Category: Debt Settlement

With the economy still struggling somewhat, officials in some parts of the country say residents are seeing a higher number of debt collection agencies, some of them using aggressive tactics.

In the state of Idaho, the number of agencies has grown 20 percent over the past few years, the Idaho Statesman reports. There are now more than 600 debt collection agencies operating in the area. However, some consumers have complained of illegal harassing behavior as they try to get out of debt.

"It's always our highest area of (complaint) calls we receive," Mike Larsen, head of consumer finance at the Idaho Department of Finance, told the paper.

Officials told the paper that they do have the power to take away a debt collector's license if they violate the law in trying to collect debt, but that's a power that isn't used very frequently. Most of the department's actions involve cracking down on companies without a license.

Similar issues have been seen across the country. A group of unlicensed debt collection agencies are the focus of a serious of lawsuits in South Florida, the Orlando Sentinel reports.

The head of the Los Angeles Better Business Bureau resigned following a news report that alleged the chapter would award paying BBB members better ratings than other companies.

William Mitchell, the CEO who introduced a controversial letter grade system for L.A. businesses, has been accused of only giving A+ ratings to companies that pay BBB membership, according to a report from ABC News. Many business owners believed there was something amiss about the ratings system and set out to prove the BBB was acting improperly.

Several business owners opened a number of memberships for phony businesses, all listing Mitchell as their president and bogus addresses, and some were awarded grades as high as A and A-, the report said. Another investigation caught BBB telemarketers saying a business' C grade could be boosted to an A+ if they purchased a membership.

The national BBB head office is now conducting an investigation into the charges, which may be what prompted Mitchell to quit, the report said.

Mitchell, a former board member of SpringBoard Credit Counseling, had long been a vocal opponent of legitimate debt settlement services, saying they were only designed to rip off consumers.

Nearly 40 percent of retired Americans have accumulated significant credit card debt in the last few years, and most aren't worried about ever having to pay it off, according to a report from USA Today. The reason for this could be the current generation of seniors was raised in a time when it was frowned upon to talk about money, and as a result, they may be too embarrassed by their financial difficulties to discuss them with anyone.

"Talking about money to the important people in your life forces you to come clean about the life you are living and … the way you manage your money," Katie Dunsworth, who is part of a group that teaches financially troubled consumers how to take control of their money, told the newspaper.

More than half of seniors have saved less than $50,000, and many say they haven't put away anything, but stopped working anyway, the report said. Only a small percentage delayed their retirement due to existing debt.

As a result of these problems, when a debt-laden senior passes away, their families can go from worrying about who gets their house to selling the property as a means of covering their surviving credit card debt, the report said. Typically, whatever the parent owes is deducted from their estate prior to it being divided among their various beneficiaries.

One of the biggest mistakes a senior citizen can make with their credit card debt is to make a late payment, because that will typically trigger the activation of penalty rates that can climb as high as 30 percent, the report said. This can be particularly problematic because many elderly people live on a fixed income, and the issue will likely just compound itself as they remain unable to pay their mounting bills.

In some cases, it may be beneficial for a senior to seek the help of a debt settlement agency, which can help them reduce their total overall balances while also cutting down the amount they have to pay.

Debt settlement companies will be required to disclose more information to consumers beginning on September 27, according to a report from CNBC. These details include how long it will take for them to settle the debtor's accounts, how much it will cost, and what consequences may result from the process.

The report also noted that customers are typically required to set aside money in a separate account maintained by the debt settlement company. However, the new rules would only allow these to be opened at independent institutions under the consumer's name.

More federal regulations governing the debt settlement industry take effect on October 27, the report said.

Many consumers may be able to find some relief from their financial problems by seeking the help of a debt settlement agency. By doing so, they are enlisting trained, professional negotiators to work on their behalf with lenders to reduce their credit card debt.

In the past, critics often derided the debt settlement industry as being very dangerous for consumers. But thanks to new federal laws governing the industry, it’s now considered much safer.

Debt settlement companies will be required to actually reduce a consumer’s total debt amount before they charge for their services starting on October 27, the Wall Street Journal reports. Many of these companies promise they can get creditors to remove as much as 60 percent of their total debt, and they are often successful, but it’s also not a guarantee.

However, many in the industry think that while these new laws could be trouble for businesses, they also understand the regulations will make it healthier in the long run, the Journal noted. However, these changes do not affect the way nonprofit debt relief organizations operate, because the Federal Trade Commission has no power over them.

Consumers may find considerable relief from the services of a debt relief company, but they should also understand that using one offers no guarantee their debt can be reduced.

Although many consumers may opt for debt settlement when they face serious financial problems, there are some aspects of the process that can be forgotten.

According to a report from the western Colorado news provider the Grand Junction Free Press, many consumers who choose to deal with their creditors by seeking the help of a debt settlement firm may not remember that they can receive a tax form, called Form 1099-C. This requires the recipient to pay taxes on the forgiven amount, which the government counts as being added to their income.

The paper said if this happens, consumers should consult a tax preparer to see if they can obtain another sheet, called a Form 982, which may help them reduce the taxable amount of that forgiven debt. However, the newspaper warns that even in these cases debt settlement will stay on their credit report for years.

The government recently made debt settlement safer for consumers by passing provisions of the financial overhaul bill. These only require Americans to pay if the work of a company that says it can reduce an amount owed delivers on its promises.

While debt collectors are an important part of the consumer financial ecosystem, some agencies have been accused of threatening, harassing, and lying to consumers in pursuit of unpaid debts. The mayor of New York, Michael Bloomberg, recently announced tough new restrictions on those companies.

Bloomberg said that "the measures we are announcing today will help stop this rising tide of wrongful and financially harmful collection tactics, and protect New Yorkers from their often damaging consequences."

The mayor and consumer affairs commissioner Jonathan Mintz assert that some collection agencies routinely harass people who have the same names as their targeted debtors, making little to no effort to ascertain whether the person actually owes them any money.

Experts say that consumers should make every effort to repair their financial troubles before collection agents are brought in, however. Reputable credit counseling services can help stop a slide into debt that might otherwise cause creditors to take drastic action against a consumer. A consumer’s credit rating is also endangered by a referral to a collections agency.

While tax season is often thought of as a burden by many, those who need to consolidate debt and save money may actually be able to earn a substantial refund through their return, especially if it is their first time filing one as an independent.

According to representatives from the Jackson Hewitt Tax Service, taxpayers who will be filing their first tax return in 2010 have a number of considerations to keep in mind, particularly those who will be doing so as independent taxpayers.

"Many taxpayers become independent and begin to file on their own after graduating from college, and one of the most common areas to look for tax benefits is with education," said Mark Steber, chief tax officer for Jackson Hewitt Tax Service Inc. "If they had student loans, they should remember to claim the interest paid when filing. If they are still in school and paying their own tuition and fees, that’s another area to be sure not to miss."

Newly independent taxpayers can often qualify for a number of credits and deductions that can substantially increase a tax refund. Among the ones listed by the tax service were Making Work Pay credits, which can provide up to $400, an Earned Income Tax Credit for working taxpayers with wages, and Retirement Savers credits for those who invest in IRA or pension plans.

Taxpayers must report all of their earnings on their tax return, an must be in possession of a U.S. issued taxpayer identification number as well.