Sat, Aug 08, 2020 – 2:25 PM [NORFOLK] Bolstered cash collections helped profits more than triple at two of the largest publicly traded debt collectors, as stimulus checks and lockdowns left US borrowers stuck at home with extra cash on … Continue reading →
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If you are considering filing for bankruptcy, you need to know about an important requirement: credit counseling. It may not be the first thing that comes to mind when you think about bankruptcy, but it is an important step in the process. In this post, we will take a closer look at the requirement, how to satisfy it, and other considerations to keep in mind.
Background
By law, you must complete “pre-bankruptcy credit counseling” before filing for Chapter 7 or Chapter 13 bankruptcy as an individual. The government maintains a list of approved pre-bankruptcy credit counseling providers (filers in Alabama and North Carolina can find approved providers here). Most NFCC-certified agencies provide this service, and the NFCC can match you with an approved bankruptcy counselor when you fill out this form.
Upon completion of the counseling, you will be issued a certificate, demonstrating that you met the requirement. The certificate is valid for 180 days, meaning that you will have up to 180 days to file for bankruptcy. Wait longer than that and you will have to retake the pre-filing counseling.
In addition to pre-bankruptcy credit counseling, there is a second “counseling” requirement. After you file for bankruptcy, but before your debt(s) is discharged, you are required by law to complete pre-discharge debtor education. Most agencies that offer the credit counseling service offer debtor education, too. This article focuses on the pre-filing credit counseling, but you should keep in mind that there are two counseling/education requirements.
What is Involved?
The purpose of the pre-filing credit counseling requirement is to ensure that consumers only file for bankruptcy if necessary. Other options may be available. Making significant changes to your household budget or enrolling in a debt management plan to pay off credit card debt, are two potential options that could allow you to bypass bankruptcy altogether. While bankruptcy may be the best option in some cases, it has drawbacks. These drawbacks include damage to your credit score, a bankruptcy notation on your credit report for 10 years, and attorney’s fees and court costs. This whitepaper discusses some of the pros and cons of bankruptcy compared to other debt relief methods.
So, what happens in an actual counseling session? The counselor will work with you to prepare an estimated budget based on your income. The counselor will assess whether a repayment plan other than bankruptcy seems feasible, and if it does then the counselor will provide a plan. There is no requirement that the you accept the plan, but this exercise can be very helpful. If the session reveals an alternative to bankruptcy, you may decide to pursue that option instead. Counselors should explain the alternatives to bankruptcy fully, and explain the pros and cons of each option. Counselors may also be able to connect you to local resources that could help further.
Choosing a Counselor
You may decide to choose your own bankruptcy credit counseling agency (we included links at the top of this post for doing just that). However, many people seek the advice of a bankruptcy attorney and then use the counseling service recommended by that attorney. There is nothing wrong with this approach, but there are a few things to keep in mind.
Perhaps the most important thing to consider is this: how committed are you to filing for bankruptcy instead of pursuing a different option? You may be interested in bankruptcy simply because you are facing significant debt. Most people have heard of bankruptcy and know that it can discharge some obligations. But you may not be familiar with other repayment options. On the other hand, you may already be certain that bankruptcy is the right choice for you.
If you go to a bankruptcy attorney after being 100 percent sure that you want to file for bankruptcy, then the pre-filing counseling may be just a formality. On the other hand, if you are focused on solving a debt problem in a general sense, you will care much more about the quality of your pre-filing counseling session because you will want to learn about additional options that may be available. Therefore, if there is any doubt in your mind about bankruptcy, you should take some time to pick the counseling agency that is right for you and will provide a personalized approach to the counseling session. We recommend NFCC member agencies for this purpose.
Key Points to Remember
Pre-filing credit counseling is a requirement for individuals who file for Chapter 7 or Chapter 13 bankruptcy. You may pick your own agency or use a referral from your bankruptcy attorney. We recommend working with an NFCC-member agency, and encourage you to consider alternatives to bankruptcy when feasible. Your counselor should review these alternatives with you. Lastly, remember that a counseling certificate is valid for 180 days, so you will need to file within that time-frame after the counseling session. Have more questions? See our Bankruptcy FAQ.
The post What You Need to Know About Bankruptcy Credit Counseling and When to Consider It appeared first on NFCC.
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On July 27, the U.S. District Court for the Middle District of Florida entered a nearly $13.9 million partially suspended judgment against six corporate and three individual defendants (collectively, “defendants”) allegedly operating an illegal robocall scheme offering consumers credit card … Continue reading →
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Here’s a big TCPA ruling for debt collectors and servicers– and a bit of a downer for everyone else. The Court in Mosley v. General Revenue Corp., Civil Action No. 1:20-cv-01012-JES-JEH, 2020 U.S. Dist. LEXIS 127055 (C.D. Ill. July 20, … Continue reading →
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The Trump administration has urged banks and credit unions to compete with high-cost payday lenders to offer more credit options to consumers. But banks remain wary of a product they still see as risky, observers said. The prudential bank regulators … Continue reading →
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An important protection for renters created by the CARES Act ended on July 25. Commonly referred to as an “eviction moratorium,” the protection applied to approximately 25 percent of renters nationwide and helped ensure that they would not be evicted during the ongoing health crisis of COVID-19. Now, this provision has expired, along with some states’ separate eviction moratoriums. On top of this, the $600 additional unemployment benefit created by the CARES Act has expired, too. As these critical programs come to an end, many fear that evictions will increase significantly. Here are some tips for tenants and landlords to navigate their housing situations in this new landscape.
Know Your State’s Law
The federal eviction moratorium only applied to subsidized housing and housing with a federally backed mortgage loan. It was estimated that this covered 25 percent of renters. While 25 percent is a substantial amount, the federal law left many unprotected. States stepped in to fill the gap, with many creating their own state-wide eviction moratoriums.
With the federal moratorium ending, it is important to be familiar with your state’s law. You need to know if your state has an ongoing moratorium. If it does, you need to know when that will expire. Every state is handling this differently. In Virginia, for example, the original moratorium had been extended but officially expired in late June. The governor then requested that local courts continue the moratorium, leaving it to their discretion. Therefore, in Virginia, whether or not you are currently protected from eviction depends on the policy of the city or county in which you reside.
As you can see, this can get confusing. There are some resources to help you quickly learn the current law in your state. You could check out the Eviction Lab’s COVID-19 Housing Policy Scorecard, which tracks current policies in every state. Nolo has a similar guide. You may also consult your local legal aid organization. Legal aid groups have been on the frontlines of advocacy for tenant’s rights during the pandemic, and their staffs will be able to provide up-to-date-information. You might even start by visiting their website or Facebook page to get recent updates and information.
Be Aware of Future Changes
Congress is in the midst of approving a second stimulus bill. You should stay aware of the negotiations and be informed about the terms of the new law once it takes effect. While no one knows for sure what the new bill will include, it is possible that it could extend the eviction moratorium or create some new form of housing protection.
Watch Out for Misleading Tactics
Despite the moratorium, some landlords have resorted to misleading tactics, which could confuse tenants about their right and cause them to leave the property prematurely. One thing to keep in mind is that landlords must give 30-days’ notice before eviction. That notice cannot be given until after the moratorium. So even though the moratorium ended July 25, you have until at least late August before you can be evicted. Landlords may be deceptively threatening eviction sooner, or attempted to send notices prior to July 25.
Also, some landlords may dispute that they are a “covered property” and therefore may argue that the moratorium does not apply to them. If you need to confirm that your property was subject to the moratorium for any reason, check out the database created by the National Low Income Housing Coalition, which identifies most covered properties.
Again, you should also consider reaching out to a legal aid organization, other attorney, or tenants’ rights group for further assistance should you become the target of eviction proceedings that you believe may violate your rights.
Work Together When Possible
Landlords and tenants alike may find that working together will lead to the best solution. Given the widespread unemployment and harsh economic downturn caused by the pandemic, tenants may have more leverage than usual when it comes to negotiating. Landlords may feel that it will not be very easy to replace tenants, particularly those with strong payment records before the pandemic. Landlords also may also be understanding about the unique challenges involved in this situation, and be flexible in making alternative payment arrangements. HUD offers some advice about working with your landlord, including being candid about the specifics of your hardship, and keeping records of all communications.
Use Available Resources
Remember that you are not alone. Many people are working tirelessly on this issue. If you need help, consider reaching out to your local housing resources, including legal aid or other tenants’ rights groups. NFCC-certified agencies can also help with rental counseling or budget and credit counseling, which may help you restructure your personal budget and debt obligations in order to make your rent payments. Make sure you stay informed about your rights, follow any developments in a new stimulus bill, and remain in close communication with your landlord.
The post Tips for Renters and Landlords as the Eviction Moratorium Expires appeared first on NFCC.
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Effective July 1, 2020, an update to the website for the Colorado Attorney General’s informational page about the Colorado Fair Debt Collection Practices Act (CFDCPA) must be included in the first written notice sent to consumers about a debt. The … Continue reading →
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On July 30, a group of consumer fair housing associations (collectively, “plaintiffs”) filed suit against the CFPB, challenging the Bureau’s final rule permanently raising coverage thresholds for collecting and reporting data about closed-end mortgage loans and open-end lines of credit … Continue reading →
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If you’re trying to manage bills that are piling up, you may have come across the idea to consolidate them. Consolidating your debts can be convenient, allowing you to make one monthly payment. It can also allow you to swap high-interest debt for low-interest debt. However, it has drawbacks and is not right for everyone. Here are some bill consolidation strategies to keep in mind as you make a plan for paying off your debt.
Refresher – What is Bill Consolidation?
Bill consolidation can be a slightly misleading term, because it sounds broader than it really is. Essentially, bill consolidation is the process of combining multiple bills or debts into a single financial commitment that you owe and make payments toward. The reason the term “bill consolidation” can be confusing is that many bills cannot be consolidated, and that many debts which can be consolidated are not normally thought of as “bills.” Another term, “debt consolidation” is commonly used to refer to the same concept as “bill consolidation” and may be more accurate in many cases.
To simplify our discussion in this post, we are going to focus only on consolidating unsecured debts. Credit cards and medical bills are two common unsecured debts that can be consolidated.
Another Refresher – Know Your Credit Score
Whether true debt consolidation is a viable and smart strategy will depend on the terms you receive. Those terms will depend on your credit score. Therefore, you need to take inventory of where you stand in order to assess which realistic options will be available to you. If you have a great credit score, then a balance transfer may be a good option. If your score is on the low end, then the terms on a balance transfer or loan will not be as appealing and could create more harm than good.
There are many ways to check your credit score. Ideally, you would check your FICO score, but even an alternative score could provide a sense of where you stand and how a lender would evaluate you.
Strategy #1 – Balance Transfer
A balance transfer involves opening a new credit card with a low or zero-percent interest rate (for a promotional period). You then move your previous debt(s) to this new credit card. In effect, you will have reduced your interest rate from a high rate on the old debt to a lower rate on the new card.
You will typically pay a fee for the amount you transfer (although some cards waive the fee for applicants with excellent credit), and there will be a limit to how much you can transfer (meaning you may not be able to transfer all of your existing debt).
This is a smart strategy IF:
You have good enough credit to receive a zero-percent promotional rate. Note: it is an even better strategy if you have excellent credit and can avoid a transfer fee.
You will pay off all the debt transferred before the promotional interest rate expires.
Strategy #2 – A Debt Consolidation Loan
A consolidation loan works much like a balance transfer, but you would be receiving a loan rather than a line of credit. The process would involve opening the loan, using funds from the loan to pay off the previous debt(s), and then repaying the loan. Like with balance transfers, better terms will be reserved for borrowers with good to excellent credit.
To make this strategy worth it, a borrower should only accept a loan with an interest rate significantly lower than the rate on the existing debt(s). Some lenders may charge origination fees, but borrowers should shop around and try to avoid such fees.
This is a smart strategy IF:
The loan provides better terms than any balance transfer available to the applicant OR the applicant is concerned about being able to pay a balance transfer debt during the promotional interest period.
The interest rate on the loan is significantly lower than on the previous debt(s), meaning the borrower has good to excellent credit.
The borrower can avoid origination fees.
Strategy #3 – Debt Management Program
The two strategies discussed so far are primarily reserved for people with good to excellent credit. But what about if you have high interest debt and a credit score that is not good or excellent? In that case, there are some options. A few involve significant risks, and we do not generally recommend them (things like HELOCs and borrowing from your retirement accounts). However, a debt management plan may be a good fit.
In a debt management plan, you work with a credit counseling agency to pay off your debts. The counselors have relationships with creditors, and in many cases your creditors will reduce interest rates and waive fees while you are on the plan. The plan is structured so that the payments are manageable, and the plan continues until you pay your debts is full.
You make one monthly payment under the plan, and the counselors distribute that payment to your creditors. So technically, a debt management plan is not a form of consolidation. That is because under the plan your accounts remain separate and are not consolidated into a new financial commitment. However, it provides the benefits of consolidation, because you only have to make one monthly payment and you often receive reduced interest rates.
Additionally, the counselors provide financial education and are there as a resource for you throughout your repayment process.
This is a smart strategy IF:
Your credit does not qualify you for good rates on a balance transfer or consolidation loan; AND/OR you would like to have a counselor resource and financial education during your repayment; AND/OR you have experienced a financial setback such that even if you received good terms on a consolidation product, it would be difficult to make payments.
You have primarily high-interest unsecured credit card debt.
As you can see, a lot goes into the decision to pursue debt consolidation. A balance transfer or consolidation loan may be the right solution for those with great credit scores who can secure good interest rates and avoid fees. For everyone else, the terms and fees may be so high that you don’t save any money compared to the high interest debt you already had. In those cases, a debt management plan may make much more sense. The plan is structured for your specific situation, often provides lower interest rates, and allows for one monthly payment. To learn more about where you stand and which path forward may make sense for you, speak with a credit counselor.
The post Smart Strategies for Bill Consolidation or Debt Consolidation appeared first on NFCC.
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The role of the Consumer Financial Protection Bureau (CFPB) has come under scrutiny, but as of the time of this writing, it’s still a place for consumers to log complaints against financial institutions. And during the coronavirus pandemic, the number … Continue reading →
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