by David Streitfeld, New York Times, February 3, 2010

In 2006, Benjamin Koellmann bought a condominium in Miami Beach. By his calculation, it will be about the year 2025 before he can sell his modest home for what he paid. Or maybe 2040. “People like me are beginning to feel like suckers,” Mr. Koellmann said. “Why not let it go in default and rent a better place for less?”

After three years of plunging real estate values, after the bailouts of the bankers and the revival of their million-dollar bonuses, after the Obama administration’s loan modification plan raised the expectations of many but satisfied only a few, a large group of distressed homeowners is wondering the same thing.

New research suggests that when a home’s value falls below 75 percent of the amount owed on the mortgage, the owner starts to think hard about walking away, even if he or she has the money to keep paying.

. . .

The number of Americans who owed more than their homes were worth was virtually nil when the real estate collapse began in mid-2006, but by the third quarter of 2009, an estimated 4.5 million homeowners had reached the critical threshold, with their home’s value dropping below 75 percent of the mortgage balance.

They are stretched, aggrieved and restless. With figures released last week showing that the real estate market was stalling again, their numbers are now projected to climb to a peak of 5.1 million by June — about 10 percent of all Americans with mortgages.

“We’re now at the point of maximum vulnerability,” said Sam Khater, a senior economist with First American CoreLogic, the firm that conducted the recent research. “People’s emotional attachment to their property is melting into the air.”

. . .

“Since the beginning of December, I’ve advised 60 people to walk away,” said Steve Walsh, a mortgage broker in Scottsdale, Ariz. “Everyone has lost hope. They don’t qualify for modifications, and being on the hamster wheel of paying for a property that is not worth it gets so old.” Mr. Walsh is taking his own advice, recently defaulting on a rental property he owns. “The sun will come up tomorrow,” he said.

The difference between letting your house go to foreclosure because you are out of money and purposefully defaulting on a mortgage to save money can be murky. But a growing body of research indicates that significant numbers of borrowers are declining to live under what some waggishly call “house arrest.”

. . .

With prices now down by about 30 percent, underwater borrowers fall into two groups. Some have owned their homes for many years and got in trouble because they used the house as a cash machine. Others, like Mr. Koellmann in Miami Beach, made only one mistake: they bought as the boom was cresting.

It was April 2006, a moment when the perpetual rise of real estate was considered practically a law of physics. Mr. Koellmann was 23, a management consultant new to Miami.

Financially cautious by nature, he bought a small, plain one-bedroom apartment for $215,000, much less than his agent told him he could afford. He put down 20 percent and received a fixed-rate loan from Countrywide Financial. Not quite four years later, apartments in the building are selling in foreclosure for $90,000.

“There is no financial sense in staying,” Mr. Koellmann said. With the $1,500 he is paying each month for his mortgage, taxes and insurance, he could rent a nicer place on the beach, one with a gym, security and valet parking.

. . .

Mr. Koellmann applied last fall to Bank of America for a modification, noting that his income had slipped. But the lender came back a few weeks ago with a plan that added more restrictive terms while keeping the payments about the same.

“That may have been the last straw,” Mr. Koellmann said.

Guy D. Cecala, publisher of Inside Mortgage Finance magazine, says he does not hear much sympathy from lenders for their underwater customers.

“The banks tell me that a lot of people who are complaining were the ones who refinanced and took all the equity out any time there was any appreciation,” he said. “The banks are damned if they will help.”

Joe Figliola has heard that message. He bought his house in Elgin, Ill., in 2004, then refinanced twice to get better terms. He pulled out a little money both times to cover the closing costs and other expenses. Now his place is underwater while his salary as circulation manager for the local newspaper has been cut.

“It doesn’t seem right that I can rent a place somewhere for half of what I’m paying,” he said. “I told my bank, ‘Just take a little bite out of what I owe. That would ease me up. Isn’t that why the president gave you all this money?’ ”

Bank of America did not agree, so Mr. Figliola, who is 48, sees no recourse other than walking away. “I don’t believe this is the right thing to do,” he said, “but I’ve got to survive.”

Read full article online at nytimes.com

It is estimated that a majority of the credit reports of people who have filed bankruptcy contain errors. Even if you have not filed bankruptcy, your credit report may contain errors. Many of these errors can make it difficult or expensive to obtain credit in the future. If you are going to receive the fresh start that bankruptcy entitles you to, you need to ensure that all of your debts are properly reported on your credit reports.

Common Errors on Any Credit Report

The more common errors that may appear on any credit report include:
- inaccurate reporting of the delinquency date or date of last activity;
- reporting a debt that is too old to be reported;
- inaccurate payment history;
- inaccurate balances, collection activity, or total available credit; and
- unauthorized inquiries.

These errors will affect your ability to get credit or the interest rate you will have to pay.

Bankruptcy-Related Credit Reporting Errors

If you have filed bankruptcy, the chance that your credit report will contain errors increases. In addition to the more common errors, you should be alert to errors that limit the value of your bankruptcy discharge. These errors apply only to debts discharged in your bankruptcy, and include:
- continuing to report a balance due;
- reporting a delinquency date or date of last activity after your bankruptcy filing;
- reporting a bankruptcy filing on the credit report of a spouse who did not file for bankruptcy;
- reporting a discharged debt as “charged off”;
- not reporting a payment history for loans you reaffirmed;
- inaccurate date reported for the bankruptcy filing;
- incorrect bankruptcy chapter filed; and
- incorrect Chapter 13 plan payment or percentage paid.

You Can Fix This

Federal law establishes certain procedures for correcting errors on your credit report. Your credit report will contain instructions on how to dispute errors on that report. It is important that you dispute all errors with the credit reporting agency that issued the report. You should explain what is wrong with the information reported, identify the account you are disputing, and attach copies of any supporting documentation you have. I suggest that you do this in writing and keep a copy of the letter. You may also want to send the letter certified mail, return receipt requested.

If the first letter does not correct the reporting error, try again. If the second letter does not resolve the issue, you may wish to contact legal counsel. In certain circumstances, you can file a lawsuit to get the incorrect information removed from your credit report.

Remember, you can request removal or correction of inaccurate or incorrect information. However, if the information in the report is correct and in compliance with the law, you may not legally require its removal.

How to Obtain Your Credit Report

You are entitled to receive one free copy of your credit report from each of the three major credit reporting agencies each year. You can obtain these free reports online at www.annualcreditreport.com. This website also contains instructions for obtaining your report(s) by telephone or mail, if necessary.

If You Want Me to Do This for You

I will be happy to review your credit report and demand corrections on your behalf. Obviously, I will expect to be paid for this service. If you want my assistance, please call me to schedule an appointment to meet with me. We will discuss my fee schedule at that time. You will need to bring your credit report with you to that appointment. I will be happy to review the credit report with you and send letters requesting corrections. If this does not resolve the problem, we can discuss whether or not you wish to pursue litigation to resolve the issue.

Carefully read any credit card or other credit offer from a company that claims to represent a lender you listed in your bankruptcy or own a debt you discharged. This may be from a debt collection company that is trying to trick you into reaffirming a debt. The fine print of the credit offer or agreement will likely say that you will get new credit, but only if some or all of the balance from the discharged debt is added to the new account.

“Secured” Credit Card

Another type of credit marketed to recent bankruptcy filers as a good way to reestablish credit involves “secured” credit cards. These are cards where the balances are secured by a bank deposit. The card allows you a credit limit up to the amount you have on deposit in a particular bank account. If you can’t make the payments, you lose the money in the account. They may be useful to establish that you can make regular monthly payments on a credit card after you have had trouble in the past. But since almost everyone now gets unsecured credit card offers even after previous financial problems, there is less reason to consider allowing a creditor to use your bank deposits as collateral. It is preferable not to tie up your bank account.

Credit Repair Companies

Beware of companies that claim: “We can erase bad credit.” These companies rarely offer valuable services for what they charge, and are often an outright scam. The truth is that no one can erase bad credit information from your report if it is accurate. And if there is old or inaccurate information on your credit report, you can correct it yourself for free.

Avoid High Cost Predatory Lenders

Don’t assume that because you filed bankruptcy you will have to get credit on the worst terms. If you can’t get credit on decent terms right after bankruptcy, it may be better to wait. Most lenders will not hold the bankruptcy against you if after a few years you can show that you have avoided problems and can manage your debts.

Be wary of auto dealers, mortgage brokers and lenders who advertise: “Bankruptcy? Bad Credit? No Credit? No Problem!” They may give you a loan after bankruptcy, but at a very high cost. The extra costs and fees on these loans can make it impossible for you to keep up the loan payments. Getting this kind of loan can ruin your chances to rebuild your credit.

Mortgage Loans

If you own your home, some home improvement contractors, loan brokers and mortgage lenders may offer to give you a home equity loan despite your credit history. These loans can be very costly and can lead to serious financial problems and even the loss of your home. Avoid mortgage lenders that:

* Charge excessive interest rates, “points,” brokers’ fees and other closing costs;

* Require that you refinance your current lower interest mortgage or pay off other debts;

* Add on unnecessary and costly products, like credit insurance;

* Make false claims of low monthly payments based on a “teaser” variable interest rate;

* Include a “balloon” payment term that requires you to pay all or most of the loan amount in a lump sum as the last payment;

* Charge a prepayment penalty if you pay off the loan early;

* Change the terms at closing;

* Make false promises that the rate will be reduced later if you make timely payments;

* Pressure you to keep refinancing the loan for no good reason once you get it.

Small Loans

It is always best to save some money to cover unexpected expenses so you can avoid borrowing. But if you are in need of a small loan, avoid the following high cost loans:

Payday loans

Some “check cashers” and finance companies offer to take a personal check from you and hold it without cashing it for one or two weeks. In return, they will give you an amount of cash that is less than the amount of your check. The difference between the amount of your check and the cash you get back in return is interest that the lender is charging you. These payday loans are very costly. For example, if you write a $256 check and the lender gives you $200 back as a loan for two weeks, the $56 you pay equals a 728% interest rate! And if you don’t have the money to cover the check, the lender will either sue you or try to get you to write another check in a larger amount. If you choose to write another check, the lender gets more money from you and you get further into debt.

Auto title loans

For many years, pawn shops have made small high-interest loans in exchange for property. A new type of “pawn” is being made by title lenders who will give you a small loan at very high-interest rates (from 200 to 800%) if you let them hold your car title as collateral for the loan. If you fall behind on the payments, the lender can repossess your car and sell it.

Rent-to-own

By renting a TV, furniture or appliance from a rent-to-own company, you will often pay three or four times more than what it would cost to buy. The company may make even more profit on you because the item you are buying may be previously used and returned. And if you miss a payment, the company may repossess the item leaving with you no credit for the payments you made.

Tax refund anticipation loans

Some tax return preparers offer to provide an “instant” tax refund by arranging for loans based on the expected refund. The loan is for a very short period of time between when the return is filed and when you would expect to get your refund. Like other short-term loans, the fees may seem small but amount to an annual interest rate of 200% or more. It is best to patient and wait for the refund.

What You Can Do to Avoid Problems

* If you don’t want it, don’t get it. If you have doubts about whether you really need the loan or service, or whether you can afford it, don’t let yourself get talked into it by a salesperson using high-pressure tactics. You can always walk away from a bad deal, even at the last minute.

* Shop around. You may qualify for a loan with normal rates from a reputable bank or credit union. Don’t forget that high-cost lenders are counting on your belief that you cannot get credit on better terms elsewhere. Do not let feelings of embarrassment about your past problems stop you from shopping around for the best credit terms.

* Compare credit terms. Do not consider just the monthly payment. Compare the interest rate by looking at the “annual percentage rate,” as this takes into account other fees and finance charges added on the loan. Make sure you know exactly what fees are being charged for credit and why.

* Read before you sign. If you have questions, get help from a qualified professional to review the paperwork. A lender that will not let you get outside help should not be trusted.

* If you give a lender a mortgage in a refinancing deal, remember your cancellation rights. In home mortgage refinancings, federal law gives you a right to cancel for three days after you sign the papers. Exercise these rights if you feel you signed loan papers and got a bad deal. Don’t let the lender talk you out of cancelling.

* Get help early. If you begin to have financial problems, or you are thinking of consolidating unmanageable debts, get help first from a local non-profit housing or debt counseling agency.

Ten Things to Think About Before Getting a New Credit Card

1. Don’t apply for a credit card until you are ready.

Unfortunately, bankruptcy may not have permanently resolved all of your financial problems. It is a bad idea to apply for new credit before you can afford it.

2. Avoid accepting too many offers.

There is rarely a good reason to have more than one or two credit cards. Having too much credit can lead to bad decisions and unmanageable debts, and it will lower your credit rating. This can make it harder for you to get other lower interest rate loans. Avoid accepting a credit card just to get a discount at a store or a “free” gift.

3. Remember that lenders are looking for people who run up big balances, because those consumers pay the most interest.

You may find that credit card companies are pursuing you aggressively by mail and phone even though you filed bankruptcy. Do not view this as a sign that you can afford more credit. The lender may have a marketing profile telling them you are someone who is likely to carry a big credit card balance and pay a good deal of interest. Or they may see you as a good credit risk because you cannot file a Chapter 7 bankruptcy again for quite a few years.

4. Interest rate is important in choosing a card but not the only consideration.

You should always try to get a card with an interest rate as low as possible. But it is rarely a good idea to take a new card just because of a low rate. The rate only matters if you carry a balance from month to month. Also, the rate can easily change, with or without a reason. Remember that even the best credit cards are expensive unless you pay your balance in full every month. And other credit terms can add to your cost, like annual fees, late charges, over-the-limit fees, account set-up fees, cash advance fees, and the method of calculating balances. Sometimes a credit card that appears cheaper is actually more expensive.

5. Beware of temporary “teaser” rates. A teaser rate is an artificially low initial rate that applies only for a limited time.

Most teaser rates are good only for six months or less. After that, the rate automatically goes up. Remember that, if you build up a balance under the teaser rate, the much higher permanent rate will apply when you repay the bill. This means that the permanent long-term rate on the card is much more important than the temporary rate.

6. If your rate is variable, understand how it may change.

Variable interest rates can be very confusing. Some variable rate terms can make your rate go up steeply over time. Read the credit contract to understand how and when your rate may change. And don’t be misled by advertisements that claim “fixed rate,” as this may mean the rate is fixed only until the lender decides to change it again.

7. Check terms related to late payment charges and penalty rates of interest.

Most credit card contracts have terms in the small print for late charges or penalty interest rates that increase if you make even a single late payment. Try to avoid cards with late fees as high as $25–$35 or penalty interest rates of 21–24% or higher. Even if you are not having financial problems, these terms may become important, because they apply equally to accidental late payments.

8. Get a card with a grace period and learn the billing method.

It is important to understand how you will be billed. Look for a card with a grace period that lets you pay off the balance each month without interest. If the card does not have a grace period and interest will apply from the date of your purchase, a low interest rate may actually be higher than it looks. The terms of the grace period are also important, as it may not apply to balance transfers and cash advances. And look out for different interest rates that may apply depending upon the type of charge: these usually include a higher rate for cash advances.

9. Don’t accept a card just because you qualify for a high credit limit.

It is easy to assume that because a card offer includes a high credit limit, this means the lender thinks you can afford more credit. In fact, the opposite may be true. Lenders often give high credit limits to consumers hoping that they think will carry a bigger balance and pay more interest. You must evaluate whether you can afford more credit based on your individual circumstances.

10. Always read both the disclosures and the credit contract.

You will find disclosures about the terms of a credit card offer, usually in small print on the reverse or at the bottom of the offer. Review these carefully. However, the law does not require that all relevant information be disclosed. For this reason, you must also read your credit contract, which comes with the card. This will include terms such as late payment fees, default rates of interest, and a description of the billing method. Since these terms are not easy to understand, you may want to call the lender for an explanation. Or better yet, refuse credit with too many complex provisions, because those terms are likely to work to your disadvantage.

Ten Things to Think About Before Using Your Credit Card

1. Establish a realistic budget.

Before using a credit card after bankruptcy, try paying cash for a while. This will help you learn how much money you need each month to pay the basic necessities. Don’t forget to budget for the payments on any debts you reaffirmed in your bankruptcy.

2. It is important not to use credit cards to make up for a budget shortfall.

Credit card debt is expensive. Sometimes credit cards are so easy to use that people forget they are loans. Be sure to charge only things you really need and plan to pay the balance off in full each month. If you find you are constantly using your card without being able to pay the bill in full each month, you need to consider that you are using cards to finance an unaffordable lifestyle.

3. If you get into financial trouble, do not make it worse by using credit cards to make ends meet.

If you find that you are using credit cards to get through a period of financial difficulty, it is likely that additional credit will only make things worse. For example, if you use cash advances on your credit card to pay bills, the interest due will only add to your debt burden sooner rather than later.

4. Don’t get hooked on minimum payments.

Credit card lenders usually offer an optional “minimum payment” in their monthly billing. These are usually set very low (usually 2% of the balance), barely covering the monthly interest charge. If you pay only the minimum, chances are that you will be paying your debt very slowly or not at all, and you may think you are managing the debt when you are really getting in over your head. For example, if you make only the monthly minimum payments to pay off a $1000 balance at a 17% interest rate, it will take over 7 years to pay your debt! If you are also making new purchases every month while making minimum payments, your debt will grow and take even longer to pay off. This means that your monthly interest obligations will increase and you will have less money in the monthly budget for necessities.

5. Don’t run up the balance based on a temporary “teaser” interest rate.

Money borrowed during a temporary rate period of 6% is likely to be paid back at a much higher permanent rate of 15% or more. Also be careful about juggling cards to take advantage of teaser rates and balance transfer options. It takes a great deal of time and effort to take advantage of terms designed to be temporary. Remember that all teaser rate offers are designed to get you locked into the higher rate for the long term, because that is how the lender makes the most money.

6. Avoid the special services and programs credit card lenders offer to bill to your card.

You are likely to get many mail offers and telemarketer calls from your credit card lender about special services such as credit card fraud protection plans, credit report protection, travel clubs, life and unemployment insurance, and other similar offers. These products are generally overpriced. It is best to throw out and refuse these offers, or at a minimum, treat them with a high degree of caution. And avoid “free trial” offers as you will be billed automatically if you forget to cancel the service.

7. If you can afford to do so, always make your credit card payments on time.

Be careful to avoid late payment charges and penalty rates if you can do so while still paying higher priority debts. Bad problems get worse fast when you have a new higher interest rate and late charge to pay during a time of financial difficulty. Most lenders will waive a late charge or default interest rate one time only. It is worth calling to ask for a waiver if you make a late payment accidentally or with a good excuse.

8. Know exactly when the grace period ends.

The grace period usually ends on the payment “due date,” which may change every month. Many lenders do not mail bills until late in the grace period, so your payment may be due quite soon after you receive the bill. This also means that the grace period may be less than a full month, usually about 20-25 days. Some lenders are slow in posting payments or have strange rules about deadlines (like payments received after 10:00 a.m. on the due date are considered late). Try to mail your payment well before the due date so there will be no question it gets there on time. Paying credit cards on time not only saves you interest and late fees but is a good way to improve your credit rating after bankruptcy.

9. Beware of unsolicited increases by a credit card lender to your credit card limit.

Some lenders increase your credit limit even when you have not asked for more credit. Avoid using the full credit line as your debt can easily spiral out of control. And going over the credit limit even by a few dollars can be very costly as you will likely be charged an over-the-limit fee and a higher penalty interest rate.

10. If you do take a credit card and discover terms you do not like: cancel!

You can always cancel any credit card at any time. Although you will be responsible for any balance due at the time of cancellation, you should not keep using a card after you discover that its terms are unfavorable.

Remember: The law often changes. Each case is different. This article is meant to give you general information and not to give you specific legal advice.

This article reprinted, in substantial part, with permission from the National Consumer Law Center.

Despite the catchy jingle used in their commercials, obtaining a copy of your credit report online at freecreditreport.com is not necessarily “F-R-E-E”! You are required to provide a valid credit card to obtain your “free” report. The fine print authorizes a monthly charge to your credit card if you do not call to cancel their service within X number of days. Assuming you even notice this requirement, you probably won’t remember to cancel and the monthly charges will begin.

So how do you obtain a truly free, no-strings-attached copy of your credit report?
Go to the official website at www.AnnualCreditReport.com, enter certain required personal information, and you’ll have your free credit report within minutes. That’s it. No need to give out your credit card number and hope you remember to jump through the appropriate hoops to avoid charges.

It’s that easy. Now getting that annoying “F-R-E-E that spells free…” jingle out of your head is another story!

For more information about your access to free credit reports, visit this FTC web page.

The Federal Trade Commission (FTC), the nation’s consumer protection agency, enforces the Fair Debt Collection Practices Act (FDCPA), which prohibits debt collectors from using abusive, unfair, or deceptive practices to collect from you.

Under the FDCPA, a debt collector is someone who regularly collects debts owed to others. This includes collection agencies, lawyers who collect debts on a regular basis, and companies that buy delinquent debts and then try to collect them.

Here are some questions and answers about your rights under the Act.

What types of debts are covered?

The Act covers personal, family, and household debts, including money you owe on a personal credit card account, an auto loan, a medical bill, and your mortgage. The FDCPA doesn’t cover debts you incurred to run a business.

Can a debt collector contact me any time or any place?

No. A debt collector may not contact you at inconvenient times or places, such as before 8 in the morning or after 9 at night, unless you agree to it. And collectors may not contact you at work if they’re told (orally or in writing) that you’re not allowed to get calls there.

How can I stop a debt collector from contacting me?

If a collector contacts you about a debt, you may want to talk to them at least once to see if you can resolve the matter – even if you don’t think you owe the debt, can’t repay it immediately, or think that the collector is contacting you by mistake. If you decide after contacting the debt collector that you don’t want the collector to contact you again, tell the collector – in writing – to stop contacting you. Here’s how to do that:

Make a copy of your letter. Send the original by certified mail, and pay for a “return receipt” so you’ll be able to document what the collector received. Once the collector receives your letter, they may not contact you again, with two exceptions: a collector can contact you to tell you there will be no further contact or to let you know that they or the creditor intend to take a specific action, like filing a lawsuit. Sending such a letter to a debt collector you owe money to does not get rid of the debt, but it should stop the contact. The creditor or the debt collector still can sue you to collect the debt.

Can a debt collector contact anyone else about my debt?

If an attorney is representing you about the debt, the debt collector must contact the attorney, rather than you. If you don’t have an attorney, a collector may contact other people – but only to find out your address, your home phone number, and where you work. Collectors usually are prohibited from contacting third parties more than once. Other than to obtain this location information about you, a debt collector generally is not permitted to discuss your debt with anyone other than you, your spouse, or your attorney.

What does the debt collector have to tell me about the debt?

Every collector must send you a written “validation notice” telling you how much money you owe within five days after they first contact you. This notice also must include the name of the creditor to whom you owe the money, and how to proceed if you don’t think you owe the money.

Can a debt collector keep contacting me if I don’t think I owe any money?

If you send the debt collector a letter stating that you don’t owe any or all of the money, or asking for verification of the debt, that collector must stop contacting you. You have to send that letter within 30 days after you receive the validation notice. But a collector can begin contacting you again if it sends you written verification of the debt, like a copy of a bill for the amount you owe.

What practices are off limits for debt collectors?

Harassment. Debt collectors may not harass, oppress, or abuse you or any third parties they contact. For example, they may not:
* use threats of violence or harm;
* publish a list of names of people who refuse to pay their debts (but they can give this information to the credit reporting companies);
* use obscene or profane language; or
* repeatedly use the phone to annoy someone.

False statements. Debt collectors may not lie when they are trying to collect a debt. For example, they may not:
* falsely claim that they are attorneys or government representatives;
* falsely claim that you have committed a crime;
* falsely represent that they operate or work for a credit reporting company;
* misrepresent the amount you owe;
* indicate that papers they send you are legal forms if they aren’t; or
* indicate that papers they send to you aren’t legal forms if they are.

Debt collectors also are prohibited from saying that:
* you will be arrested if you don’t pay your debt;
* they’ll seize, garnish, attach, or sell your property or wages unless they are permitted by law to take the action and intend to do so; or
* legal action will be taken against you, if doing so would be illegal or if they don’t intend to take the action.

Debt collectors may not:
* give false credit information about you to anyone, including a credit reporting company;
* send you anything that looks like an official document from a court or government agency if it isn’t; or
* use a false company name.

Unfair practices. Debt collectors may not engage in unfair practices when they try to collect a debt. For example, they may not:
* try to collect any interest, fee, or other charge on top of the amount you owe unless the contract that created your debt – or your state law – allows the charge;
* deposit a post-dated check early;
* take or threaten to take your property unless it can be done legally; or
* contact you by postcard.

Can I control which debts my payments apply to?

Yes. If a debt collector is trying to collect more than one debt from you, the collector must apply any payment you make to the debt you select. Equally important, a debt collector may not apply a payment to a debt you don’t think you owe.

Can a debt collector garnish my bank account or my wages?

If you don’t pay a debt, a creditor or its debt collector generally can sue you to collect. If they win, the court will enter a judgment against you. The judgment states the amount of money you owe, and allows the creditor or collector to get a garnishment order against you, directing a third party, like your bank, to turn over funds from your account to pay the debt.

Wage garnishment happens when your employer withholds part of your compensation to pay your debts. Your wages usually can be garnished only as the result of a court order. Don’t ignore a lawsuit summons. If you do, you lose the opportunity to fight a wage garnishment.

Can federal benefits be garnished?

Many federal benefits are exempt from garnishment, including:
* Social Security Benefits
* Supplemental Security Income (SSI) Benefits
* Veterans’ Benefits
* Civil Service and Federal Retirement and Disability Benefits
* Service Members’ Pay
* Military Annuities and Survivors’ Benefits
* Student Assistance
* Railroad Retirement Benefits
* Merchant Seamen Wages
* Longshoremen’s and Harbor Workers’ Death and Disability Benefits
* Foreign Service Retirement and Disability Benefits
* Compensation for Injury, Death, or Detention of Employees of U.S. Contractors Outside the U.S.
* Federal Emergency Management Agency Federal Disaster Assistance

But federal benefits may be garnished under certain circumstances, including to pay delinquent taxes, alimony, child support, or student loans.

Do I have any recourse if I think a debt collector has violated the law?

You have the right to sue a collector in a state or federal court within one year from the date the law was violated. If you win, the judge can require the collector to pay you for any damages you can prove you suffered because of the illegal collection practices, like lost wages and medical bills. The judge can require the debt collector to pay you up to $1,000, even if you can’t prove that you suffered actual damages. You also can be reimbursed for your attorney’s fees and court costs. A group of people also may sue a debt collector as part of a class action lawsuit and recover money for damages up to $500,000, or one percent of the collector’s net worth, whichever amount is lower. Even if a debt collector violates the FDCPA in trying to collect a debt, the debt does not go away if you owe it.

What should I do if a debt collector sues me?

If a debt collector files a lawsuit against you to collect a debt, respond to the lawsuit, either personally or through your lawyer, by the date specified in the court papers to preserve your rights.

Where do I report a debt collector for an alleged violation?

Report any problems you have with a debt collector to the state Attorney General’s office (www.ag.state.ar.us/consumers_consumer_tips.html) and the Federal Trade Commission (www.ftc.gov). For Arkansas rules and regulations, visit the Arkansas State Board of collection Agencies’ website at (http://www.asbca.org/).

For More Information

To learn more about debt collection and other credit-related issues, visit www.ftc.gov/credit and MyMoney.gov, the U.S. government’s portal to financial education.