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FAQ'S

Tuesday, May 11th, 2010

by Theodore Sliwinski, Esq.

1. I am now in massive of debt. What will happen if I simply ignore the credit card companies and hope that they go away?

If you learn one lesson from reading my website it is that if you blow off your financial problems then they will only get worse. Financial problems are like an infection and if they they go untreated they can kill you, ruin your marriage, and/or get you fired. If you are way behind on your bills, then you are going to be going to be charged interest and late fees that will make you feel sick. Moreover, if you blow off your bills then your phone will start ringing off the hook, and it will explode from receiving all of the collection calls. The debt collectors really only have limited power and that is to harass you. Debt collectors can’t seize your bank account, they can’t garnish your wages, and they can’t file a lawsuit against you.

All a debt collector can do to you is to call you morning, noon and night. Debt collectors will call you at your home and at job. They will call your cell phone if they have it. They will call you as early as 8:00 a.m. and as late at 9:00 p.m. If you gave personal references when you applied for your loan or credit card they may even call your references. The only way a debt collector can make you pay is to harass or embarrass you into paying. They believe that they can harass you into paying. Sometimes this method works, but most of the time it does not. Unfortunately, no matter how many times a debt collector calls, a pot of gold is not going to magically appear in your bank account to help you pay your bills. No matter how many times they call you, it is not going to get you a better job, cure your illness or medical condition, bring your spouse back to life, or solve your marital problems. In summary, your creditors simply don’t care why you can’t pay their bill. The creditors are like terminators and all they care about it getting their money. Once you are far behind on your credit card payments, then you will start receiving red colored letters and nasty calls from collection agencies. The collection agencies also charge high fees that will get passed onto you. Consequently, your debt to VISA, MasterCard, American Express and to Discover will only get even higher if it goes into collection. Not only will you be charged interest but you will be charged for collection fees as well.

If the debt collector is unsuccessful in getting you to pay the debt, then either the collection agency or the bank who issued the credit card to you will then sue you. Unfortunately, it is very difficult for a debtor to successfully defend against a collection lawsuit. Most judges simply rubber stamp motions for summary judgment and enter a judgment against the debt. Moreover, if you lose the lawsuit or if fail to respond, then a judgment will be entered against you for the amount of the debt, interest, attorney’s fees and court costs. Once a judgment is entered against you, then your creditor can garnish your paycheck, seize bank account, place a lien on your home, and ruin your credit report. It is important to emphasize that during this entire time, interest will continue to accrue until you pay off the judgment in full.

If you default on a mortgage, then the bank will eventually foreclose on your home. If you should default on an auto loan, then the finance company can send the repo man to snatch your vehicle. Get the picture, dealing with life while in massive debt is miserable. Moreover, the longer that you are in debt, the more miserable the complications will become. Your credit report is ruined. Your paycheck will be garnished. Your bank account could be seized by creditors. Your home could be foreclosed. You may be denied a promotion or “shot down” for a new job because your credit report is the pits. In summary, the longer you delay filing, then the longer you will have to live this life of misery. Bankruptcy is perfectly legal and it is a beginning and not an end!

2.  Should I try to use debt counseling services instead of filing for bankruptcy?

In an effort to avoid dealing with creditors and collection agencies, many debtors try to use credit counseling instead of filing for bankruptcy. Credit counseling companies try to  negotiate with the credit card companies to reduce your debt, to lower your interest rates, and to reduce your monthly payments. In summary, your credit card debts will be consolidated, and you will then be required to make one payment to the credit counseling company. Thereafter, the credit counseling company will then distribute your monthly payments to your creditors.

The major problem with these companies is that very often fail to pay your creditors from your monthly payment. Many credit counseling companies also charge very high rates, and your payments are first applied to their bill. Only after the credit counselors are paid off  in full then your payments will be applied toward your credit card debts. Moreover, credit counselors very often sell client accounts to other companies, and because of poor record keeping, many debtors don’t get the proper credit for all their payments. I have had countless clients who come into my office and advise me that credit counseling was a total scam and a waste. It is important to emphasize that in the majority of the cases, your payments won’t be applied to your credit card debts only until the credit counseling company is fully paid off for their thousands of dollars of fees. The internet adds that praise the benefits of credit counseling are not accurate and they are misleading. The only tried and true method to obtain legitimate debt relief is to file bankruptcy. It is not that difficult to repair your credit after your file for bankruptcy. Therefore, you should really think twice before you embark on a very lengthy repayment plan with a credit counseling company.

3. What is so dangerous about using payday loans and auto title loans?

It is not uncommon for debtors who are struggling to pay their bills to obtain a payday loan. At a first glance these type of loans may seem like a quick and easy solution to solve your current financial problems. However, payday loans have extremely high interest rates and very short payment terms. These types of loans are not a viable or realistic option for most desperate debtors who are “in debt up to their eyeballs.” Generally, payday loans are due within 14 to 30 days and they carry interest rates of 15%. This may not sound that onerous at first. However, if you borrow $300 and if you must repay the loan in 14 days, then the annual percentage rate calculates to almost 1,200%.

Auto title loans are just as miserable as payday loans. These loans usually mature in thirty days and can have interest rates as high as 500% or more. Most title loans also have a rollover option that allows you to extend the term of the loan for another thirty days. The extension of auto loans is how most people get themselves into deep financial trouble. Unless you pay the loan off at the end of the first thirty-day term, any future payments that you make will only be applied only to interest until you are able to pay the loan in full. If you fail to repay the loan, then the lender can repossess the car and sell it to recover the amount of the loan plus any interest and fees. In summary, it is critically important that you take immediate action as soon as you realize that you are in sinking like quicksand from financial trouble. If you simply ignore your problems then they will only get worse and you could soon face a foreclosure, a repossession, or a wage garnishment.