Bankruptcy FAQs

bankruptcyNo one ever wants to file bankruptcy, that’s for sure. But if you’re having financial difficulties you owe it to yourself to educate yourself on the basics of bankruptcy because it might just end up being the best solution for you afterall.

Today I ran across an excellent resource that answers virtually any question you would want answered on the topic of personal bankruptcy. Some of the most common questions people have about bankruptcy are:

Here’s the link:

http://www.acclaimlegalservices.com/faqs

It’s entirely possible that you won’t need to file bankruptcy to solve your financial predicament. But before making your final decision I believe it’s wise to at least explore all of your options before proceeding.

Cross-Collaterization: Yes, They Really Can Take Your Money

Cross-CollateralizationYesterday I got a call from someone saying that his credit card company just went into his checking account and cleaned him out. They took his money and gave no advance warning. He was flabbergasted and wanted to know if this was legal.

As much as I hate to say it, the answer is yes.

However, don’t get worried that you immediately have to move all of your money to a Swiss bank account. The circumstance that allowed this person’s credit card company to just go into his checking account with no prior warning is a somewhat unique situation that will probably not apply to most people. Let me explain.

What allowed the credit card company to just go into this person’s checking account is something called cross-collateralization. It means that if you have money in a checking or savings account and you have a credit card with that same bank then the bank can go into your checking account to satisfy a past due balance on your credit card because your checking account and credit card are under the “same roof”, so to speak. In other words, the money in your checking account is serving as collateral on your unpaid credit card balance.

HERE’S AN EXAMPLE

Let’s say you have two credit cards, one with Wells Fargo and one with Bank Of America. And let’s say you also have a checking account with Wells Fargo.

Now let’s say you lose your job and you are unable to make your monthly credit card payments to Wells Fargo and Bank Of America. Because you have a checking account with Wells Fargo, Wells Fargo could then automatically go into your checking account and help themselves to your money to satisfy the past due balance on your Wells Fargo credit card. Bank Of America, in this example, would not be able to touch the money in your Wells Fargo checking account.

It’s important to note that the bank would only go into your checking account and take your money if you had a *past due balance* on your credit card. If you’re current, you have nothing to worry about.

Now you know.

The Credit Card Accountability, Responsibility and Disclosure (CARD) Act

President Obama signs the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 

President Obama signed the Credit Card Accountability, Responsibility and Disclosure (CARD) Act on May 22, 2009, which provides a sweeping overhaul of how consumer credit is handled by credit card companies. The bill provides strong and reliable protections for consumers against what some have considered unfair and deceptive practices by certain financial institutions.

The new law will go into effect in about 9 months. Below are the key elements of the bill:

President Obama summarized these new changes by saying, “We’re not going to give people a free pass; we expect consumers to live within their means and pay what they owe.  But we also expect financial institutions to act with the same sense of responsibility.”

For more in-depth information on this new bill, please visit:

http://www.whitehouse.gov/blog/A-New-Era-for-Credit-Cards/

http://www.creditcardreform.org/learn.html

http://www.creditcardreform.org/pdf/dodd-summary-509.pdf

Credit Card Charge-Off vs. Credit Card Write-Off

 charge off vs write off

 

 

 

 

 

 

 

 

 

A charge-off and a write-off sound a lot alike, but they are two very different things. 

Charge-Off

The term “charge-off” equates to when a credit card account reaches 180 days past due. At that point, the credit card company is required to reclassify the account for accounting purposes. Specifically, from a performing asset to a non-performing asset for the bank.

 However, even though a credit card account has been reclassified as a charged off account, the credit card company still reserves the right to pursue collection of the outstanding balance.When a person hears the term “charge-off”, they often mistakenly think that they’re in the clear and that their debt will be forgiven. Not so. If only it were that easy. As mentioned above, a charge-off is simply a reclassification of the debt, and unfortunately you still owe the money even if the account has charged off.

Credit card companies handle charged off accounts in a variety of ways:  

Write-Off

A “write-off” on the other hand is when a creditor forgives a portion of the balance that is legitimately owed. For example, if you owe $15,000 and a creditor agrees to settle the account for $0.50 on the dollar, they write off $7,500.

Debt Collectors And Charge-Off

When an account charges off, the credit card company will place a derogatory mark on your credit report as a way of penalizing you for not paying as agreed. This is standard procedure.

When attempting to collect an outstanding debt prior to the charge-off point (i.e. 180 days) debt collectors often make a big deal about the “ramifications” of having a charge-off appear on your credit report. They often try to create the impression that you’ll be ruined financially if a charge-off shows up on your credit report.

Naturally if you have the ability to pay, then you should honor your obligations. But if you’re having financial difficulties and you just don’t have the money to pay, then you can’t pay. It’s that simple. If your credit report gets dinged in the process, so be it. Life will go on. It’s not the end of the world.

In summary, you don’t need to be intimidated by a debt collector threatening you with the “dreaded” charge-off on your credit report, because now you know that charge-off is merely a *reclassification* of the debt that signifies that an account is at least 180 days past due.

Reference:

Office Of The Comptroller Of The Currency – Comptroller’s Handbook, Credit Card Lending
http://www.ffiec.gov/ffiecinfobase/resources/retail/occ-comptrollers_handbook_Credit%20Cards.pdf

Credit Card Bailout … Your Lucky Day?

During the past several weeks, one question that clients and prospective clients have been asking me every single day is, “What effect is the current financial crisis in the U.S. (as well as the rest of the world) going to have on my ability to obtain a settlement for less than full balance with my credit card company?”

My reply >> ”It’s probably not going to change much at all, at least for the foreseeable future.”

As I probe a little further and delve beneath the surface, what I believe many people are asking me in a roundabout way is …

1. Do you think that maybe my credit card company will go bankrupt like Lehman Brothers and I could get off not paying anything?

2. Do you think that maybe the banks are hurting so much for money right now that they would take just about anything they could get, and maybe I could lucky and settle my account in full for say $0.10 on the dollar?

3. Is there some provision in the recent $700 billion government bailout package that allows for credit card debt relief for consumers?

I wish I had better news for you, but unfortunately the answer to all three questions is no.

For the past decade I’ve witnessed peaks and valleys in the strength of our economy, although nothing like we’re presently going through, and the effect of a credit card company’s willingness to grant debt relief on outstanding balances has been negligible. Strange, but true. It’s stayed pretty consistent in good economic times and bad.

Certainly there have been periods where various credit card companies and collection agencies go through a temporary cash crunch, so they might temporarily loosen their settlement guidelines just to get some quick cash in the door. But the key word here is temporary. Remember, financial institutions are not in the business of permanently taking large losses.

What I continually tell people is that if you are having financial difficulties and you are seeking debt relief by attempting negotiated settlements with your credit card companies for less than full balance, you need to make that decision based upon how things are today regardless of what events may or may not happen in the future. If some massive bailout occurs in the future regarding credit card debt relief, that’ll be a bonus and you’ll certainly hear about it on the evening news.

If our global financial crisis worsens, things might change dramatically regarding credit card debt relief. But if things do dramatically get worse, I think we’re going to have more serious problems to deal with than outstanding credit card debt.

For now, though, it’s still business as usual with regard to credit card debt relief.

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