credit card shock II

So you just filed bankruptcy and are awaiting that glorious moment when your debt discharges. Of course you want to keep the car that you are financing through your Credit Union. And why not? It’s a hot car. A 2015 Jeep Grand Cherokee with low miles, and a low balance on the loan. What could go wrong?

As with all car loans in Chapter 7 Bankruptcy, if you wish to keep the vehicle you must reaffirm the debt with the creditor. This is done via a Reaffirmation Agreement usually prepared by the creditor, signed by the debtor and filed with the court. So you finally receive the reaffirmation from your credit union and you happily begin to sign your name when you realize that the amount listed that you owe, is actually three times the balance you owe on the car loan! What happened?

You my friend, have been……….(queue the echo effect)……..Cross Collateralized……..dun dun duh……..

I know, you never thought it could happen to you, but it has. So what is Cross Collateralizing? I’m glad you asked.

Credit Unions are notorious for this sort of thing. You go to your beloved credit union for a car loan. You purchase your dream car and could not be happier. Several months later you go to the same credit union for a personal loan. They give you the cash and again, you could not be happier. But it is not until you see the reaffirmation that you realize what really happened.

When you signed the personal loan agreement with the credit union, you did not notice the line that stated, A default under any Loan, Note or other Loan Document is a default under all Loans and all other Loan Documents. All of the Collateral secures all Obligations.”

what does it meanIt means that the “unsecured” loan that would have discharged in your bankruptcy is “secured” by the vehicle. So in effect, you have two loans on the vehicle!

As an example, if you owed $6,000 on your car loan and had a personal loan of $6,000 with the same credit union, you really owe $12,000 on your car! And if the car is only worth $5,000, then you are very upside down on the loan. And if you are completely in love with your credit union and wish to continue having credit union priviliges, then you would have to sign and agree to the reaffirmation for both loans.

But, there is an argument to made against this practice. If you do not have a vehicle loan with the credit union and you take out a personal loan, then later you obtain a vehicle loan, is it possible for a personal loan to be “secured” by future property that does not even exist at the time the personal loan contract was signed?

This argument was made many years ago, and for a short time, the practice of cross-collateralizing accounts was dropped by credit unions. Of course, over time, as with most things, people forgot about it, opinions changed and the practice was resurected. So do not be surprised when reviewing that Reaffirmation Agreement from your credit union.

So what do you do if they have cross-collaterilized your accounts? If you wish to keep your credit union privileges then your options are limited. But if you do not necessarily care about your credit union and would not mind moving your checking account to Bank of America (perish the thought) then a good alternate option would be to “Redeem” the vehicle rather than “Reaffim”.

tell me moreWhat’s the difference you ask? Redeeming a vehicle is making a lump sum payment for the value and thereby paying off the vehicle as if paid in full, rathen than continuing making monthly payments on the current outstanding balance.

But how can this be done? My goodness, you are full of questions. But I am happy to explain……after all, isn’t that why we are here?

There are many companies out there that will “appraise” your vehicle for it’s current value and then finance you the new lower balance. A Motion to Redeem is filed with the court and if the court approves it, the new finance company will send a check to the old finance company and payoff the debt at value of the vehicle and not the actual balance. Then you begin monthly payments to the new finance company.

The appraisal is usually free of charge, but the end numbers do not always lower the payments enough to make it worth while. But in most cases the numbers are lowered substantially. This is an option. And a good option at that. Of course, as with any legal matter, it is best to consult with an attorney first.

If redeeming the vehicle turns out not to be a viable option, another option would be to surrender the vehicle back to the credit union and let the loans discharge by your bankruptcy. But of course now you have neither the credit union privileges nor the vehicle. But being stuck with a car loan that is extemely upside down does not sound much better.

So to recap. What can you do if you find that your car loan was cross-collaterized?

  1. Reaffirm the entire balance.
  2. Redeem the vehicle for only it’s current value.
  3. Surrender the vehicle back to the lender.

Hard choices. But to understand them more fully and how they fit your specific situation, it is best to discuss your case with a reputable attorney. Believe it or not, they are here to help you.

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arbitration IIar·bi·tra·tion

noun: arbitration; plural noun: arbitrations
1. the use of an arbitrator to settle a dispute; The submission of a dispute to an unbiased third person designated by the parties to the controversy, who agree in advance to comply with the award.

So, you just got your new credit card, or car or some other debt. Congratulations! Did you read the fine print? It more than likely included a clause that stated something like;

In the event a dispute shall arise between the parties to this [contract, lease, etc.], it is hereby agreed that the dispute shall be referred to United States Arbitration and Mediation for arbitration in accordance with United States Arbitration and Mediation Rules of Arbitration. The arbitrator’s decision shall be final and binding and judgment may be entered thereon. In the event a party fails to proceed with arbitration, unsuccessfully challenges the arbitrator’s award, or fails to comply with arbitrator’s award, the other party is entitled of costs of suit including a reasonable attorney’s fee for having to compel arbitration or defend or enforce the award.

What the heck does all that mean? Well, to put it bluntly, they can sue you if you miss payments, but you cannot sue them back for “shady” collection practices. What?!?!? How can this be? Well, lets back up a bit…..

A short time ago, in a state not too far away…….

star wars

Sorry, couldn’t help myself…

Midland Funding through their subsidiary Encore Capital Group began a lawsuit frenzy against hundreds of people for their old debts. The lawsuit was filed in Maryland Court, regardless of the fact that Encore Capital Group was not licensed to collect debt in the state of Maryland. Some of the people that were sued did not owe the debt that Encore was suing them for. Some of the debts had expired and were not legally collectible. But the lawsuit went through and judgments were handed out against hundreds of unsuspecting victims.

In one case, an older retired gentleman, living month to month on his Social Security income suddenly found that he was unable to purchase his medications. Frantic he went to his bank and found that his account had been emptied by Encore Capital. After discussing the case with an attorney, a class-action lawsuit was filed on behalf of all the people that Encore Capital Group had sued.

The result? The Judge dismissed the lawsuit on the grounds that class actions are banned in arbitration.! If you wanted to sue Encore it would have to be done one by one. Of course this is very expensive and no one pursued it further.

So, apparently debt collectors want their cake and they want to eat it too.

eat cakeThey want to use the courts to sue the consumer, but at the same time prevent the consumer from suing them.

This tactic is the latest strategy designed by big companies to attack the consumer and at the same time defend themselves from the same consumers. By inserting arbitration clauses into the fine print of consumer contracts, they have found a way to block access to the courts and ban class-action lawsuits, the only realistic way to bring a case against a deep-pocketed corporation.

This “strategy” can be traced to Supreme Court decisions in 2011 and 2013, that allowed the use of class-action bans in arbitration clauses

The result? A recent investigation by the The New York Times, found that banks, auto dealers, retailers, cellphone providers and other large corporation have insulated themselves against challenges to illegal or deceptive business practices. Once a class-action lawsuit is dismissed, few if any of the individual plaintiffs would pursue arbitration.

happy debt collectorDebt collectors are continually pushing the envelope of legal strategy. More than any other industry, debt collectors use the court to their advantage all the while preventing anyone from coming after them directly. Other industries have tried to follow suit. Auto Dealers successfully lobbied Congress in 2000 to make sure that they could go to court when they have a dispute with the manufactures, but requires that their customers must go through arbitration.

But the funny thing about debt collectors and their little arbitration clause, the arbitration clause was in the original contract with the original creditor, not with the new debt collector! How can courts possibly find in their favor? But they do. And in many cases, the debt collector cannot even produce a copy of the agreement in court to substantiate their claims!

oh well                                                  Oh well………

Consumer advocates have argued that a debt collector cannot enforce an arbitration agreement that was signed by the consumer with a different company. But debt collectors defend this action stating that they purchased the loan contract and the arbitration clause came with it. Hmmmmmm……… perhaps…..but as this tactic and argument are fairly new, it may take time for formal data to show how the courts are reacting to it. But a recent survey conducted by The Times, showed that this defense is working in court, and is working well. Judges routinely find in favor of the collection agencies in cases like these.

So what can you do to protect yourself?

Usually at the end of these blogs, we offer some advice or tips on how to address these sort of things. But in this case……I cannot think of anything. If you are signing an agreement with a lender and you see the arbitration clause, you have the right not to sign it. But what then? In this day and age, you need credit cards, autos and cell phones. So sign away. But be ready. It’s us versus them! And they have all the money.

C’est la vie! There is only so much you can realistically do. Review your statements. Keep copies of documents for as long as possible. If you are served a lawsuit, talk to an attorney. Defend it! Of course, bankruptcy is always an option.

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question IV

When you think of the word bankruptcy, it may be difficult to think of something less appealing. Dental visits… tongue-scrapings…proctology examinations…toe fungus…YUCK!!!

yucky faceBut in reality, bankruptcy is not the nasty, ugly thing that most people think of. Recently, bankruptcy attorney Jeff Badgley said this regarding bankruptcy; “There definitely is a stigma attached to it,” “When people hear it, they get really uncomfortable.”

This is not uncommon with bankruptcy attorneys. The issue of convincing people that bankruptcy is not a ferocious lion to be feared, but rather a gentle lamb. It is a fresh start, not a blemish on their reputation. People often feel that they are to blame. “What did I do wrong?” They think that this is a reflection of their character, reckless and irresponsible.

However, nothing could be further from the truth. Don’t believe me? Ask many of this countries most successful people and their companies. Donald Trump, as an example, files Chapter 11 bankruptcy like clockwork. When a company fails, you move on. Several large companies in Silicon Valley seem to use this method for their business model. “Fail fast, fail often” is a Silicon Valley mantra. If you approach things too carefully, nothing gets done. You cannot do nothing for fear of failure. As Dory said in “Finding Nemo” “You can’t never let anything happen to him. Then nothing would ever happen to him. Not much fun for little Harpo.”
dory IITry. Do. Fail. This is the making of a success story. Take a look at Thomas Edison. He failed considerably more than he succeeded. Michael Jordan said, “I can accept failure, everyone fails at something. But I can’t accept not trying”

The point is, sometimes things just happen. No matter how hard you try in life. Job loss. Injury. Divorce. You cannot allow these things get the better of you. Grieve, but move on. This is where bankruptcy comes in. Bankruptcy laws are designed to give people a chance to start over. They’re here for your benefit, not to punish you.

If you look into the reasons people file for bankruptcy protection, you might be surprised to find that the primary reasons for filing bankruptcy are not reckless spending. But even if that was the case, fine, you made a mistake. Learn from it and avoid it in the future.

So what then are the primary reasons for filing?
medical debt II Medical debt from a catastrophic illness. A Harvard study found that 62 percent of people filing for bankruptcy cited this as the cause. Families can be getting along just fine when cancer or some rare disease hits a family member or a car accident or an emergency operation suddenly creates substantial medical debt they could never anticipate. And even if they are insured, large deductibles or coverage that does not include their specific issues can create a financial vacuum.


job lossJob loss. In today’s economy, or really any economy for that matter, job loss typically happens without warning. Some people will need re-training to get another job or have to relocate, either of which can exhaust emergency funds, if there are any. They also could have recently purchased a home, car or have children starting college, and can’t handle payments on those bills until they get another job. And along with the loss of employment, health insurance suddenly vanishes! Unless you want to pay the expensive “Cobra Insurance”. This could mean an even deeper hole to fill.

divorceDivorce. If there were financial problems before a marriage breaks up, it’s almost certain there will be more after a divorce. It’s difficult for many people to maintain the same lifestyle when they have only half the income that was available while married. Financial obligations that could be maintained in a marriage – things like mortgage payments, credit card debt, tuition, etc – are difficult to keep up with upon a separation Additional bills can come from alimony or child care payments and legal fees for court proceedings.

There can be alternatives to bankruptcy, but when too much time has passed and debts have continued to accumulate, bankruptcy can be the most viable option. People need a chance to start over. They deserve a chance to start over. Bankruptcy can do that for those that need it.

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lost in translationBack in 2005, tough new laws were passed that changed bankruptcy forever. The 2005 Bankruptcy Reform Act was spearheaded by large credit cards companies in the hope of the eventual elimination of bankruptcy. For several years they would present their bill to congress and every year, congress would adjourn for the year before passing the bill. Then when congress returned the following year, the credit card companies would have to start the process all over again.

billThis went on for many years. Finally lobbyists were able to put the bankruptcy bill on the front burner for congress and finally in 2005 their bill was finally passed and made into a law.

bill III

However, much like “Obamacare”, once the bill was passed, it would take years to decipher the mess and make decisions on what exactly what the law stated. Many issues were forgotten, lost or ”translated” incorrectly.

One such issue that was lost in translation was the issue of tithing. Prior to this new law, tithing (the biblical practice of giving financially to your church) was protected. However, no such provision protecting tithing was part of the new law. In the early 1990s, courts were divided over whether tithing should be protected as a religious act under the Religious Freedom Restoration Act. And in 1998, a law was created to specifically protect tithing. The Religious Liberty and Charitable Donations Act, “was designed to end all this litigation,” Douglas Laycock, a religious-law expert at the University of Michigan Law School, wrote. “It changed the federal bankruptcy code.” However, the messy new bankruptcy law undid all the work done to clarify and allow personal tithing as an expense.

In a recent New York bankruptcy case, the bankruptcy trustee rejected the monthly tithing expense as a personal expense. The Judge in the case, actually wrote: “The court does not agree with this awkward, bifurcated Congressional framework which makes charitable giving easier for some debtors and not others. Whether tithing is, or is not, reasonable for a debtor in bankruptcy is for Washington to decide. However, consistency and logic would demand the same treatment of all debtors.” And so it was ruled that according to the overhaul of bankruptcy laws, those donations could no longer be shielded from creditors as a basic personal expense, like food or housing.

The president of the National Association of Consumer Bankruptcy Attorneys, Henry J. Sommer, a critic of the 2005 bankruptcy overhaul, stated. “For religious Americans who find themselves deeply in debt due to job loss, catastrophic medical expenses or other circumstances the 2005 reform legislation didn’t just reword the federal bankruptcy code, it also effectively rewrote Exodus and Deuteronomy.” He further stated “People have material needs and spiritual needs. Why should material needs be considered more important than spiritual ones? For some people, tithing to their church is more important than having a second car or TV.”


Legislation was recently proposed to address the tithing ruling. It passed unanimously in the Senate, but was not passed by the House before the recess.

Several Republican senators even went so far as to write to the Attorney General, Alberto Gonzales, requesting trustees to allow tithing. But the response from a senior official at the Justice Department said that the department was not giving such instruction, noting that trustees had a fiduciary responsibility to “look under every rock, even the church’s rock.”

And so the saga continues. This recent “wrinkle” in the bankruptcy code may eventually be ironed out, but until then, your right to tithe may be challenged by the bankruptcy court. Especially if it is the only expense preventing your budget from qualifying for Chapter 7.

Every court is different and every trustee has a their own interpretation.  So, as always, it is best to speak to a qualified bankruptcy attorney to determine how the issue of tithing may affect your case.

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happy with money IISounds like a lead-in to a joke, but this is no joking matter. A Kansas City woman, Maria Guadalupe Mejia, recently sued Portfolio Recovery Associates, LLC for violation of the Fair Debt Collection Practices Act. The jury awarded her $83 million! Wait……what?  You heard right.  She was awarded $83,000,000.00!!!

Granted this may be an extreme case, but the concept is the same for everybody. If a creditor or collection agency pursues a debt illegally, you have rights, and they can be punished.

So what happened in this case? To begin with, the debt was not even hers. After informing the creditor on numerous occasions that she was not the debtor, Portfolio Recovery continued to harass her and went so far as to sue her in court. All over a $1,000 debt.  Of course, Portfolio Recovery Associates will not go down without a fight. Spokesman, Michael McKeon, issued a statement, “This outlandish verdict defies all common sense,” “We hope and expect the judge will set aside this inappropriate award, and we plan to file motions to make that request formally in the near term. Any fair reading of the facts of this case makes plain that a verdict of this size is not justice by any means, and cannot stand.”

Regardless of whether of not the punishment fit the crime, a bold statement has been sent to creditors. You better behave yourselves, abide by the law, and you better have the documentation to prove the debt.

Remember, just because a creditor is calling you attempting to collect a debt, it does not necessarily mean that you owe it. In some instances it can be fraud. In this day and age, it is far too easy to obtain somebody’s personal information. If a scammer sees that you owe American Express, they call pretending to collect the debt. They will use account numbers and other personal information, that they have obtained on-line, in an attempt to appear as though they are really from American Express. They will then try to scare you into making a payment right then and there. Or they may try to get some other personal information directly from you that they can use later.debt collector IV

The rule of thumb is never to give personal information to anyone from an unsolicited phone call. Even if the call sounds real enough. Do not confirm the debt. Do not confirm anything, for that matter. Do not give your social security number or account number to the representative.

Upon request, a creditor must provide a validation of the debt. This is the law! If they are unable or unwilling to provide such documentation, they are violating the Fair Debt Collection Practices Act, and in all likelihood, have no legal right to collect the debt.

Even if it is proven that the debt is valid, there could be Statute of Limitation issues that they may be skirting around. If a debt is too old, a creditor can no longer legally attempt to collect the debt. You may want to consult a consumer law attorney regarding your individual situation. Laws can vary state to state and can be very confusing.

Make sure to check your credit report often. Verify that it is correct and a creditor is not reporting improperly. You can run a free credit report, once per year, from  This is a free site and does not require you to sign up for any credit monitoring services.

Remember, as a consumer, you have rights. Most of these collection agencies are counting on you doing nothing. If you feel as though your rights have been violated, call their bluff. Talk to an attorney and take action!

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bankruptcy sign

There comes a time in every persons life when they take a good look at their current situation and wonder, “How the heck did I get here?” And contrary to popular belief, burying your head in the sand does not make the issues go away. In fact, ignoring a bad situation can, often times make the situation worse. And nothing seems to make people turn a blind eye to a situation than their finances. There are many options available that simply coat over a bad financial situation, but in most cases they are just temporary and simply put off the inevitable.

Many people avoid bankruptcy like the plague. Mostly due to bad information they have received or the stigma of putting a bankruptcy on their credit. And what will their family and friends say? But, the fact is, bankruptcy is not nearly as bad as you think. I have spoken to many people that filed for bankruptcy relief, and after the fact they tell me it was the best thing they ever did! One person in particular told me that with his debt load he was unable to purchase a home, and it would take him 7 to 10 years to pay his debt down to the point that he would qualify for a home loan. But only 2 years after his bankruptcy he had closed escrow on his first home purchase!

So how do you know for sure that bankruptcy is right for you? What are the signs that point towards filing?

Well, I’m glad you asked.

1Delinquency card shock IIThis is the first tell tale sign that your budget is beginning to wind down. When you begin skipping payments on credit cards or you miss a mortgage or auto payment. This is a very slippery financial slope. Once you begin missing payments, late fees and increased interest rates begin to make a bad situation worse, very quickly. It is often very difficult to recover once a payment or two has been missed.  And when the creditors begin their phone campaign against you, look out. They can be relentless. 15-20 calls per day! Don’t they have anything better to do? No…not really.

2.  Credit lines are maxed out.

You have been using your credit cards as a lifeline to stay afloat during a tough financial period. But the financial period has still not improved and your credit lines are now maxed out.  There are still options, but not many, and certainly not good. Which brings us to our next point…

3.  You’re cashing out your retirement plans.

At this point things are getting critical. You are now robbing from your future self just to stay afloat. Cashing in on your home equity fits in here as well. You will eventually tap out your retirement and equity and then find yourself in the same boat as when you started. And now that your mortgage is higher with the equity loan, you now have a higher expense that makes the situation considerably worse. And that new higher mortgage payment can last for decades. And quite possibly, a higher payment may eventually lead to a foreclosure.

Boy, that ball is really picking up speed now! But we’re not done yet!

4. You’re taking out high cost loans.

You have run out of other options so now you turn to payday loans. Yikes! While there is talk in Washington of reigning in these predatory lenders, currently you may find a loan of this type could cost you upwards of 70% in interest! In some amazing cases, interest rates of 150% or more have been taken! Maybe you used a vehicle as collateral for a “title loan”? Miss a payment and you will find yourself taking a bus to work.bus5. You can’t afford a debt management plan.

At some point on this southbound financial slide, you may consider looking into a debt management plan. This may sound like a good idea, but, once you fill out the paperwork, the debt management company tells you that your monthly payment is not much less than your current payments, or worse they tell you that you just do not have the budget to “qualify” for their program. And even if you do qualify, you may find that after years of payments you are still no closer to being debt free than when you started. I have spoken to many people that where involved with programs such as these and then they finally bite the bullet and file for bankruptcy. Then they wonder why they wasted so much time and money on these management plans.

6. You have no emergency financial back-up.

You may not be as bad off as what we mentioned earlier. You’re making it. It’s very tight, but you’re making it. Suddenly, a serious illness befalls a family member, you get into an auto accident or you lose your job. Any number of things can suddenly push you into a financial tailspin. If you are not paying attention, you may turn to the previously mentioned “financial Band-Aids”, and make a bad situation worse.

If you find yourself in any of these situations, you should speak to bankruptcy attorney. Filing bankruptcy is not an end but a beginning. Sure, it may sting a little, but much like a Band-Aid, it is easier to remove it quickly then over a long drawn out period. Rip and recover! It’s easier than you think!

bankaid ripoff

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whats in your walletIf you are like thousands of American’s you keep your Social Security card in your wallet. After all, isn’t this what they told you to do at the social security office?  Heck, even the card itself states to keep it in your wallet. But in this day and age, this cannot be a worse idea. Identity theft is rampant and obtaining a valid Social Security number is every ID thief’s goal. But not too long ago, it was a different story. How much so you ask, well let’s get into the way-back machine and travel to the happier times of yesteryear.

wayback machine IIIt’s 1938, and wallet manufactures would put fake cards into their product to demonstrate how well the cards would fit into their wallets. This included fake Social Security cards. However, in the case of one manufacture, it was decided to put a fake Social Security card sporting a real Social Security number! Douglas Patterson, vice president of the E.H. Ferree Co, had the brilliant idea to use his secretary’s Social Security number on the cards inserted into their wallets. And so it was that Hilda Schrader Whitcher, became the unfortunate holder of the most infamous Social Security number in American history.

social security number IIPeople purchased the wallets, and some assumed that the social security number listed on the card in their new wallets, now belonged to them. At it’s peak in 1943, 5,755 people used her social security number as their own! Prompting the FBI to show up at her house to investigate the going’s on.  A quote by Hilda, posted on the SSA website states “They started using the number. They thought it was their own. I can’t understand how people can be so stupid. I can’t understand that.”

social security number III

Eventually, her number, 078-05-1120, was removed by the Social Security Administration, and Hilda was re-issued a new card and new number. When all was said and done, over 40,000 people had used the number!  This number was used even as recently as 1977.

While this story sounds light-hearted and entertaining, the truth is, someone obtaining your Social Security number is not fun and games. While most of us think that identity theft is only about debts, it can also be criminal activity, medical records and fraudulent tax returns. All of which could be horrific nightmares for the victims.

It cannot be understated how important it is to monitor your credit reports. It can be a good indicator that something wrong is going on with your number. You can obtain a free credit report, once per year, from .  You can choose to run all three credit reports at once, or toggle them every 4 months. As an example, run Experian now, then in four months, run Equifax, then four months later run Transunion, then four months later start all over again. This is a great was to keep on top of your credit. This is a completely free service and does not sign you up for a credit monitoring service.

Another was to stay safe, is to hire a company such as “lifelock”. They effectively “lock” your social security number and make it so that only the password holder can use their number. Of course, if you keep your passwords on your computer and your computer is hacked………well, good luck.

The fact is we live in a very technological age, and if you are not careful, anyone can steal your information. And if you still wish to carry your Social Security card in your wallet, you may get what’s coming to you.

So again I ask you…What’s in your wallet?!

whats in your wallterFor more information about bankruptcy and how we can help solve your debt problems, please visit:

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credit card shock II

Each year, millions of people find their paycheck being garnished by a creditor. You do not want to be one of them. But if it does, what can you do?

There are many options when it comes to garnishments, but it helps to first understand what a garnishment is and how it works. First of all, a creditor generally cannot simply garnish a paycheck without a court order. But, as with most things, the government is exempt from this rule. Taxes and student loans can garnish your paycheck without a court order.

one does not simplySo remember, if a creditor calls you attempting to collect a debt and they threaten to garnish your paycheck, it is possible, but it will not happen immediately.

To begin, a creditor must sue you in court. Generally you have 30 days to respond to the lawsuit. If no response is filed within the 30 days, then the creditor may file a Default Judgment Order or, if a hearing is held, a Judgment Order. This process can take several weeks to several months. So don’t worry….yet.  You have some time to rectify the situation before a judgment is entered. Perhaps an offer to settle the debt is possible. But if you do nothing, the creditor will get the judgment and begin the process of garnishment. But don’t give up yet. After judgment is entered, a creditor must forward this judgment to your local sheriff. The Sheriff will then search for your current employer and serve them a garnishment order.

sheriffAnd you thought  all they did was rescue damsels and track down bank robbers. Pushah.

So what do you do now? Well before you quit your job and move to Alaska, understand that this is not the end of the world. Just the end of 25% of your net paycheck. (Which, by the way, is the maximum allowed) But it is not too late to fix it.

First, get a copy of the garnishment order from your payroll department. With this you can double check to see if the lawsuit was correctly served to you when it was first filed. As an example, if the lawsuit was sent to the wrong address or even your prior address, it may be possible to fight the judgment in court. You may want to speak to an attorney about this and what your options are.

If it was served correctly, you may file an “Exemption” with the sheriff’s office. An exemption form is usually attached to the garnishment order. Once the form is filed, a hearing will be scheduled to determine if your income is too low to be garnished. Generally, you must evidence that a garnishment will be too tough a financial burden on you and your family. You must present a budget to the Judge and he will determine what constitutes a financial burden. He may cut the 25% deduction down to 10% or even stop the garnishment. While this may sound like a good option remember, the debt is still there and collectible. And in most cases, Claims of Exemption, are denied by the court.

deniedPerhaps borrowing the money and paying off the judgment would be a good idea. If you take out a loan with only 5% interest, it would be an improvement over the 10% rate that judgments accrue and the monthly payments would be substantially lower than the garnishment amount. However, with a judgment on your credit report, you may find it tough obtaining a loan.

You can attempt to settle with the creditor. But if a judgment has already been granted, the creditor is holding all the cards. You will not have much leverage to negotiate. Their logic is; We already spent the expense of filing the lawsuit and obtaining the judgment. We already have a garnishment in effect which guarantees monthly payments, why should we risk it to settle for a lower amount? If you are considering negotiations with a creditor, it is best done prior to the creditor spending the expense and time pursuing a lawsuit. They may be more willing to work with you then rather than later.


Another option may be bankruptcy. While bankruptcy may sound overwhelming and may feel like the end of the road, it can be a new beginning. If you qualify, you can stop the garnishment in it’s tracks, discharge the debt in full and begin the process of rebuilding your credit immediately. After all, your credit report has already been damaged by the lawsuit and judgment, you may as well just finish it and move on. Bankruptcy should be considered a fresh start and not an end. Talk to an established bankruptcy attorney. Most attorneys offer free consultations, so what have you got to loose? One of the most common reason people file bankruptcy is due to a garnishment.

So consider your options carefully. Garnishments can be very scary, but you always have options.

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studentsAs more and more Americans ready themselves for retirement, a pesky, sometimes forgotten, problem rears it’s ugly head. I’m talking about student loans. We are all aware of the student loans issues plaguing our country. After all, Student Loans, account for almost $1 trillion of debt in America. That’s Trillion….with a “T”!

student loan II

Many students graduating college find, that once employed, a large chunk of their salary is now going back to pay for the student loans incurred. Yes, this is a burden, but after all, you knew this was going to happen right? School is not free after all. Once upon a time, if you could not afford tuition, you were forced to get a job just to make enough money to pay for college. But not anymore. It is all too easy to obtain a student loan and simply postpone the inevitable. But that is not why we are here today. Today I want to talk about the more burdened in this scenario……the elderly.

Most people consider student loans as a young persons problem, but according to a Government Accountability Office report released at a Senate Aging Committee hearing, 4% of Americans, aged 65 to 74 carry federal student loan debts. This is up 1% from the prior year. And the total of student loans for this age bracket increased from $2.8 billion in 2005, to $18.2 billion last year!!!

In 80% of cases, the student loans were incurred for their own education, but in 20% of these cases, it was incurred for the benefit of their own children! The parents just trying to help their kids get a better education, and now they are stuck paying the student loans. Gee whiz…..thanks a lot!

surprised old ladyMid-life can often bring financial stress to one’s life. And furthering your education could be the very fix for this stress. After all, a better education brings a better job which brings better income….right? But unfortunately that is not always the case. And after deferring the loan for several years, the $60,000 student loan is now a $130,000 student loan! And even if you are lucky enough to find a better paying job, you now spend so much of your paycheck to payback the loan that your income is now the same as before. After all the time spent, the stress, the test taking and lack of sleep, you have accomplished a financially lateral move. Kinda’ makes you think, “why bother”. One senior had this too say about her situation “I find it very ironic that I incurred this debt as a way to improve my life, and yet I still sit here today because the debt has become my undoing,”

What’s worse in the case of senior student loans is that this is it. They cannot try again. There is no second act in which to correct the problem. And in many cases, it holds off on people retiring. And at a time when money is tight, the last thing you need to worry about is your Social Security income being garnished to pay back your student loans. Many seniors are battling health problems, death of loved ones, lack of employment and divorce. Student Loans are the last thing that they should be worrying about. That is, until they discover their Social Security check is lighter than normal, or their tax refund has been taken.

retirementAccording to the Government Accountability Office, over 25% of loans held by seniors aged 65-74 were currently in default. And those who found their Social Security benefits garnished increased from 31,000 in 2002 to 155,000 in 2013! And this number is poised to increase as more and more Americans move into their retirement years.

So what can be done? Once upon a time, you were able to discharge student loans in bankruptcy, if they met certain criteria. But that changed in 1998 when bankruptcy laws were changed to make student loans non-dischargeable in bankruptcy. With the rare exception of hardship cases, which are nearly impossible to prove. But conversations in Washington have started. And rumors of re-implementing the dischargeability of student loans are beginning to float around. Some are calling for the exemption of Social Security benefits when attempting to collect on student loans.

But until that time, all you can do is hang on. Relief is coming in some form or another. And if laws do change, and it does come down to bankruptcy, I’ll be the first one in line.

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rip off

Can you smell it?  The stench of rotten payday loans reeking in the air? Well, after decades of dealing with their insulting and border-line illegal operations, payday lenders may soon be closing shop.

I have often wondered how they could be getting away with their practice. They, like any other predator, would stalk the helpless and desperate. Promising one thing and delivering another. Forcing the desperate to choke down obscene interest rates. But in this day and age many people are just desperate enough to jump into the lion’s den and borrow money from one of these despicable outfits. Only recently have regulations been discussed, by the Consumer Financial Protection Bureau, that would reel in these shady businesses.

Recently I saw a short on HBO hosted by John Oliver and comedian Sarah Silverman, in which they begged Americans to “literally do anything else” than take out payday loans. And I agree. I would prefer borrowing money from a guy named Guido from the loading dock than borrow from these “companies”.

You have heard the phrase “living paycheck to paycheck”. But using a payday loan increases this gap. You are living two to three paychecks behind. You get paid, you pay off the loan, but now you’re out of money, so you borrow again. And if you miss a payment, look out. The customary loan period is 14 days, but after that date, the loan can be rolled over into a new “loan” with interest rates as high as 400%! (currently still legal in some states) And this does not include their “fees” to extend the original loans due date! Yikes! And consider this, four out of five payday loans will default and be rolled into one of these higher rate loans! Not good odds to play with.

Now lets make a bad situation worse. Rather than going to an actual “brick & mortar” office in town, you take the loan on-line. Oops. Now you are, more than likely, borrowing money from an overseas company that does not care about those pesky American laws. And when they cross the line, attempting to collect (and believe me, they will cross the line), good luck trying to contact them with a cease and desist. They can be very aggressive in their collection efforts. They will call your employer, family and friends. They will hunt you….they will find you……..and they will threaten you.


Often, their threats are just that, threats.  They will threaten you with jail. They will tell you that they will send a Sheriff to your work. But rest assured, these are illegal and cannot be done. But just because something is illegal, does not mean the law cannot be broken. They may take money directly from your bank account without notice. This is very illegal but a common practice among these predators. But they sit back in there chairs and say “Whatcha goin’ to do about it?”  And something new in their demented world, “lead generators”. This is where a company (usually online) will charge a “finders fee”, so to speak, to find a company that will loan you money. They will want bank account numbers and Social Security numbers. And once they get the information, and your money, the loan may not actually happen. Now what?

Fortunately, these sort of actions have not gone unnoticed by the powers that be. States are now imposing limits on what these companies can charge. Some states have put a 36% cap on these loans. Others have capped at 16%. And while this has helped close down or limit many of the payday loan stores, it unfortunately has had the effect of growth for the on-line loan companies. Kathleen McGee, chief of the New York State Attorney General’s Internet Bureau said “The online proliferation [of payday lenders] is a product of these companies being able to hide their behavior by virtue of being online in a way that a traditional bricks-and-mortar business that has a street face and signage cannot,” And so, to fight fire with fire (so to speak) an on-line and T.V. campaign has begun to show consumers what these companies really are. To pull back the curtain and reveal the reality of these predatory loans. And warn consumers about the pitfalls of these type of loans.

Recently, the attorney generals in Illinois and New York have taken legal action against these lenders and the companies that refer people to them. So help is coming. But in the meantime, these companies can see the writing on the wall, and realize that their days are numbered. So they have been extremely aggressive both in advertising and in collections efforts. They are gettin’ while the gettin’ is good.

But until they take their final breath, what can you do to protect yourself? Simple…..DON’T DO IT!!  John Oliver said on his HBO special “If you’re thinking about getting a payday loan, pick up the phone, then put it down and do literally anything else.” Look into small personal loans from a bank or credit union. Apply for a low-interest credit card for these financial emergencies. Swallow your pride and ask family or friends for a loan. I would even consider being late on your electric bill until you get the money on your next payday rather than going to a payday advance. Call your credit cards, landlord or utility company and explain the financial situation. They may be willing to work with you. But I would not consider the payday loan even as a “last option”, I would more consider it as a “No-option” In more instances that not, using these types of loans make a bad situation worse.

But if you are already in this situation, and the phone calls and harassment just will not stop. Consider bankruptcy. It works. 

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