Debt Negotiation – Do It Yourself, or Have it Done For You

When you are in serious trouble because you cannot repay your credit cards or personal loans, you put yourself in jeopardy.

Did you know that the credit card issuers may not be the actual bank behind the card?  For instance, a Sears credit card is actually Citibank.  A Home Depot Card is actually Citibank.

By banking law, your creditors have a timetable they must do business by, which includes six months from the day you stop making payments to do their best to either get you back on track, or collect the balance in full, then close the account.  If they cannot accomplish this in the time allotted, then they have a decision to make:

1.  Charge off the debt, and sell it to a collection company; or

2.  Put the account in their “non-performing” category, and investigate whether or not they can collect from you.  If they put your debt in their non-performing category, it affects their ability to borrow from the Federal Reserve to run their business.  So generally, they turn your account over to their in-house counsel or a law firm they contract with to collect from you.

Collection Company.  When a collection company purchases your debt, they do so in millions of dollars at a time.  The debt package they buy usually has accounts in good standing as well as delinquent accounts.  Once they have reviewed your situation, they write to you with a “demand” for payment.  They will usually offer you a reduced balance especially if you have lump sum funds to pay them all at once.

When a law firm gets your debt information, they do research to see as much about you as they can through your credit report and other reports available to them.  Once they think they can collect something from you, they file a “complaint” with the court nearest to your location.  This includes a “summons”, giving you a certain number of days to verify if you owe the debt or not.  Many people when receiving a summons are quite upset, thinking they are going to be “hauled off to jail”!!  This is not the case.  This is a civil matter.  The only thing that happens if you don’t answer or don’t appear is that the judge is going to award a Judgment to your creditor.  Even if you did appear in court, there is only one question on the table:  “is this your debt?”  Unless you are trying to prove this debt belongs to someone else, it is your debt.  So the judgment is going to happen regardless of what you do or don’t do.

Now, what happens when a judgment is awarded to the creditor?

1.  The creditor can request a warrant from the court, and serve this warrant on your employer.  This is called a “garnishment”, and depending upon the state in which you live, the garnishment can take up to 25% of your take home pay every paycheck until the debt is settled.

2.  The banks have access to banking info across the nation, so they know where you have your checking, savings, money market and more.  They may get a warrant and serve it on your bank.  The bank will have no choice but to freeze your accounts for 30 days, while they investigate where your money is coming from.  If during the investigation they find that the money being deposited is coming from your job, they will release those funds at the end of the 30 day freeze to the creditors attorney.  If your income is coming from a  variety of exempt sources, such as social security, a pension, SSI or disability, then they cannot take it.  Your money would be released at the end of the 30 days.

However, if they were unable to get enough to settle the debt at that time, they can repeat the process until they are satisfied.  In addition, no money can go in or come out during the 30 day freeze, and that would mean trouble for most of us today as we use our checking account for automatic deposits and payments, as none of these things could happen during the freeze.

3.  The third thing they can do is place a lien on your property.  If you own your home, even if it has a mortgage, they can place the lien.  A lien is a legal document that keeps a deed from transferring to anyone for any reason, even if it is for zero dollars to a relative, without the debt being settled, usually in escrow.

If you dispute the debt is yours, they must prove that you owe the debt by providing original documents that show a signature or other evidence of an agreement in a hearing or jury trial, depending upon the municipality.  If you do not dispute it, then you will receive a judgment.