UNIT 4 – When Credit Goes Bad

3-day Rescind Period – “Cooling off” period. Every debtor has the right to cancel the new loan or a purchase within 3 days FAIR CREDIT REPORTING ACT – if you are denied a loan, this gives you the right to see your credit file (for free) within 30 days of being turned down for the loan THE TRUTH IN LENDING ACT – Lenders are required to tell you IN WRITING the true interest rate & total finance change before you sign the application; can’t mislead in false advertisements (See p. 270). I. What to do if it is THEIR (the creditor’s) fault? What RECOURSE (ways to remedy unfair treatment) do you have as a debtor if the creditor made an error?  Dispute charges (if an error was made)  Send a letter to the creditor explaining the problem (See p. 271) FAIR CREDIT BILLING ACT – applies to open-end credit only; protects consumers who have billing disputes; creditors don’t charge interest on the disputed amount until it’s resolved A. CONSUMER ADVOCACY GROUPS  Better Business Bureau (BBB) – promotes responsible business practices  Consumer Action – Nonprofit organization that helps consumers in the media & before lawmakers  Consumer Federation of America – Advocates for consumers through legislation  Consumers Union – Publishes Consumer Reports; An organization that tests & gives information about goods & services  National Consumers League – Sponsors the National Fraud Information Center; addresses a wide range of issues  Public Citizen – advocates for consumers through legislation regarding environmental protection

For the most up-to-date info, go to: www.Find-it.wa.gov This is a service of the Washington State Library B. FILE A LAWSUIT 1. Small Claims Court (amount in question must be under $5,000) . File a “complaint” against the party, “serve” the complaint via certified mail, appear before a judge, who hears both sides of the story & makes a “ruling” . Can go to Small Claims Court for suits against individuals, too 2. For amounts higher than $5,000, contact an attorney II. What to do if it is YOUR fault? – Going “delinquent” is overdue debt  Contact creditors – see if they are  Change the due date willing to work with you  Make payments every other month  See if they will not assess late fees  Re-finance the loan A. Reasons you may get into debt trouble: 1. Spouse’s debt is your responsibility 2. Illness, then loss of job because of it 3. Divorce 4. Business losses 5. Living beyond your means (trying to keep up with the Jones family across the street)

1 B. Create a plan:

1. Spend money when have the CASH to do so 2. Put “plastic” away 3. Close unused accounts, keeping only 2-3 major credit cards (MasterCard or Visa) 4. Pay off credit balances with this in mind:

 Look at an account with lowest balance & triple or quadruple payments to pay it off first.  Make minimum payments on everything else.  When one card balance is paid to 0, start on another balance (next lowest balance or card that has the highest interest rate). C. Collection Calls & Letters 1. The Fair Debt Collection Practices Act (FDCPA) – Protects the debtor from being harassed by the collector (creditor)

 Can’t swear at you  Must call between reasonable hours (8 a.m. to 9 p.m.)  Can’t call excessively in a day or in a week (once per day, 2-3 days per week)  Can’t threaten debtors  Can’t collect (pay) more than what is owed  Can’t send the debtor misleading letters to be from a court of law or government agency Problems with a creditor can be reported to the Federal Trade Commission (FTC) If the creditor has unsuccessfully attempted to collect on your outstanding debt, they may send it to a “collection agency”. Now, more fees will be attached to your total debt 2 Consumer Credit Counseling (CCCA)

 Association of Independent Consumer Credit Counseling Agencies (AICCCA)  They help work out a budget for you or create re-payment plans by working with your creditors (ask them to accept a lower monthly payment, lower interest rate, etc.) D. LEGAL ACTION AGAINST YOU! – Ms. Sejka’s specialty! ;)

1. Repossession of cars & other portable goods – after 90 days of no payments being made, cars stand a good chance of getting repossessed. 2. Foreclosure on houses and other non-portable goods – bank takes back the property, changing the locks. 3. After property is back in the bank’s possession, the house or the car goes to auction.  Whatever is owed on the loan less the auction price = amount still owed by the debtor  Debtor still must pay the remaining balance – can negotiate a settlement amount OR wait a couple years (when you want another house or car) then pay it off For example, a car repossessed on Nov. 15th: : Nov. 15th Outstanding car loan balance: $12,500 2 Nov. 25th Car sold at auction: - 10,000 Nov. 26th Remaining debt still owed 2,500 Nov. 30th: The $2,500 gets charged off or written off as a “profit & loss write off” & shows up as such on your credit bureau as a debt YOU STILL OWE The “recovery department” in a bank attempts to collect the $2,500 from you, coming up with monthly payment amounts or a settlement amount If no arrangements are made, the bank will sue you to get a “judgment”

JUDGMENT – this is a ruling by the courts that say you must pay this debt 1. LIEN: Once a judgment is obtained, the bank can put a lien on any property you own. The property cannot transfer to a new owner until this debt is paid off first 2. GARNISHMENT: when bank contacts your employer & legally has the amount deducted from your paycheck & sent to the bank (only a portion in each paycheck can be deducted) Once you PAY OFF (or settle) the remaining $2,500, your credit bureau will reflect a 0 (zero) balance owed, but will STILL say “Charged off Repossession” for 7 years after the final payment was made E. BANKRUPTCY – last resort when too deeply in debt! Must have been enrolled in some sort of Credit Counseling for at least 6 months prior to being allowed to file bankruptcy (as of 2005) 1. Chapter 7 Liquidation  All unsecured debt goes away (it gets “discharged” after final court date & assets are sold)  Must turn in assets of other debt (car if have a car loan)  Must show a very low income or be unemployed  Must go to financial counseling  Can have “exemptions” that will allow you to keep your house – vary by state bankruptcy laws 2. Chapter 13 Wage Earner Plan  Debtor still has a good source of steady income  You want to keep your assets, so work out a payment plan to re-pay the debts (smaller payments, lower interest) over a 3-5 year period  Judge makes the final decisions on any asset that MUST be turned back to the creditor & how much all creditors will get paid.  Since creditors are re-paid, they are happier   Since you are repaying most of your debt, it looks “better” on your credit bureau  Creditors must stop accruing interest & assessing late fees on the account at the time of the filing New laws in 2005: Make it harder to file Chapter 7 as they want debtors to HAVE to pay back most/some of their debt; so, more Chapter 13 filings are occurring now. 3. Chapter 11 – Similar to Chapter 13, but for a business or corporation. AKA: “reorganization”

DEBT that still must be paid off in a bankruptcy:  Student Loans  Child Support

3  Spousal Support (alimony)  Tax debt  Fines & penalties from crimes Bankruptcies stay on credit bureaus for at least 10 years!!! III. CREDIT SCAMS & RELATED CRIMES A. Credit Card Fraud – When someone intentionally uses your credit account to steal money or goods (See p. 253 for ways to prevent fraud).

B. Scams – fake offer, sale or other gimmick asking you for money  Bernie Madoff & his ponzi schemes – research him!!

C. Identity Theft – When someone uses your personal information without your permission to commit fraud or other crimes; one of the FASTEST-GROWING crimes in America!!

 Stolen purses (social security cards, license, etc.)  Stolen from your mail  Stolen from recent purchases made at businesses

D. Phishing – an internet scam when an email message is designed to look like an official message from your bank or other creditor

 Commonly asking for you to re-enter your account numbers, passwords, social security numbers, etc.  Do not reply at all to these messages!  Contact the company being represented & let them know – they will ask you to forward the message to them

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