that my motions drove him crazy and he swears no lay person could have buried him in paper like that.

I also saw the bill to Sears - $1200 to defend themselves against a non-PP pull. Can you imagine how much it would have cost them if SEARS were suing me and I REALLY got them on a paper chase that they couldn't settle their way out of so easily, especially if I have a countersuit?

<<<Note - this is NOT a discussion of what is legal and what is not legal, it is a discussion of how a Collector THINKS. Knowing how they think helps a debtor deal with them.>>>

UNDERSTANDING THE COLLECTION AGENCY

The first step in knowing how to deal with a Collection Agency is to get inside their heads and understand the Psychology of the Collection Agency. Once you understand that part, you can successfully deal with the CA Collector.

Nothing in this essay applies to Original Creditors, only third party debt collectors (3PDC’s). It makes no difference whether the 3PDC actually bought the debt or is just working the account for the Original Creditor (OC).

First, in most cases it is not generally productive to go back to the OC, since most 3PDC contracts with OC’s require the OC to bow-out of the collection picture. It is rare that the OC will override a 3PDC since the OC has already charged the account off as a loss, and the OC’s collection department has given up on collecting on their own efforts. Frankly, they really don’t care if you come back as a customer or not, but if you do, it will be as a CASH customer.

The only time an OC will pull an account back from a 3PDC is if the 3PDC is behaving so reckless that its actions are likely to land the OC in court along with the 3PDC. The 3PDC may or may not have attorneys on staff. Those attorneys may or may not be licensed to practice your state. The CA itself may or may not be licensed to practice in your state. These are things you can generally check on your own, before actually talking with a 3PDC.

While you are at it, research your state’s Statute of Limitations (SOL) for the type of debt the 3PDC is trying to collect. The SOL comes into play when you have not made any payment within the statutory period and the creditor (OC or 3PDC) has not started a suit in the statutory time. In many states, making a payment – any payment – on a debt re-starts the SOL.

The importance of knowing the SOL for your state cannot be stressed enough. If a debt is Outside of Statute (beyond the time frame of the Statute) then SOL becomes an Affirmative Defense if you are sued.

The purpose of the SOL is simple: the 4th Amendment to the US Constitution (and most State Constitutions, but applicable to the States by the 16th Amendment) guarantees a speedy trial. This applies to Civil matters also. The reason is simple – over time witnesses die or move away and documents get lost or destroyed. The SOL fixes a time where the creditor must sue or forget about it, and eliminates the “Justice to the Packrat” problem. SOL applies to the state in which you live at the time, not where you lived when the debt was incurred or where the 3PDC is located.

Types of 3PDC’s

There are basically two types of 3PDC’s: Letter writers and Collection Agencies.

Letter Writers only do just that – write letters.

The letters will direct you to contact the OC and will not demand payment be made to the 3PDC. One of the larger Letter Writer 3PDC’s is IC Systems.

Remember though – just because they are Letter Writers doesn’t mean they are not governed by FDCPA – they are. Collection Agency letters will want the payment sent directly to the Collection Agency – so they can be sure to deduct their commission before they send the remainder on to the OC.

Both types must have the mini-Miranda on their correspondence and must honor to Validation and Cease-Comm letters. What to do when the Collector calls It is unusual, but not uncommon, for a 3PDC ‘s first collection efforts to be by telephone. The reason has to do with the Fair Debt Collection Practices Act, which you should make yourself intimately familiar with. Also make yourself intimately familiar with the FTC’s Staff Opinion Letters.

FDCPA requires communications from a 3PDC to have the “mini-Miranda” warning on it. Failure to do so is a violation of law and gives you the right to sue the 3PDC. Telephone calls, especially outgoing telephone calls, are much harder to document that the mini-Miranda has been given. The time between receipt of the first letter and receipt of the first call can be long (a week or more) or short (next day). Whatever it is, use that time to learn as much as you can about the laws and the particular 3PDC.

How you handle the 3PDC will depend on whether the debt is still in Statute or not, how long before it is out of Statute. Needless to say, if your debt is out of Statute you can play the 3PDC for all you want, and there is little he can do about it.

The purpose of this would be to set him up for a FDCPA violation, then you can “zing” him with a suit. Let him rant and rave and make all sorts of veiled threats.

Document everything, ask him to put all hat in writing. Just remember, he cannot successfully sue you. Whether he knows this or not is questionable – probably not, since he calls every state in the nation and he can’t know every state’s SOL laws. It is a certainty his employer hasn’t provided him with that information. Most collectors’ training consists of “here’s your desk, here’s your phone, here’s your computer, now go collect the money.”

If you are near (within 3 to 6 months) of SOL, then by all means send the 3PDC a “Validation Letter” to stall for time. Also, include a limited Cease Communication letter, requiring Cease-Comm for all communications except by mail. Under FDCPA they are forbidden to dun you while the Validation Letter is unanswered.

The Cease-Comm letter makes any communication with you other than by mail a FDCPA violation, actionable in Court. If they call, just remind them that there is a Validation Letter outstanding and unanswered. Also be sure to remind them of the limited Cease-Comm letter and that this telephone call is an actionable violation. If they persist in asking for money, remind them that FDCPA imposes on them the requirement to validate the debt to you upon request, which you have made. Then ask them when they will be sending you your $1000 Statutory Damages for the FDCPA violation in ignoring the limited Case-Comm letter. If the debt is nowhere near the SOL, then you must take a more defensive stance.

By now you should have read the section on “Judgement proofing” yourself and have followed as many of those suggestions as are practical. By hiding assets that the creditor can attach, you are making yourself look like a more difficult case to actually collect from.

3PDC’s are paid commission, so they tend to concentrate on the bigger dollar cases (more commissions to collect) and the easier cases – the ones they can scare into fast payment in full quick commissions).

The harder cases – both harder to actually contact, and the ones with no known assets or income to attach, with the smaller balances and who don’t scare easily, are a 3PDC’s nightmare and end to get somewhat less attention than the easier cases. This doesn’t mean they won’t work I, but when they do you will have to convince them that there’s nothing in your pot for them to get.

What Motivates the 3PDC Since most 3PDC’s are paid by commission, they are obviously motivated by the “quick kill” – a debtor they can scare the pants off who will immediately go out and do whatever the 3PDC wants to make the 3PDC go away. This is the Collector’s dream – a quick, easy commission. There are people just like that. I hope, by now, you are not one of them.

A second motivation is the psychological one – a motivation that is so contrary to our psyche that it explains the high employee turnover in the Collection industry. That motivation is the desire to get others to do what the Collector wants them to do – regardless of the hardship it places on the other person. I call this “anti-mercy”.

A successful collector relishes the “satisfaction” of scaring a debtor witless. I have heard many 3PDC’s joke and boast about how much they scared a debtor, showing off the money sent by western Union or Courier like one would show off a Super Bowl Ring. Many 3PDC’s encourage this mentality by rewarding and promoting the most “productive” collectors.

Production, of course, measured by commissions, measured by dollars collected. The human cost of this activity is ignored. Competition among the collectors within a company is encouraged. The most common cutoff time is the end of the month, so many collectors get even more aggressive in the second half of the month. This competitiveness is a breeding ground for FDCPA violations, so be especially aware of the potential for violations in the second half of the month. Tools of the 3PDC The 3PDC relies on YOU to collect his debt.

Strange as it seems, it is YOUR fears, YOUR fantasies, YOUR misinformation and YOUR partial understanding of the truth that empowers the 3PDC, and each of these is a weapon to be used against you. By carefully stating half-truths and letting your imagination run away, the 3PDC can bend your mind so that it sees what truths the 3PDC wants it to see, and pictures a future that the 3PDC wishes was the truth, but you believe it to be truth. Let’s explore a couple of common half-truths, and see where the 3PDC wants your mind to wander.

1: “If you don’t pay $X now, we will take Legal Action.” Sound familiar? That’s the most common threat – Legal Action. Did the 3PDC say “Sue”? No, he said “Legal Action”. Just what IS “Legal Action”? Simple - it’s any action that is not ILLEGAL. So, all he said was “we will do something the law allows us to do.” That could be any or all of the following: Send another letter, make another phone call, discuss it with the collector at the next desk, discuss it with the Collector’s supervisor, do nothing at all, move on to the next debtor, go out for lunch, do a crossword puzzle….. you get the idea now. In part with this threat is to turn it over to the “Legal Department” (as opposed to the ILLEGAL Department).

2: “Your Credit will be trash if you don’t pay $X now.” Let’s get real – if you are talking with a 3PDC, the account has already been charged off and whatever damage they can do to your credit has already been done. No amount you can pay right now will un-do that, and the 3PDC will resist you tooth and nail in your efforts to trade payment for Trade Line removal. The reason (they will tell you) is that they are required to report it. That is half of the truth. The truth is IF they report it, they are required to report it ACCURATELY. There is no law requiring any lender to report to any credit bureau.

3: “Paying this bill will help your credit”. Saying that is like telling the passengers on the Titanic that, while the Ocean underneath them is 10,000 feet deep, if they just swim 100 yards away the ocean is only 9800 feet deep. The boat sank anyway and they drowned. The depth of the ocean meant nothing at THAT depth. Same thing with your Credit Report. A Paid Charge Off is better than an UNPAID Charge Off, but not enough to convince a lender to approve a loan. Time is what heals this wound, not payment.

4: “Are you going to pay this debt or not. I need an answer right now.” A similar statement is “we must reach resolution on this account now.” The only problem is – if you knew how you were going to pay, wouldn’t you already be doing it? Obviously, you cannot “resolve” the matter on HIS timetable. He will twist any statement other than a promise to pay immediately into “So you refuse to pay this debt.” To this kind of aggressiveness I would merely say something like “I will know how I will resolve this and other matters when I can see a comprehensive resolution” and stick to it.

I will not get into the personal attacks the 3PDC will launch against you – statements like “What kind of example are you giving your children – you’re not mature enough to pay your bills” or “If you had any self-respect you would honor your obligations”. To these stupid statements you need not remain civil.

The 3PDC will keep you on the phone until he wears down your resistance. The longer you are on the phone, the more time he has to launch every psychological attack against you he can until he finds your “hot button”. Don’t let him. Stay on the phone no more than 3 minutes unless you see REAL progress being made (progress meaning helping you reach a resolution you can live with).

Have you been told by a creditor that your debt is about to "charge-off"? Did the bill collector make it sound like you will be ruined financially if you allow this catastrophe to happen? If you're behind on your bills, unable to keep up with payments on your credit cards and other debts, sooner or later you will hear a creditor representative threaten you with the dreaded "charge-off." So what is a charge-off anyway? Should you be worried? What are the consequences of this mysterious event?

I'll start by explaining what a charge-off is NOT. Because the term includes the word "charge," many people mistakenly think it has to do with cancellation of the account by the creditor. In other words, you can't "charge" anything on your credit card anymore. But it's not the same thing at all, and most banks will revoke charging privileges around 2-3 months before the deadline we're talking about here.

What banks and bill collectors call a "charge-off" is the point at which the creditor writes off the account balance as a "bad debt." It usually happens after six months of non-payment. After that, they no longer count it on their books as an asset. You still owe the money, of course. And they will certainly make continued attempts to collect it from you. But the creditor has been forced by the rules of accounting to zero out the debt on their financial ledgers. For causing this loss, they will punish you by placing a derogatory mark on your credit report. A "charge-off" is a serious negative mark, to be sure, but it is not the financial ruination that debt collectors would like to have you believe it is.

Should charge-offs be avoided if possible? Certainly. Does the prospect of a charge-off mean you should panic if you have no way to pay the bill? No! Is it the end of the world if the account has already charged off? No! Too often, bill collectors make a charge-off sound so bad, and they apply so much pressure, that people cave in and make payment commitments they cannot keep. Collectors usually demand payment via post-dated checks, and this frequently leads to bounced checks and even worse financial problems. Most of us are brainwashed by the banks and media on the subject of credit. Sure, good credit is important. But committing to payments you really can't afford just to preserve your credit is like watering the lawn while your house is burning down.

Here are a few simple rules to follow when trying to avoid a charge-off that hasn't happened yet:

* Don’t be intimidated or threatened by pre-charge-off collection tactics. Keep a cool head and don't take it personally when collectors try to get under your skin.

* Call your creditor to find out the minimum payment necessary to avoid the charge-off, and subsequent payments to keep the account current going forward. Don't commit to this payment (or series of payments) unless you're sure you can follow through.

* Negotiate a lump-sum settlement at 50% or less if you have the resources, or a workout plan for monthly payments that you can live with.

* Do not allow bill collectors to talk you into using post-dated checks, or providing your checking account details over the telephone. Instead, make payments via cashier's check or money order.

* Do not make payments based on a verbal arrangement. Get the deal in writing and signed by a creditor representative who has authority to approve the workout plan.

What should you do if you simply don't have the money to rescue the account from charge-off, or if the account has already been charged off by the creditor?

* Take a deep breath and relax; the sky won't fall on your head just because you had a charge-off.

* Realize that you still have an opportunity to resolve the matter by dealing with the original creditor or the collection agency assigned to the account.

* Negotiate a lump-sum settlement with the creditor or collection agency. Again, aim for 50% or less, and ask for the charge-off to be deleted from your credit report as a condition of the settlement. (Most creditors will not agree to this, but it's worth asking anyway. Do be sure that they will update your credit report to show that the matter has been resolved and the account has been satisfied.)

* If you can't work out a deal with the collection agency assigned to your account, then wait until it goes to another agency! Eventually, it will either be assigned or sold to an outfit that you can deal with to get the matter cleared up.

To sum up, a charge-off is not the end of the world. It should certainly be avoided if possible, but not at the risk of making things worse by committing to payments you're not sure you can keep up with. Just remember that the creditor doesn't want to see a charge-off any more than you do, so use that knowledge to your advantage in working out a mutually acceptable arrangement. Get everything in writing, don't disclose your checking account details, and follow up to make sure the creditor reports the matter correctly on your credit report. You'll find that it's easier than you think to resolve a charge-off situation before it happens, or clean it up if it's already taken place.

Have you ever noticed life seems to be full of sometimes exasperating contradictions, arbitraries and traps? There is no better example of this than in the area of finance. Perhaps you have heard this mantra: "Good credit is really important and everyone needs to establish credit." I don't know about you, but I don't remember a course in high school or college or any place for that matter where they taught me what credit really is, how to use it, how to avoid abusing it, when you have too much or when you have too little. Wow! It is like someone inviting you to play game, telling you the object of the game, but refusing to tell you the rules and then saying, "start!" Exasperating!

So you start to play this mysterious game called "Be Smart with Your Money and Live the American Dream" and then along comes Madison Avenue, every retailer on the planet and every creditor and they assure you that there is no need to wait. You can enjoy all the good things in life now, "on approval of credit". So you go along and ask, "What does it take to get my credit improved?

"Well son, all you need is a good FICO score."

So you ask, "How do I get a score from FICO?"

"Well, son we can't really tell you much about FICO but we can tell you that the main thing is to get credit, use it and then make those payments on time."

So you scratch your head and say, "Well ok, check with FICO and let me know what kind of score I have 'cause I agree that waiting sucks. Getting that big screen now sounds good and not paying any interest for the next two years sounds great."

They check with the mysterious FICO and your score comes back and at 620 and you think, "Wow that sounds pretty good."

And they say "Well, it isn't really that good, we can finance the TV for you but we can't let you have it interest free for 24 months."

You ask how can you get a better score and you're told "Well, we really don't know how FICO decides on your score but what we think it may be because you don't have much credit established yet so getting this TV will help build your credit."

So now you are pretty confused but it makes some sort of vague sense and so you decide to do it.

Snap! The trap is has been baited and sprung! You're up to your eyeballs and you still don't really know what happened. After all everyone is else seems to have a big screen TV too and it's weird no matter who you ask they don't know who or what FICO is either.

Almost all of us are in this trap to a greater or lesser degree. We have been artfully sucked in and it is imperative for our own survival and the survival of this country that we learn the rules of the game of finance and start to win for real.

Duane L. Anderson is the CEO of CarePlus Financial. He has been helping people out of the debt trap and reach financial prosperity for the past seven years. www.careplusfinancial.com.

I wish that I could take credit for this wonderful article, but alas, I can't. I think that you will find it very informative. It gives a lot of useful information about how collections work and the time frames they are working in. I have highlighted certain things in the article that were not highlighted, and I have made some small corrections of misspelled words. I hope you enjoy this.

Note: These comments are based on many years I spent as a Collector. They are general observations and, as a rule, are reliable – but obviously each lender may have somewhat different policies and some accounts may be handled somewhat differently, but as a rule, this is a good guide to what motivates a Bill Collector and how they think.

IN HOUSE COLLECTIONS

The purpose of the Collection Department of any lender is to collect past due payments and bring the account current while, if possible, maintaining customer loyalty and good-will.

Obviously, the collection function takes precedence over the maintenance of good will, and you will see that, as an account ages, the good-will function becomes less important and is ultimately abandoned.

Aging is a crucial concept to understand. Aging refers to the number of days past-due an account has become. Aging is important to the lender for one or both of two reasons. The first is profitability. When an account reaches 180 days past due, almost all lenders are required to charge the account off to a Bad Debt account, reducing company profits. For any accounting students reading this, they CREDIT the Accounts Receivable (an asset) account and DEBIT Bad Debts (an Expense) account. Increasing an expense account decreases profits, hence the Loss from the Profit-and-Loss (P&L) account. Charging off an account to P&L does not mean the debt is forgiven, it is just an accounting entry in the lender’s books.

The second reason aging is important is that, except for banks, the average age of delinquent accounts directly affects the lender’s cost of funds. The higher the average age, the higher the interest rate the lender pays for funds, and the lender’s collection costs are paid by delinquency charges assessed (Late Charges and Over Limit Charges) as well as the “spread” (meaning difference) between the interest rate paid and the interest rate collected. The larger the spread, the larger the profits.

When the first payment is missed, the account is classified as a “30-day” account – the very mildest of delinquencies. The policy of the lender could be that the 30-day status is conferred immediately after the grace period, or 30-days after the payment due date. For our purposes, we will assume that it is conferred when the grace period expires. Some lenders send their first letters before the expiration of the grace period. The first actual collection letter is usually sent just after the grace period expires and shows the assessment of the late charge. The tone of the letter is almost apologetic and I have seen some that actually give a list of excuses for missing the payment, asking the borrower to “pick one” and send in the errant payment.

Towards the end of the cycle, it is possible that a collection telephone call may be made. The collector will be very cooperative and will accept any excuse that ends with “I’ll send the check on…..”. At the end of each cycle, one of two things has happened – either a payment (or more than one payment) has been made, or it hasn’t. We will assume it hasn’t.

To understand the concept of “aging” you should think of a room with a computer, 4 desks and a door. The first desk in the “30-day” desk, the second is the “60-day” desk, the third is the “90-day” desk, the 4th is the “Pre-Charge-off” desk. At the end of the grace period, the 30 day desk gets the account to call. If a payment is made, the account goes out of collections. If no payment is made. The account “ages” to the 60 day desk. The 60-day collector gets to work the account for a month. If one payment is collected the account goes back to the 30 day desk. If two payments are made, the account goes out of collection. If no payment is made, the account ages to the 90-day desk. If the 90 day collector can collect 3 payments, the account goes out of collection. If only 2 payments, the account goes back to the 30 day desk; if 1 payment the account goes back to the 60 day desk. If the 90 day collector can’t get any payments, the account ages to “pre-charge off”.

The pre-charge off desk may or may not have any set number of days to work the account. If pre-charge off can’t collect, then the account is charged off and, depending on the company and the debtor’s status, either forgotten about, sent to a Collection Agency or sent to an Attorney for immediate suit.

Some small loan companies use a different path to charge off. Instead of just the number of payments delinquent an account is, they will measure the number of days since the last payment was made. This method is called “Recency of Payment”, and accounts are generally charged off when they pass the 90 day desk. The 30-day desk will try to keep customer good will. The 60-day desk will start making threats and may suspend borrowing privileges. The 90-day desk will almost certainly close the account to future charges and will not give any consideration to maintaining customer good will.

If the account is an auto loan, the repossesor is probably looking for the car as soon as the 60 day desk gets the account. If it is a mortgage, the 60 day desk started mentioning foreclosure and the 90 day desk will be refusing anything except payment up-to-date. It is unlikely Auto Finance or Mortgage lenders will have a ‘pre-charge-off” desk. Their accounts will generally go straight from the 90-day desk to a Collection Agency or Attorney.

Each of the collectors in-house is paid by Salary, but their effectiveness (and therefore tenure and raises) are determined by how few accounts age past them, and the dollar volume of those accounts. That is why a large balance account gets a lot more aggressive collection attention than a small balance account.

Each collector will make notes of each conversation, and that’s how they will know that you missed the payment last month because your Aunt Sadie died for the 6th time. Collectors are trained to look for your hot-button – the one thing you fear the most they can do to you, and to exploit it. If they sense your concern for your credit rating, they will mention that it is going down the tubes; if they sense you don’t want to get sued, they will make it sound like the Judge is sitting right next to them. At the 60 and 90 day desks they may gang up on you in a variation of the “good-cop, bad-cop” shakedown; one will settle for nothing less than paying off the account in full and the other will “settle” for just bringing the account current.

COLLECTION AGENCIES

Once the account has been charged off to P&L, it is most likely to be sent to a Collection Agency (CA). The CA must, by law, send you a letter saying that the account has been placed with them, that you have the right to validation of the debt, that anything you say will be used for collection purposes and more. See the Fair Debt Collection Practices Act page for complete information on this “mini-Miranda” (named after the Miranda Warnings police are required to give when making an arrest.)

CA’s do not have the aging concerns that the original lender has because the account has already been charged off. The CA’s concern is to get as much money into their hands as fast as they can because they are paid on commission. CA commissions generally run 25% to 40% of the amount collected. You can consider the CA as just an extension of the Original Creditor’s (OC) 90-day desk.

They will do the same thing, say the same things, make the same threats. It is not uncommon for a Lender to send a debt from CA to CA, especially if the first CA couldn’t collect. Collection Agents tend to concentrate on the “easy money” – people they can easily get on the phone and have hot buttons they can find and exploit. People who are hard to get ahold of or who exhibit no hot buttons they will work a couple of times and just move on.

The size of the account will have little effect on the CA’s desire to work it, since the commission is the same on a debtor paying off a $100 account or making a $100 payment on a $5000 balance.

JUNK DEBT BUYERS

Junk Debt Buyers are companies that buy large portfolios of defaulted debts for a couple of pennies on the dollar and try to collect 100 cents on the dollar. Except for the fact that they own the debt rather than are collecting for someone else, they are the same as Collection Agencies. There is a separate post in the Collection Agency area that discusses them at greater legnth.

COLLECTION ATTORNEYS

Except for the actual ability to file a lawsuit, Collection Attorneys are no different from CA’s. They just THINK they are. There is a separate post in the Junk Dedbt Buyer section that addresses them more completely.