Hidden Risks of DebtConsolidation

Debt consolidation is combining outstanding loans (debt) into a single package (consolidation). The debts therefore become one “new” loan. Instead of making several small payments on the loans you used to have, you make one payment on the new loan. Ideally, this payment will be smaller than the previous payments added together. Occasionally people ask whether debt consolidation is a good, economically constructive solution to credit card problems. Usually, the answer is that it is not. Certainly not as a solution all by itself. This article discusses some of the drawbacks of debt consolidation.

Debt Consolidation Loans

Debt consolidation is combining outstanding loans (debt) into a single package (consolidation). The debts therefore become one “new” loan, and instead of making several small payments on the loans you used to have, you make one larger payment on the new loan. Ideally and typically—and what has made debt consolidation loans popular as a home remedy for debt—the new loan is secured by some asset, often your home, and this allows you to obtain lower interest rates. Thus consolidation, in the  final analysis, is the conversion of debt that is not secured into debt that is secured by some real asset, in exchange for lower interest rates. It can reduce your monthly payments considerably, and of course that could be very helpful.

It also converts “old” loans into new loans, giving them a new statute of limitations (new life for loans that could be at or near their time of expiring). And it can even turn loans with short statutes of limitations into loans with long ones).

Why Doesn’t Debt Consolidation “Work?”

Economics

As a pure financial transaction, exchanging a lower interest rate for a security arrangement can be a very reasonable decision. Why then has it been such a disaster for so many people? Risk. Most people entering into complex financing are not able to assess risk and account for it, particularly when they are under economic pressure—which they usually are when they consider debt consolidation loans. Thus people systematically underestimate the risk that they won’t be able to make the payments on the new debt.

Additionally, since most people do not really want to go into debt in the first place, the existence of large credit card debt is indicative of other problems, either too little money or a tendency to overspend on unnecessary items. These issues are more likely to be made worse by the sudden reduction of economic pressure and the sudden, apparently greater amount of money or credit available to be spent.

The Hidden Legal Risks of Debt Consolidation

In addition to these “systemic” issues, there are two other main hidden costs of consolidation that should be considered: loss of flexibility, and the nature of secured debt versus unsecured debt.

Consolidated Loans are Less Flexible

When you have ten loans for different things, from automobiles to credit cards, you have flexibility if hard times strike. If you simply cannot make your payments, you can give up some, but not all, of the things you have purchased. You can let some, but not all of the credit cards go into default.

This is certainly not a happy thing, of course, but it raises the possibility of individualized debt negotiations, debt forgiveness, or even missed statutes of limitation. Again, these are not the choices and hopes of someone in flush economic conditions, but they are real options facing many people right now. In order for a debt collector to start garnishing your wages, it must find and sue you, must win, and then find your assets. It is an expensive and risky process for the debt collector if you fight. They sometimes drop the ball, and there are limits to how much of your wages can be garnished.

If everything else fails for you, you can declare bankruptcy, where homestead exemptions are likely to allow you to remain in your home.

The Nature of Secured Debt

The bigger risk of debt consolidation loans is the nature of secured, versus unsecured, debt. Remember that what powers the lower payments for consolidation is the existence of security—usually your home. Your home secures the debt, and that means that if you do not make your payments on the new debt, the lender can foreclose on your home and take it away. Foreclosures are generally “expedited” proceedings, meaning that your defenses are limited and the time for asserting them is restricted. In many states foreclosure is not even a judicial proceeding, although you have some legal rights you could assert in certain circumstances.

And what all that means is that instead of facing the prospect of years of battling over high-risk debts and questionable payoffs that could be trumped by bankruptcy or homestead exemptions, the banks can waltz into court and emerge in a very short time with your house. Put a little differently, your debt consolidation loan could make you homeless almost before you know it. And bankruptcy often, if not usually, will do nothing to protect you from it.

Anyone considering debt consolidation should think about these risks very carefully.

Easy Way Out of Debt

Is there a “Silver Bullet” to Debt Collectors?

In mythology, one of the few effective ways to kill magical creatures is with silver, and so a “silver bullet” is a semi-magical response to stop something bad. Is there a silver bullet approach to the debt collectors? Is there something you can do, with little effort, that will just make them go away? There seems to be a cottage industry of people selling that sort of easy one-size-fits-all solution.

The debt collectors make their living off that kind of thinking.

There are NO Free Lunches in this world, but you have a great chance

You have to stay away from magical thinking if you want to have a chance when the debt collectors sue you. Fortunately, theirs is a business that is set up like a factory, and if you put in a little effort, you can find and do the things that work. They do take some effort, and they won’t always win, but there are things that make you much more likely to win than to lose. And once they see you’re ready to stick to it, they may very well walk away from the whole thing.

After all, they make their money off people who don’t fight or don’t know what they’re doing. We help you do both, and your chance of winning is very, very good.

As we often say, around 90 percent of people being sued for debt do not defend themselves. Consider what that means: it means that it’s really more expensive for a debt collector to find out whether it has a good case against you – much less to build it and beat you in court if you fight  – than just to bring cases and dismiss them if things get tough. And that’s exactly what most debt collectors do. Therefore, rather than look for words to scare the debt collector away, it makes sense to build a tough defense that makes them work hard to try to beat you.

Do the things that give yourself a chance to win and the things that make it tough for them to beat you. Then you probably will win if they don’t walk away first.

 

What is Debt Settlement?

What Is Debt Settlement and Negotiation?

If you are being contacted by debt collectors for original creditors or debt buyers, there are things you can do to protect yourself. You may want to negotiate with them effectively so that you can pay them and minimize damage to your credit report or reduce the chance of their suing you, or you may just want to make them leave you alone.

Whatever you want, though, there are legal protections and tools you can use to move things forward and avoid hurting yourself in the future.

Know Who Is Trying to Get Your Money

It starts with knowing who is contacting you and what they want – and what they can or might do to you if they do not get it. Likewise, it is good to know what you can do to them, depending on how things develop. There’s an old saying that almost all lawsuits settle after negotiations, but that negotiations always occur “in the shadow of the law.” That is, what you will have to do after settlement has a lot to do with what they could make you do after trial. Thus there is a lot of information here designed for people suing and being sued – that’s how you know where the shadow of the law falls.

Credit card companies are different than other large companies or small businesses, and both are different than debt buyers. Talking to a bill collector inside an original creditor is different than talking to one outside the company, and it is yet another thing if you are contacted by someone on behalf of a debt buyer. It sometimes even makes a difference whether they call you first, or vice-versa. These are all important things to keep in mind. And there are many others. We have materials on the site that will help you understand how these things can affect your negotiations, and we have products that will make it easier for you to do what you need.

Debt Settlement – Not “One Size Fits All”

Many debt settlement companies attempt to force creditors to the negotiating tables by withholding payments. This is not always a good idea. There are also other alternatives, and we discuss some of those and ways you can act to minimize the damage to your credit report by negotiating with creditors, where possible, before that damage has occurred.

If you are negotiating, you will want to act in your strategic best interest, and our materials are designed to help you do that.

Conducting Discovery When Sued for Debt Part 1

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Conducting Discovery when Sued for Debt Part 2

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Three Questions and Answers about Discovery

When Does the Process Begin, What Is the Court’s Role, and How Do the Methods of Discovery Relate to One Another?

I get certain basic questions about the discovery process quite often.

  • When can you begin conducting discovery? And when can the debt collector do it?
  • How do interrogatories, requests for documents, and requests for admissions relate to one another?
  • And What is the Court’s involvement in the discovery process?

The answers aren’t always clear, but this article will answer these questions to the extent they can be answered.

When Does Discovery Begin?

The simplest answer to this question is no answer at all: Discovery begins when the Rules of Civil Procedure for your jurisdiction say it begins. I have discovered that the discovery process begins at very different times for different courts.

Federal Courts

In the federal courts, the defendant can serve discovery immediately upon being served with the summons, whereas the plaintiff must wait for some time before beginning the discovery process. I guess this is a way of allowing a defendant to focus on investigating the complaint and filing an answer.

Most State Courts

In most state courts, the parties can begin discovery at the same time, either immediately or after some period of time, usually thirty days after service. In debt law cases, though, I have rarely observed that debt collectors begin discovery as quickly as they could. My guess is that they are hoping everybody will default (and most defendants do), so it would be wasteful to start the discovery process before the time for default has passed. This gives a defendant an advantage to begin the discovery process before the debt collector does, and this advantage should not be allowed to slip away.

Some State Courts

In some state courts, most often courts of limited jurisdiction (i.e., for smaller amounts, as most debt cases are), the parties are not allowed to begin discovery without an order of the court that allows it. I think this is a terrible rule. But regardless of my opinion, you need to know if that’s the rule in your jurisdiction, and if it is you need to seek an order permitting discovery as quickly as possible. Remember that discovery is an important part of your defense. There is even one jurisdiction of which I am aware where no discovery is allowed at all. In this jurisdiction, though, you can seek a trial “de novo” if you are not happy with the result. That is, you can start the whole case over in a higher up court that does allow discovery. In Maryland, on the other hand, discovery begins immediately upon service of the suit – and ends about a month later – unless you receive permission from the court.

The important “take-away” from all this is that state laws vary, and you need to know your state’s law as soon as possible. Not finding this out is asking for trouble.

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Motions to Dismiss when Sued for Debt

Motions to dismiss are different from Motions for Summary Judgment Motions. They rely only on the pleadings. This video explains what a motion to dismiss is and how to deal with it if you’re pro se.

 

 

You Can Get A Motions to Dismiss Pack

One of the best defenses to a lawsuit is a motion to dismiss, and often you must file your motion to dismiss before filing an answer or you will lose important rights. On the other hand, the debt collector may well file a motion to dismiss your counterclaim or even affirmative defenses. This Motion to Dismiss Pack helps you file a motion if you need to – or defend against the motion if the plaintiff files on against you.

It contains

  • Instructions
  • Motions to Dismiss in Debt Cases Report
  • Sample Motion to Dismiss Plaintiff’s Claims for Breach of Contract and Account Stated” in pdf and Open Office (Word compatible) formats
  • Sample Memo In Support of Motion to Dismiss in pdf and Open Office (Word-compatible) formats
  • Sample Memo in Opposition to Plaintiff’s Motion to Dismiss Counterclaims in pdf and Open Office (Word-compatible) formats
  • Basic instructions of legal research

These are the things you will need to attack the pleadings of the debt collector and begin your defense of the lawsuit. In many cases you need to do this before filing your Answer or you will lose certain important rights.

Buying Credit Repairs

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Exemptions from Collections

State Law Exemptions from Collection

Try This If You Are Garnished

Collection is an extremely unpleasant thing, and you will want to avoid it if possible. That means not allowing anybody to get a judgment against you.

We don’t include this information here to help you avoid collection, however. This information should help you understand the legal status of your assets for purposes of your negotiation planning. Remember: you should think long and hard about giving a debt collector any protected assets (which all of these exemptions are), but that does not mean you should never do so. These exemptions are the exemptions provided under Missouri law (paraphrased – look up the law for exact statutory language), but different states have very different rules on some of these exemptions (most notably on homesteads). For an exact  understanding of all the exemptions under your state’s laws, we suggest you google the term “exemptions from levy” plus your state’s name.

There are specific procedures you would follow in order to claim these exemptions if a levy (garnishment) occurred, but again, we include this information simply as a guide to understanding the legal character of your assets.

513.430 RSMo. 2010 et seq. provides the following exemptions:

1.         Household furnishings and goods, clothes, appliances, books… held primarily for personal, family or household use of the debtor or a dependent, not to exceed $3,000 total.

2.         A wedding ring worth not more than $1,500, plus other personal jewelry worth no more than $500 total.

3.         Any property, of any kind, not to exceed $600 in value in total.

4.         Implements, professional books or tools of the trade of the debtor or a dependent worth not more than $3,000.

5.         Any motor vehicle worth not more than $3,000.

6.         Any mobile home used as the principle residence but not on or attached to property owned by the debtor, worth no more than $5,000.

7.         Any unmatured life insurance contracts.

8.         Amount of any unaccrued dividend or interest under, or loan value of, any one or more unmatured life insurance contracts.

9.         Professionally prescribed health aids for debtor or dependents.

10.       Right to receive social benefit, unemployment compensation, or a local public assistance benefit, veteran’s benefits, disability, illness or unemployment benefits, or a stock bonus plan (etc.).

11.       Right to receive money or property traceable to a payment on account of the wrongful death of an individual on whom the debtor was dependent (with some limitations).

12.       A homestead consisting of a house and appurtenances and land worth not more than $15,000.

Telephone Consumer Protection Act

The Telephone Consumer Protection Act

A Law that Could Make you Some Money

 

The Telephone Consumer Protection Act is a powerful (fairly) new law aimed at businesses that call you on your cell phone without being invited – or that send you annoying, unsolicited faxes. Unfortunately, there are all too many companies that do this. Fortunately, every time they do do it, they are liable to you for $500 (plus the costs of the suit and – if you actually do have real damages – for any actual damages you can show, if they are more than the $500.

The Text of the Act

The National Do-Not-Call Registry (will help in asserting rights under TCPA)

 

 

 

 

 

 

 

 

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