Debt Management Strategy

Unemployment is one of the more difficult and stressful situations many of us will encounter in our lifetime. We have resources to assist us in our job search, family and friends to support us when we are emotionally down, but what do we do when we no longer have the resources to meet our monthly obligations. Admitting we can no longer afford to pay our bills can be terribly frightening and a serious threat to our security and well-being. Financial and credit problems are one of those problems no one wants to talk about.

The leadership at FWCSN is providing this resource for informational purposes. If you are currently struggling to meet your monthly obligations or will be faced with the prospect in the near future, please do your due diligence by consulting multiple sources. Hopefully, the information in this document will bring to light some options and strategies for dealing with financial problems and equip you with the knowledge to make better-informed decisions.

Take Initiative

What do I do, I cannot afford to pay my mortgage this month?

1. Take the initiative call the lien holder and explain your situation. Debt collectors are accustomed to initiating contact and taking control of the situation. By taking a pro-active stance, you tell the lien holder you are responsible, reasonable and approachable. This will work to your favor when negotiating payments.

2. Document your conversation. All companies keep records of the date and time of the phone call, who they spoke with, what was said, and the tone of the conversation. You should do the same. Your records will give you a starting point for your next conversation and provide a database that you may need to reference in the future, especially if the creditor is miss communicating a prior conversation.

3. Develop a relationship. When you find an associate you have a rapport with, ask if you can get their name, extension and the times they work. EXAMPLE: “I appreciate the help you have given me and the information you have provided, would it be Okay if I ask for you in the future”? Not all associates will be able to do this but it does not hurt to ask. This person could be your advocate in the future. The Supervisor or Department manager, someone authorized to make decisions is ideal.

4. Verbal agreements you make to pay are not legally enforceable but if you know you will be unable to honor the agreement you made, call the lender before you promise date and time have expired and make a new agreement. You are reinforcing with the lender you are responsible and approachable. This may help you with future negotiations.

Know Your Rights

You have the right to remain silent. You do not need to disclose any information that can be used in the effort to collect money from you. Your creditors are regulated by state law but many of them follow the guidelines stated in the FDCPA.

The Fair Debt Collection Practice Act (FDCPA) are the federal laws that protect you from collection agencies and attorneys. Some rules covered by the law are:

• Collectors cannot swear or be demeaning in any way
• Collectors cannot harass a consumer
• Collectors cannot call before 8:00 A.M. or after 9:00 P.M
• Collectors cannot call you at work if they know your employer bans such calls
• Collectors cannot mention lawsuits; garnishments, levies etc. without prior consent from their client, and can only do so it their intention is to pursue further action.

If you feel your rights have been violated, you have the right to sue the collector and their employer. You can collect up to $1,000- per violation. This is where your documentation, records or correspondence and communication with the collectors will be needed to prove your case. Formal complaints can be filed with the State of Texas Attorney General or with the Federal Trade Commission. Remember, if you write a letter to the creditor or collection agency requesting a stop to all phone calls, they are under obligation to honor your request.

Options and Strategies for 1st Mortgage

30 days or less

Mortgage holder does not take action against the borrower. Some lenders will not call you until the loan is greater than 30 days past due.

• Call the mortgage service provider before the loan is 30 days past due. Find out the options the service provider offers to its borrowers.
• Apply to refinance mortgage if there is equity in the home.
• Be realistic, if you cannot afford the house even if the payments were much less, prepare to sell the home before the lender begins the foreclosure process and your credit score takes a big hit.

30 – 90 days

The loan will be in the collections department. The collectors’ primary objective is to bring the loan current. Pay up Now.

• If you are unable to arrange to bring the loan current, insist on dealing with the “loss mitigation” department.
• Try to negotiate alternative payment arrangements.
• Temporary reduction or waiving of payments.
• Set up short-term installment loan to repay past due payments and fees.
• Add past due amount to loan principle and increase payment accordingly.
• The Service providers have different programs; it may take time and persistence to uncover the options.

90 Plus

Texas law requires prior to initiating a foreclosure the lender must send a demand letter requesting the payment of past due amounts which gives the borrower twenty (20) days to pay any past due amounts otherwise foreclosure proceedings will begin.

• The lien holder will file a “notice of default” with a local courthouse saying the foreclosure process will begin unless you make good on past due payments. It usually takes 60 days for the process.
• If your financial crisis is behind you a “workout or loan modification” may be the solution to keeping your home. You will need a pile of documentation to make your case.
• If you owe more than what the home is worth, you can try for a hardship exception. Make a formal written request to lower the principle loan amount, and lay out the amount you can afford for principle, interest, insurance and taxes.
• Bankruptcy 7 will stop the foreclosure and eliminate the past due payments.
• Bankruptcy 13 will place the mortgage in a repayment plan.

Options and Strategies for Utility Bills

Current

• None
• If you are current, contact provider to sign up for budget billing. Average your yearly bill to avoid seasonal up’s and downs.
• If applicable inquiry to the availability of senior citizen and or disability discounts.
• Energy Assistance Grants: Annual income below $11,963 for one person or $16,038 for a couple may enable you to qualify for grant. Call service provider for details.

30 + past due

Service providers’ collection department will attempt to collect entire amount due.

• Call utility up front and communicate your financial situation you’re your willingness to cooperate.
• Attempt to negotiate a payment plan that is affordable to you. If you miss one payment, the entire amount will be due.
• Contact TDHCA, Texas PUC, United Way, or TXU Energy Support (If applicable) for eligibility in energy assistance programs

90 + past due

Service provider may be making plans to shut off service.

• They are required to deliver a “Disconnect Notice”. You will have at least 10 days to make an arrangement.
• If shutting off the utility will make a medical worse, obtain a letter from your doctor to submit to the utility company. This will delay a shut off up to 63 days.
• The utility cannot shut off power if the National Weather Service issues a heat advisory or the high temperature did not exceed 32 degrees.

120 – 180 days past due(plus)

The utility company will send your past due bill to a collection agency. Fees and interest will start accruing on the balance.

• Collection agencies want all the money now, but a well-considered settlement may be accepted.
• The agency may be authorized to set up a monthly payment installment plan.
• The past due amount will be wiped out in a Bankruptcy Chapter 7.

Options and Strategies – Vehicle Loan

Current

None

• If you know, you will be unable to make the next payment explore options.
• Defer 1 month’s payment to end of loan.
• Inquiry if a refinance is an option.

Current – 30 days past due

Lien holder will send mail request for payment, usually after 10 days past due and attempt to collect the payment before the loan is 30 days past due.

• Call lien holder to inform of current situation.
• If lien holder does not refinance its own loans, try refinance with lendingtree.com or other.

30 – 90 days past due

Lien holder will continue to attempt to collect payment.

• Will consider repossession, notice or consent is not required in Texas.
• Inquire into the availability of hardship refinance or loan modification program.
• Lender may be willing to reduce interest rate and extend term to get monthly payment to affordable amount.
• Request payment arrangements to bring account current.
• Consumer Credit Counseling may be able to negotiate on your behalf.

90 + days past due

Lender will repossess vehicle and sell it at auction, if it has not done so already.

• It may attempt to collect money from you after selling the vehicle if the sale amount did not pay off the loan balance.
• If lien holder repossesses your vehicle, ask if they will allow you to reinstate the loan.
• This is the period after the vehicle has been repo’d but not sold that may allow you to bring the loan current and get the vehicle back.
• A voluntary repossession will usually result in lower fees to the lien holder and make the amount they try to collect from you in the future less
  Bankruptcy will wipe out debt.

Options and Strategies – Revolving and Credit Card Debt

10 – 30 days past due

Past due notice, phone calls from creditor may start at 20 – 25 days past due

• Take initiative, call creditor and let them know you will be late.

30 – 90 days past due

Bank will increase frequency of phone calls in attempt to collect past due amount.

• Tell supervisor or manager you want to make good on the debt but cannot afford at this time.
• Is there an alternative payment plan available?
• Is Forbearance available? It stops clock on fees and interest due to unforeseen event like job loss.
• A workout may eliminate all fees and interest to avoid loss, forfeiting card would be expected.
• In situations of multiple cards and balances, Consumer Credit Counselors may be able to negotiate on your behalf.
• You pay CCC on a month and they pay your creditors.

120 plus days past due

Credit cards with larger balances may open you up to legal action. The creditor will charge the debt off after 180 days, reporting a negative rating to credit bureau. The charged off balance may be assigned to an outside collection agency.

• Negotiate a settlement to pay less than full balance, get it in writing.
• Debt Settlement Companies.
  • The company negotiates on your behalf with your creditors a settlement that may pay between 20 and 50 cents on the dollar.
  • You pay the company and they pay the creditors.
  • Do your research; many companies have scammed unknowing consumers.
  • Make sure they have a good rating from the Better Business Bureau.
  • Bankruptcy will wipe out unsecured revolving and credit card debt.

Options and Strategies – Income Tax Liens

Day 1

The first notice will be a bill explaining the balance due and requiring payment in full. It will include penalties and interest accrued from the day the tax was due.

• Pay the balance in full or request a monthly installment agreement.
• If you are experiencing a financial hardship, the IRS may temporarily suspend collection action.

10 days after Notice

10 days after you receive, “Notice of Federal Tax Lien”, the IRS will file a lien. The lien is a claim against property you own. A Notice of Levy is another method the IRS may use to collect taxes. Levying means the IRS can confiscate and sell property to satisfy a tax debt. This property could include your car, boat, or real estate. The IRS may also levy assets such as your wages, bank accounts, Social Security benefits, and retirement income.

• Offer in Compromise is an agreement that resolves the taxpayers liability by reducing the amount owed.
• The taxpayer can negotiate on his or her behalf directly with the IRS or retain the services of a Tax Attorney, Enrolled Agent or CPA to negotiate on their behalf.
• A Bankruptcy would result in an automatic stay that may prohibit collection activity by the IRS until the bankruptcy has been discharged but it will not erase the tax lien nor your obligation to pay.

Resources

Consult with www.bbb.org before contacting any Debt Settlement company.

You may email questions to FWCSN member Jeff Hubbell at jhubb64@hotmail.com.

Disclaimer: The information contained within is for general information purposes. Reliance on this information is strictly at your own risk.