debt and debt relief

Joint Credit Accounts-In For A Dime, In For Hundred Thousand

Posted on by McIntyre Thanasides

Joint credit accounts, whether a credit card or a home loan, can be a great idea. Except when they are not. While they may allow two people to pool assets and obtain a larger home or have a higher credit limit on a credit card, there is a catch.
A very large catch. That “joint” part means that both of you can use the account and that both of you owe on the account…forever. As long as there is a balance, any balance, you are each liable for the entire balance.

Joint Account, Co-Signer or Authorized User?

There is more than one type of a joint account and the liability of each is slightly different.
If you have a joint credit card, and you both filled out a credit application, you are both liable for the entire amount of any charges. It does not matter who made the charges, you are both on the hook.

If you are a co-signer on a credit card or loan, you cannot access any of the credit, but you are 100% liable for the debt. For parents, this means if you co-signed any of your children’s credit cards or student loans, you could be stuck paying the full amount. That debt also counts against your credit rating.
If you are merely an authorized user, you do not have any direct obligation to repay the debt, but you should be aware some collection agencies might still attempt to collect from you.

Divorced?

One element of a joint account many people fail to understand is the fact that a divorce does not alter the contractual terms of you loan obligations. Even if your former spouse was “given” the car and the loan obligation, if you co-signed, when your ex-spouse defaults, the lender will come after you to repay the loan.
Make certain in a divorce to close all joint accounts, if possible. This may mean you have to pay off some loans and reapply for a new loan. You want to be the sole holder of your accounts, as that is the only way to ensure there are no surprises on your credit.

Source: creditcards.com, “6 secrets about joint credit”, Dana Dratch

Emergencies can lead to out of control debt

Posted on by McIntyre Thanasides

Before the 2007 recession, the majority of Americans were not putting much thought into their emergency savings account. Without any “just in case” emergency funds, when people starting getting laid off and being forced to take pay-cuts, many no longer could afford their lifestyle. Some saw their homes go into foreclosure, while others had to deal with the constant calls from bill collectors.

Since then, while the economy has started to rebound and some are trying to save for emergencies, almost half of Americans still have more credit card debt than that saved in emergency funds. Bankrate.com conducted a survey by questioning 1,004 participants over the phone. This is the third year in a row the company has conducted this survey.

In 2011, 52 percent reported having more in savings than in credit card debt. The following year, in 2012, the overall percentage increased to 54 percent. In this most recent survey, 55 percent reported having more in savings than in credit card debt.

At first glance, this certainly seems encouraging. More and more are starting to save for emergencies. However, Greg McBride, who is a senior financial analyst with Bankrate.com, said that people are still not saving enough. Even with the better overall economic situation of the U.S., not enough attention is being given to saving for an emergency.

The issue is that, even though the economy has improved some, without money in savings, Florida residents will not be able to pay for emergencies. For example, if suddenly a homeowner comes down with a debilitating disease, there will be medical bills. However, since there is no extra money put aside to pay these bills, the homeowner will have to dip into the funds he uses for his other bills, like his credit card and mortgage. This in turn can lead into a vicious cycle where the homeowner owes money to multiple entities and just cannot keep up. In some cases, the threat of foreclosure can become very real.

In cases like this hypothetical one, or really any situations where debt is becoming overwhelming, instead of continuing to stress out, talk with an attorney who has experience handling debt relief cases.

Source: ABC News, “Nearly Half of Americans Have More Credit Card Debt Than Savings”, Susanna Kim, Feb. 25, 2013

Considering Debt Settlement? There Are Better Options

Posted on by McIntyre Thanasides

The advertisements sound promising: “Pay only a portion of your balance!” “A legal way to reduce your debt load — fast!” Yet, are debt settlement companies as effective as they say they are? Will they be able to settle with your creditors so that you can pay “pennies on the dollar?”
Probably not.

Debt settlement is quicker than bankruptcy, but that does not mean that it will be successful. While debt settlement works for some consumers, many others end up more in debt than when they started. The debt settlement industry admits that debt settlement only works for one third of its clients. And their numbers are quite generous. According to the federal government, debt settlement is successful less than 10 percent of the time.

The Costs of Working With Debt Settlement Companies

Even when debt settlement is successful, it is costly — much more costly than other debt relief options, such as bankruptcy. Not only will debt settlement companies charge up-front fees for taking out loans before a settlement, but they will also usually ask for a hefty percentage of each forgiven debt. One Florida debt settlement company asks for an initial service fee that is nearly $7,000 as well as monthly “set-aside” fees that are in the hundreds of dollars. Another debt settlement company retains nearly $6,000 in fees even when they are unsuccessful in settling their client’s debt.
Furthermore, creditors may report the debt forgiveness to the IRS, who can tax you on the full amount of the debt reduction unless you are insolvent.

Finally, debt settlement can leave you in a worse position with creditors than you are in now. Debt settlement companies ask you to default on your debts because many creditors will not negotiate with consumers who are current on their bills. Unfortunately, defaulting can leave you with fines, higher interest rates, potential wage garnishment and even litigation. Once creditors know you are working with a debt settlement company, they are often more aggressive on their debt collection efforts.

Bankruptcy: A Better Option

So what do you do? It can be hard to accept that the “easy way out” — debt settlement — is through a locked door. Yet, there are other, more permanent options; options that can lead you to financial freedom. If you find yourself overwhelmed with debt, consider filing for Chapter 7 or Chapter 13 bankruptcy.
Chapter 7 bankruptcy allows debtors to discharge most of their debts while keeping their home and other exempt assets. Chapter 13 bankruptcy allows debtors to pay back some of their debts through a 3- to 5-year bankruptcy plan and discharge others.

Source: NACBA, “The Debt Settlement Trap: The #1 Threat Facing Deeply Indebted Americans”, Oct. 2012

Student loan debt increasing, leaving borrowers with few options

Posted on by McIntyre Thanasides

According to the Federal Reserve Bank of New York, student loan debt in the U.S. has reached $956 billion dollars. In just the third quarter alone, it increased by 4.6 percent.

Yet, the debt amount alone isn’t as troubling as the fact that the number of student loan borrowers who are at least 90+ days delinquent on paying off their loan balances also increased 11 percent. In fact, the number of student loan borrowers who have fallen behind on their payments is now higher than that reported for credit card debt.
Some experts have compared student loans to the subprime mortgage bubble because there are no lending standards (the government does not vet individuals for loans) and the debt has continued to rise beyond individuals’ means to pay it. Unlike mortgage debt, however, student loans are very difficult to discharge in bankruptcy.

Student loans are only dischargeable in bankruptcy if a debtor shows what is called “undue hardship.” Inability to pay for the loans is not undue hardship. While the government will let borrowers defer loan payments, private loan companies do not offer the same options. This means that many student loan borrowers are left without recourse while their student loan interest continues to build.

Yet, there are other ways to seek relief and make student loan debt more bearable. For example, many of the consumers who face large amounts of student loan debt also face overwhelming debt in other areas, such as credit card debt. By discharging the other debt through a Chapter 7 or Chapter 13 bankruptcy, borrowers can focus their efforts on paying down their student loan debt.

Source: CBS Money Watch, “Student loan debt nears $1 trillion: Is it the new subprime?” Jill Schlesinger, Nov. 28, 2012