Tuesday, January 21, 2014

Seniors with Credit Card Problems


The debt collection industry has changed dramatically in the last few years. In the past, most home and car lenders have never hesitated to chase debtors who fall behind on payments. But other consumer lenders, like credit card issuers, traditionally did not tail debtors for more than a few months. As the number of debts in default has ballooned, however, a new breed of collector has evolved, eager to buy up consumer debt that creditors have given up on. Unlike old-fashioned collection agencies that pursue debtors on behalf of a client-company and keep a set percentage of what they can collect, the newer “junk debt” buyers acquire huge portfolios of bad debt at a discount and may keep 100% of whatever they can recover. The result is that the buying and selling of delinquent credit card debt is now a multi-billion dollar industry.

Unsurprisingly, the situation with debt and seniors has also changed drastically since the 1980s. For decades, finding an older American mired in debt was the exception, not the rule. Increasingly, however, the elderly find themselves sinking deeper into debt. In fact, debtors 65 and older are now the fastest growing age group filing for bankruptcy; moreover, their debt does not arise from profligate spending, but simply from trying to pay for necessities on a limited income.

This debt is fueled in large part by skyrocketing credit card debt. Among the elderly with incomes under $50,000 (70% of seniors), one in five with credit card debt is in hardship – spending more than 40% of their income on their debt payments. Medical expenses also play a significant role in the running up of credit card debt, with may seniors turning to credit cards because they cannot afford to pay for their monthly prescriptions in cash.

The good news, however, is that 90% of these indebted seniors depend on Social Security as their major source of income, and that’s bad news for the credit card companies because under federal law Social Security income cannot be garnished. Clients of Debt Counsel for Seniors and the Disabled, however, can rest easy knowing that they are protected from the harassment and illegal collection tactics of creditors and collectors, and that their right to shield their income from creditors is fully exercised.

What Seniors Should Know About Debt and the Law

If you are a senior citizen who is having a difficult time repaying unsecured debt, it is vital that you understand what can – and cannot – happen to you if you do not have the means to pay. Knowing how creditors may behave when trying to collect on a debt will give you the confidence to communicate and negotiate with them effectively.

Original Creditors versus Collection Agencies

The first thing you should determine is whether the business you are dealing with is the original creditor or a collection agency. Since these two types of creditors are regulated differently, you’ll need to know the right laws for each, and which agencies to contact if you have problems with their collection methods.

Original creditors

An original creditor is the business with which you started and still have a relationship. It could be a department store, doctor, credit card company, or financial institution. If the debt is still with that business, then that is whom you are going to work with.

Original creditors must comply with state law when collecting a debt. While most states’ laws closely mirror federal law, each state has slight legal variances. Contact your state Attorney General’s office to learn the exact law for where you live.

The collection practices of original creditors are often less confrontational than those of collection agencies. This makes sense, since it is in the company’s best interest to maintain a positive business relationship with you, particularly if you are a long-time customer. If you are unhappy with their collection practices and believe they have overstepped their legal boundaries, speak up! Contact them and explain why you are displeased and that you want the action to stop. If they continue to break the law, however, report them to the Better Business Bureau and your state’s Attorney General, who will investigate the matter.

Collection agencies If your debt goes unpaid, it will very likely be sent to a collection agency. Sometimes collection agencies are under contract with the original creditor (in which case they must abide by your state’s guidelines), other times debts are bought outright. If your debt is sold to such a business, collectors must abide by a federal law called The Fair Debt Collection Practices Act (FDCPA). Regulated by the Federal Trade Commission (FTC), this law limits the way third-party collectors do business.

Many seniors – and consumers in general – are intimidated by collectors. Unlike original creditors who want to keep you as a happy customer, these businesses are only interested in one thing: collecting what is owed. However, as scary as they can sound, they really are strictly regulated. Among other things, they are not allowed to:

Call you repeatedly
Call you before 8am or after 9pm, or at any inconvenient time
Call you at work if you tell them it jeopardizes your job
Discuss your debt with anyone other than your spouse without your permission
Use profanity
Misrepresent themselves
Make false threats

You are under no obligation to speak with a collector, particularly if he is making you uncomfortable or frightened. Do not be afraid to excuse yourself and hang up the phone.

Some disreputable collectors may make false threats with the hopes of scaring you into sending some money. However, no matter what he says, rest assured that you cannot be sent to jail for unsecured debts. No one can take money from your accounts or sell your property either, unless you’ve lost a lawsuit first. Making these empty threats is illegal too – and the collector may be fined for such behavior. Report conduct violations to the FTC.

If you really want the calls and letters to stop, the FDCPA gives you the right to send a letter to the collection agency stating that you want all communication to end. This is called a “cease and desist” letter, and should be used only if you are very sure you won’t be sued or you want your day in court. Upon receipt of the letter, the collector has only two choices: end all communication for good, or begin legal action.

Legal Action If you owe money for an unsecured debt, being sued is a very real possibility. If the case goes to court and the creditor wins, you can be held liable for not just the original debt, but also a whole host of assorted court costs. To collect, the creditor may:

Take a percentage of your wages until the debt is paid (a wage garnishment)
Force the sale of valuable assets, including expensive electronics and heirlooms, or take money out of your checking or savings accounts (a levy)
Place a claim against such property as a home or vehicle so when you sell it, the portion of what you owe will go to the creditor (a lien)

If you are concerned about getting sued, know that even if you have a job, a portion of your income is protected from garnishment, as is Social Security income and most retirement plan distributions. And if you don’t own any expensive property or have a substantial amount of cash tucked away, then liens and levies are irrelevant. If you are worried about losing your home in a lawsuit, you can probably relax – forced home sales are very rare.

Many seniors who are in a financial bind are what is considered “judgment proof.” That is, if you have no income or assets to take, then a lawsuit is not going to help them recoup what is owed. This does not mean you can’t or won’t be sued. It means that if you do not have anything, nor will ever have anything, you should make that perfectly clear to the creditor as soon as you can. They may decide against legal action, consider the debt uncollectible, and drop the matter for good.