Category Archives: Money & Budgeting

Student Loans spotlight: Federal lawsuit claims Navient negligent

I last night appeared on WISH-TV (Channel 8), as the 11 o’clock news ran a segment on student loans, and a recent federal lawsuit.   I was interviewed, and you can view that segment here:  http://wishtv.com/2017/01/19/federal-government-files-lawsuit-against-student-loan-company-navient/.  If you have student loans or your friends and relatives do, it is useful to review that segment.

Two days ago the federal government, through its Consumer Financial Protection Bureau (called hereafter “CFPB”) filed suit against Navient Corporation, a large local employer. This corporation is the former Sallie Mae/ USA Funds, which corporation has a significant presence just off of I-69 in Fishers.

The suit has significance to many student loan borrowers, because Navient is the largest student loan servicer in the United States. It services loans for more than 12 million student loan borrowers, including over 6 million customer accounts under a contract with the US Department of Education.  It is responsible for administration of more than $300 billion in federal and private student loans.

It seems the government lawyers wanted to get the case on file before the change of administration today. The lawsuit, filed two days ago, alleges that Navient is not handling department of education accounts properly, and can be viewed here: http://files.consumerfinance.gov/f/documents/201701_cfpb_Navient-Pioneer-Credit-Recovery-complaint.pdf

Of course, most of us will not want to read all of that legalese.  The pertinent details are quoted in this article, so that student loan borrowers can discern “what the heck is going on”.  Please bear in mind that these quotes are allegations in a lawsuit, not proved facts which have resulted in a judgment in federal court.

Nevertheless, these statements are beyond mere suspicious fantasy, as they are based on Navient records of actual Navient transactions with student loan borrowers.  For purposes of this post (and to avoid confusion) I have listed the allegations by complaint paragraph as listed in that legal document, and have used a different type face (italic) to distinguish my thoughts from those of the federal government.

As the suit explains, most federal student borrowers have a right under federal law to set their monthly student loan payment as a share of their income, but the CFPB alleges:

  1. Navient has failed to perform its core duties in the servicing of student loans, violating Federal consumer financial laws as well as the trust that borrowers placed in the company. Most federal student borrowers have a right under federal law to set their monthly student loan payment as a share of their income, an arrangement that can offer borrowers extended payment relief and other significant benefits. Navient systematically deterred numerous borrowers from obtaining access to some or all of the benefits and protections associated with these plans. Despite assuring borrowers that it would help them find the right repayment option for their circumstances, Navient steered these borrowers experiencing financial hardship that was not short-term or temporary into costly payment relief designed for borrowers experiencing short-term financial problems, before or instead of affordable long-term repayment options that were more beneficial to them in light of their financial situation.
  2. For borrowers who did enroll in long-term repayment plans, Navient failed to disclose the annual deadline to renew those plans, misrepresented the consequences of non-renewal, and obscured its renewal notice to borrowers who were due for renewal. As a result, the affordable payment amount expired for hundreds of thousands of borrowers, resulting in an immediate increase in their monthly payment and other financial harm.
  3. Taken together, these practices prevented some of the most financially vulnerable borrowers from securing some or all of the benefits of plans that were intended to ease the burden of unaffordable student debt.
  4. Navient’s servicing failures, however, were not just limited to enrolling and renewing borrowers in affordable repayment plans. Navient also misreported information to consumer reporting agencies about thousands of borrowers who were totally and permanently disabled, including veterans whose total and permanent disability was connected to their military service, by making it appear as if those borrowers had defaulted on their student loans when they had not, damaging their credit; misrepresented one of its requirements for borrowers to release their cosigner from their private student loan, thereby denying or delaying access to an important feature on many cosigned private loans that relieves a cosigner of responsibility for the loan once the borrower meets certain eligibility criteria; and repeated the same errors in processing federal and private student loan borrowers’ payments month after month, even after borrowers complained to Navient about those errors.
  5. Since at least July 2011, tens of thousands of borrowers and cosigners have filed complaints with Navient, the Bureau, other governmental and regulatory agencies, and other entities about the difficulties and obstacles they have faced in the repayment of their federal and private student loans serviced by Navient.

Wow, that is some pretty language!  As to a subsidiary (Pioneer), the CFPB alleges:

  1. Much of Pioneer’s work relates to the federal loan rehabilitation program, which is a program that allows federal student loan borrowers who are in default to effectively “cure” one or more defaulted federal loans.
  2. In seeking to enroll consumers in the rehabilitation program, Pioneer systematically misled consumers about the effect of rehabilitation on the consumer’s credit report and overpromised the amount of collection fees that would be forgiven by enrolling in the program.

The CFPB further comments on Navient’s “steering” borrowers into high cost postponement of payment (forbearance) instead of enrollment into federally mandated income based repayment:

  1. Navient representatives sometimes initially responded to borrowers’ inability to make a payment by placing them in voluntary forbearance without adequately advising them about available income- driven repayment plans. This occurred even though it is likely that a large number of those borrowers would have qualified instead for a $0 payment in an income-driven repayment plan at that time. Indeed, over 50% of Navient borrowers who need payment relief, and meet the eligibility criteria for income-driven repayment plans, qualify for a $0 monthly payment.
  2. For example, between January 1, 2010 and March 31, 2015, nearly 25% of borrowers who ultimately enrolled in IBR with a $0 payment were enrolled in voluntary forbearance within the twelve-month period immediately preceding their enrollment in IBR. Similarly, during that same time period, nearly 16% of borrowers who ultimately enrolled in PAYE with a $0 payment were enrolled in voluntary forbearance within the twelve- month period immediately preceding their enrollment in PAYE. The majority of these borrowers were enrolled in voluntary forbearance more than three months prior to their enrollment in the income-driven repayment plan, which suggests that forbearance was not merely offered to these borrowers while their application in an income-driven repayment plan was pending. Because they were placed into forbearance before ultimately enrolling in an income-driven repayment plan with a $0 payment, these borrowers had delayed access to the benefits of the income- driven repayment plan. They were also subject to the negative consequences of forbearance, including the addition of interest to the principal balance of the loan, which they potentially could have avoided had they been enrolled in the income-driven repayment plan from the start.
  3. Navient also enrolled an immense number of borrowers in multiple consecutive forbearances, even though they had clearly demonstrated a long-term inability to repay their loans. For example, between January 1, 2010 and March 31, 2015, Navient enrolled over 1.5 million borrowers in two or more consecutive forbearances totaling twelve months or longer. More than 470,000 of these borrowers were enrolled in three consecutive forbearances, and more than 520,000 of them were enrolled in four or more consecutive forbearances. For borrowers enrolled in three or more consecutive forbearances, each forbearance period lasted, on average, six months. Therefore, hundreds of thousands of consumers were continuously enrolled in forbearance for a period of two or three years, or more. Regardless of why these borrowers did not enroll in an income-driven repayment plan from the start, their long-term inability to repay was increasingly clear as each forbearance period expired. Yet Navient representatives continued to enroll them in forbearance again and again, rather than an income-driven repayment plan that would have been beneficial for many of them.
  4. Enrollment in multiple consecutive forbearances imposed a staggering financial cost on this group of borrowers. At the conclusion of those forbearances, Navient had added nearly four billion dollars of unpaid interest to the principal balance of their loans. For many of these borrowers, had they been enrolled in an income-driven repayment plan, they would have avoided much or all of their additional charges because the government would have paid the unpaid interest on their subsidized loans in full during the first three years of consecutive enrollment.

The CFPB also showed concern about Navient’s practices in failing to counsel income based repayment (IBR) customers concerning how they could continue in the IBR process:

  1. A federal student loan borrower who is enrolled in an income- driven repayment plan must certify his/her income and family size to qualify for an affordable payment amount that is based on that income and family size. This affordable payment amount applies for a period of twelve months. At the end of this twelve-month period, the affordable payment amount will expire unless the borrower renews his/her enrollment in the plan before the expiration date….
  2. If the twelve-month period expires because the borrower has not timely recertified income and family size, several negative consequences are likely to occur. First, the borrower’s monthly payment amount may immediately increase from a low affordable amount to one that is typically in the hundreds or even thousands of dollars.
  3. Other significant consequences that will occur when the twelve- month period expires without a timely recertification include (1) the addition of any unpaid, accrued interest to the principal balance of the loan; (2) for subsidized loans in the first three years of enrollment in an income-driven repayment plan, the loss of an interest subsidy from the federal government for each month until the borrower renews his/her enrollment; and (3) for some borrowers who enroll in forbearance when the twelve-month period expires, delayed progress towards loan forgiveness because the borrower is no longer making qualifying payments that count towards loan forgiveness. These consequences are all irreversible.

The “failure to counsel” seems to be born out by the statistics Navient has maintained::

  1. Between at least July 2011 and March 2015, the percentage of borrowers who did not timely renew their enrollment in income-driven repayment plans regularly exceeded 60%. Those borrowers who did not timely renew experienced the significant consequences of nonrenewal, including a payment jump and the addition of any accrued, unpaid interest to the principal balance of the loan.

Later in the court filing, the CFPB concludes that consumer payments were not processed correctly::

  1. As described above, in numerous instances, Navient made errors, sometimes month after month, in misallocating and misapplying payments made by consumers. Moreover, Navient failed to implement adequate processes and procedures to prevent the same errors from recurring, or to prevent the same errors from impacting other consumers.

Abuses regarding releases of cosigners and false credit reporting payment are also alleged The complaint hyperlink above can be perused for details.

This lawsuit is quite troubling, as we attempt to safeguard the integrity of our educational system and the financing of it.  Certainly an objective and close examination of any problems is warranted.  If you have questions, I can be reached at mike@mikenorrislaw.com.

Federal help for ITT students: discharge of student loans

In the light of the ITT technical Institute bankruptcy, many students are left with high student loan debt and no degree.  But there may be some relief available for those who have not yet graduated. It is the purpose of this post to explore those options that the reader might benefit, or pass the information along.

Perhaps a little explanation of the student dilemma in this typical “trade school” is in order. When a school such as ITT closes, the students can’t get the associates, bachelors, and master degrees hoped for;  thus, they are deprived of the “benefit of the bargain”.

For the student, the denial is more than just denial of ego satisfaction.  He has pinned his hopes  on the earning power that degree represents for him.  He anticipates that all will benefit from his efforts.  It will be wonderful for his family.

The school has a different idea:  it is called a profit model.  The measuring stick is the bottom line.  Product quality, marketing, and management are all expenses.  The less expenses the better.  This is what benefits the bottom line.  In this line of thinking, there is no value in educating the customer to become a well informed shopper. The prospective student doesn’t need to know about education cost & education value; such a concern would just interrupt the sales process.

But back to the end result:the school closes.  Now student loan debt is owed on a college degree that won’t be obtained at this institution, and may never be obtained at all.  Without a change of circumstance, the economic power that college degree represents will never materialize.  Some students lose hope, feeling themselves further behind, with more debt and less earning power than planned.

The “Closed school Discharge” is a mechanism put in place by the federal government, to allow the student who cannot complete his degree to seek relief from the student loan burden which he must carry. The information on that federal program can be found at https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/closed-school.  The form which needs to be filled out to apply for administrative discharge can be found at:

http://www.ifap.ed.gov/dpcletters/attachments/GEN1418AttachLoanDischargeAppSchoolClosure.pdf  .

Of course, use of government websites is not always as simple as it looks.  There are certain “gotchas” in the administrative procedure, which do not allow the student who transfers his credits to another school (or has already received his degree) to seek forgiveness of his student loans.

As is true with many government programs, the “simple” process has become quite complex. The student who wants to transfer his credits to a new institution often finds most (if not all) of his credits will not transfer.  This is because of lack of accreditation for the trade school from which he is transferring.

ITT Educational Services has increasingly been the subject of state and federal investigations in recent years.  These actions have resulted often in sanctions against ITT and penalties.  Nevertheless,   the US Department of Education does not recognize the validity of their own investigations, when the student who has his diploma petitions for student loan relief .

In  essence, the Department of Education wants each student to prove that he was defrauded, that “what he got” was too expensive for the results obtained.  In short, the student must prove the price of the education far outweighed its real world earning potential.

This burden falls on the student, even though both federal and many state governments are currently investigating inadequate instruction in rogue schools taking federal student loan moies.  Many of these investigations show oversight of federal student loan lending has been lacking.  Most often, significant findings of neglect and abuse on the part of trade schools were left unwatched but then “discovered” by government agencies.

So it can be tough getting an administrative discharge.  If denied, an appeal can always be taken directly to the Department of Education.  This is where the counsel of an attorney experienced in this area can be quite useful.

If the Department of Education administrative discharge appeal is not effective, every student has access to the federal courts. The student may seek to address the student loan debt directly with the Department of Education in an “adversary complaint” in the bankruptcy courts.

Due to the fact that ITT and other schools have recently lost their entitlement to federal funds from student loans, the courts will be burdened more and more with these issues, as will the Department of Education in considering administrative discharges. At this point in time, it seems that many of the “trade schools” in all probability will be closing in the coming months.

The law on student loans is evolving, as new facts come to light about trade schools, quality of instruction, and quality of job placements.  The ITT bankruptcy does not bode well for the student who did not get the benefit of his bargain, either in quality of instruction or job placement: he will have no recourse against ITT. His only recourse will be against the federal Department of Education, a powerful adversary.

Nevertheless, it is the authors opinion that any student who has not been able to complete his degree due to school closure should apply for the administrative discharge.  If there are issues and complexities, as always seem to arise, competent legal counsel should be used to sort out the mess.

The hope of the next generation that an education will bring them to a satisfying adulthood hangs in the balance. We should not let these young folks down, and saddle them with debt which cannot be paid off.

Counting the Cost of Student Loans

checkbook-image.jpg

Unlike borrowing for housing, transportation, and cash needs, the benefit of a student loan is intangible. Although it may assist in strengthening income over time, that gradual strengthening of income is contingent upon many factors such as type of degree, finishing the degree, health, aptitude for degree specific work, ability to market oneself at a job interview, and local market demand for that skill set.  Large debt for a house or a car gives an immediate tangible result, but  large debt for college does not give one a place to sleep or means to get to work. In that sense, its value cannot be measured in the immediate present.

Normally when a consumer makes mistakes and struggles with too much debt, he can use bankruptcy to adjust his lifestyle and debt. This is not so with student loans, unless a bankruptcy “adversary complaint” is used, which may be uncertain as to result. Thus this consumer debt does not allow for mistakes!

In the worst of nightmares, the student signs on for large private loans, while attending “for profit” schools, if he does not graduate money-dice.jpgand does not advance economically due to education/skills acquired in college, this is bad news.  Without the hoped for benefits of job advancement,  the financed education can assist in creating an onerous burden of debt perhaps too heavy to carry.  Credit report damage and economic pressures can lead to lifelong financial disorientation. Obviously, one is now hampered in other investments such as buying a home, starting a business, making a career change, having children, or marriage to a spouse who chooses to stay at home with the kids.

Regardless of the fact that education is always enriching and worthwhile, the student today is wise to “count the cost”. As a rule of thumb the prospective student loan borrower must ask: “will I make enough in the 10 years after graduation to amortize (and pay off completely in level payments) the entire student loan debt at 7% interest?

To “break it on down”, $50,000 of student loan debt would pay off at $580.54 per month, twice that amount will pay off at twice that amount, 1/2 of that amount will be paid off at 1/2 that amount.  See the chart below.  The big catch is, whatever that amount is, it must be paid every month (on time) for 120 months, no exceptions.  Of course this long term commitment does not take into account job loss or underemployment, divorce, sickness of children or spouse, or one’s own health issues.

And what will it take each month to pay off that $50,000 student loan?  The math says $580.54 per month AFTER that tax man is paid. That means the aftertax dollar must be “bulked up” by 1/3, or $193.51, to $774.06 to be earned each month, so the monies can be taxed by $193.51 and the student lender can be paid $580.54.  And this plan must be steadily carried out each month, on time, for 10 years.

Loan Amount Payment Income needed/month (before taxes) Income needed/year

(before taxes)

25,000 $290.27/mo.

x 10 years

$387.03/mo.

x 10 years

$4,644.36
$50,000 $580.54/mo.

x 10 years

$774.06/mo.

x 10 years

$9,288.72
$100,000 $1,161.08/mo.

x 10 years

$1,548.12/mo.

x 10 years

$18,577.44

So one must “count the cost”.  If not, student loans are a serious dilemma, and caution is advised.

When it comes to timely payment on any financial arrangement, the ability to pay is critical.  In coming months, I will be commenting on this thorny issue of student loans and the cost of college, in the hope of shedding some light on student loan pitfalls.  Of course, I am in the business of providing practical solutions in financial matters, and I welcome your questions as we explore this topic in coming updates.

How Indiana is dealing with student loan problems

student piggy bank

In practicing law for 38 years, I have thought a lot about money, as I frequently counsel small businesses and consumers who want to make and hold onto their money. I watch incomes and debt loads rise and fall. In the economics of our country and that of many individuals, a growing concern is the dramatic increase in student loan debt over recent years.

Many students borrow to finance their education, and it can be a great benefit for them. Nevertheless, national statistics show that students who borrow to finance an education are now graduating with an average of $35,000 in student loan debt. Here in the US, this is the largest consumer debt category, other than first mortgages. It is larger than credit card debt, second mortgages, and other consumer debt. At this point in time, $1,300,000,000 is owed on student loans.

A recent article in the Indianapolis Business Journal gives us some insight into what innovative thinkers in Indiana are doing to address this growing problem. My thanks to Hayleigh Colombo for highlighting this issue in her article on the front page of the IBJ for May 9th, 2016. Many of her thoughts are echoed herein.

Credit can be given to Mitch Daniels and other serious thinkers on education policy. Purdue ((under Mitch Daniels) has frozen its tuition for a number of years. The student who enrolls for the 2017–18 academic year will pay $10,002 per year, just as he would have paid in the year 2012. This is good news for Indiana students.

Indiana University also understands the problem. IU now sends letters to all student loan borrowers regarding their future monthly loan payment, cautioning them about excess borrowing. This is also good news.

The reason for the concern here in Indiana is obvious. Student loan debt has been rising steadily in past years, as US Department of Education statistics show.

Indiana has not fared well in paying off its student loan debt. At this point in time, Indiana ranks 4th highest among states in student loan defaults. 14.7% of Indiana students who have graduated and are scheduled to pay their loans currently are defaulting, within three years or less.

Debt is used to finance a college education on a very broad basis, with 46% of the freshman at Indiana public universities financing college with student loan debt. On the bright side, both Purdue and IU main campuses have reduced to 36% the number of first year students taking out student loan debt, from a high in 2008 of 41-42% of first year students taking out student loan debt. Thus it seems that more Indiana college students at these institutions are becoming aware of the dangers of financing college.

Another practical step being taken here in Indiana is the use of “banded tuition”. This allows a “package price” for up to 18 credit hours, where the student is enrolled full-time (12 credit hours or more). Despite the obvious advantages, a troublesome report by the Indiana Commission for Higher Education mentions that approximately half of college students take enough credit to graduate on time, but 75% of them expect to graduate on time.
If we assume 120 hours of credit to graduate, the eager and penurious student can take six semesters (including summer school) of 18 hours, plus one more semester of 12 hours, and she can earn a degree in two years and four months. In other words, seven semesters of tuition could be paid, instead of eight semesters.

Further, the student can be out in less than three years, if she chooses to devote extensive time to her education, with few sideline interests to distract her in that period of time. For the student living with the relatives, this can be a way to keep expenses down while on the “educational fast track”. Of course, this can also mean less borrowing for living expenses.

The main problem with student loans is shown in the high default rates: often the payment, which the student has not calculated in his younger and tender years is not affordable in the first 10 years when he enters the workforce. Sometimes, due to unforeseen circumstances, it is not affordable during his entire work history.

In future blog posts, we will examine what to do with the “unaffordable” student loan.

Financing Issues and Workouts

One of the most common causes for failure in a small business is a lack of capitalization. Businesses often start up with too little cash. Over time, this lack of money becomes amplified, and ultimately those businesses fail. The reason why they fail is not that they don’t have a good product, lack integrity in the marketplace, or fail to perform. They fail simply because they have run out of cash, in the middle of a normal learning curve in servicing the marketplace. Of course, loans can be helpful, but they do not replace a good business model, which allows for mistakes along the way and sufficient time to perfect your business approach.

Even without the luxury of borrowed funds, entrepreneurs feel much stress once cash flow problems arise. It’s hard to pay loans, salaries, utilities, and all the other bills that become due. The pressure increases. Whether there are loans or not, the bills must be paid, and relatives, credit card lenders, and banks are insistent. Frequently, the issue becomes the “burn rate”. In other words, “how long can a business hold on?”

Often the bank or lender have no idea what their financial problems are: sound projections and presentation of a good business plan can do much to assist with the renegotiation of debt. In any event, when default on the loan occurs everyone loses. Neithe the bank nor the borrower obtain anything from insolvency proceedings.

For this reason, our office seeks to help entrepreneurs with planning procedures, before cash flow problems arise. Nevertheless, when these crises do arise, sound counsel is necessary to navigate the dangerous waters of default and reassure the bank that the storm can be weathered.

Sometimes assets need to be sold, lines of business need to be assessed for profitability, and real estate mortgages or personal guarantees need to be added to strengthen security of outstanding loans. Nevertheless, if the entrepreneur believes his value proposition is sound, he is wise to “bet the farm” on his expertise, and continue to plow ahead. In these cases, reassuring the bank, returning liquidity to the business model, and moving toward profitability is an immediate necessity many lawyers lack this kind of business experience, and cannot be of help in this area of business. When faced with the task, most human beings like easy work. Negotiation of loans can be hard work.

I still remember the entrepreneur who came to me to explain his business was not profitable, and he didn’t need the large amount of warehouse space that was under lease. In addition, he was in danger of defaulting on the lease, and having the goods warehoused subject to a landlord’s lien. While exploring his options, he realized as we talked that a competitor (who was a dear friend) might be willing to give him storage space, and even assist him with expanded lines of credit. Since moving his location he is much happier, and profitable too!

In another case the individual owned the real estate from which his business operated. By selling the real estate he was able to become current with suppliers, giving him enough time to sell additional customers, enhancing his profitability. Further, the cash received from selling the real estate allowed him to progress forward without financial worries.

Of course, there are a myriad number of options that a good business lawyer helps his clients explore every day. As a small business owner myself, I believe that the key is flexibility. When we listen to our clients, their needs can best be served by applying our experience to assist them in creating satisfactory legal results.

If you are in need of this kind of help, please do not hesitate to give us a call for a candid opinion as to whether we can help in your situation. We would be more than pleased to be of assistance to you. Call us today at (317) 266-8888. As an alternative, you can email me personally at any time: mike@mikenorrislaw.com.

The Impact of Credit Report Collection Accounts

When applying for a mortgage, everyone knows that your credit report rating is of great importance. If you can lower the interest rate the lender charges you, you can save thousands of dollars each year on hundreds of thousands of dollars borrowed for your home purchase. In addition, as most of us know, the credit report will show your payment history on cars (and other installment loans), and it will also show your credit history on credit cards (and other revolving accounts).

Many do not know that the credit report also picks up the docket from local courts, and reports any judgments that have been filed against you. In addition, one more matter is reported by the Bureau, which is of great significance to those who have borrowed money: their accounts which are in collection.

“In collection” simply means a collection agent is attempting to collect on the alleged debt. This does not mean the debt is owed, or that a judgment has been entered by a court allowing for garnishment of wages. It simply means that the collector is trying to collect money on a debt he says is owed.

You may be “in collections” and not even know it. Nevertheless the rest of the world knows, and the obvious inference is that you’re unwilling or unable to pay your debts. This little known secret of the credit reporting agencies can have great significance when you’re attempting to secure an apartment or job, get a loan, or even get utilities turned on.

Surprisingly, statistics show that 35% of Americans currently have unpaid bills reported to collection agencies, according to an Urban Institute study conducted in the last few months. And it’s not just hospital bills, auto loans, and student loans. Even past due gym membership fees or unpaid cell phone contracts can end up with a collection agency.

And the collectors are always ready. The Federal Reserve Philadelphia bank branch estimate that in 2013 the collections industry employed 140,000 workers, to recover $50 billion of debt that year. Oddly enough, delinquent debt is overwhelmingly concentrated in southern and western states. Texas cities have a large share of their populations reported to collection agencies: Dallas (43%), El Paso (44%), Houston (44%), McAllen (52%), and San Antonio (45%). And the blight is not limited just to Texas. Almost half of Las Vegas residents have debt in collections, and other southern cities a large number of their people facing debt collectors: Orlando, Jacksonville, and Memphis, among others. But some cities fare better, with some demographic populations have low collection rates, just around 20% for Minneapolis, Boston, Honolulu and San Jose (California).

How do these differences come about? Some say this can be blamed on income disparities, and a stagnant economy. US Labor Department statistics show wages have barely kept up with inflation during the five-year recovery starting in 2009, and after-tax income fell for the bottom 20% of earners during that same period.

So what is the morale of the story? The wise consumer will make sure his debts stay out of collection. This practice will reap rich rewards when it comes time to buy a home or car, secure a job or apartment, or secure the lowest loan rates.

Student Loan Debt: Does It Ever End?

I’ve always loved teaching. After working my way through law school in Detroit, I decided that I would try to secure a teaching job as a full-time occupation. In 1973, I taught my first class to a young group of students trying to get their real estate licenses.

When I moved to Colorado in 1976, I immediately looked for a job in education. I couldn’t find a full-time position immediately, so I taught at a number of community colleges. By the time 1978 rolled around, I had secured a full-time teaching job, and I retired from the University of Colorado (where I was a full-time college professor) after six years of teaching full-time. This was a very enjoyable time of my life. I believe that “knowledge is power” and found myself quite satisfied with life as an educator.

Back in the late ‘70s and early ‘80s, there was much less student loan debt. My mentor at the University of Colorado was amazed by the ever-rising cost of college tuition. The rapid increase of administrators and bureaucratic processes from his start in the 1950s was to him quite shocking. He like to fondly recall the “good old days” when the faculty in essence ran the school, set the budgets, and defined acceptable curriculum.

He cautioned me many a time that we did not need so many administrators, buildings, and miscellaneous programs unrelated to teaching and the process of learning itself. In his mind, a college (or a university of many colleges) was simply the faculty and staff absolutely necessary to keep the buildings open. There wasn’t a need for other “nonessential” personnel. I’m sure he would be quite shocked today, if he were alive, to note the many six-figure incomes found on the average college campus for administrators, deans, coaches, marketers, and others who are not full-time professors. The sports budget would have seemed to him most unusual, and the time spent by college alumni thinking about sports would have seemed to him completely unrelated to the primary purpose of the institution. Of course, his love of learning was intense, and it was simply that love of learning which he considered the “bottom line” or essence of a university.

From that point of view, the cost of college tuition needs to be kept down, and the number of services offered (other than the granting of degrees) needs to be modest. Of course, all would not subscribe to that way of thinking.

Nevertheless, the statistics tell a different story. The cost of a college education has increased significantly in the last 40 years, far outstripping the inflation rate in the nation. Even public institutions, which are funded by the state with the primary mission of educating that state’s citizens, have seen rises in tuition that are astronomical.

Of course, from my mentor’s point of view there’s no reason for this, due to the fact that those schools are funded and supported by state tax dollars. In his mind, those tax dollars should pay the entire cost of institutional attendance, other than a very modest and easily affordable tuition. From this point of view the elaborate sports programs, stadiums, and administrative staff (including marketing staff) are not necessary.

What we find today is that college is very expensive even at a state school, with very significant budgets supported by alumni donations, and various subscriptions and fees far in excess of the tax dollars contributed by the state.

The student who doesn’t have tens of thousands of dollars to spare for each year of college education find himself taking out student loans, hoping that the value of the education will help him pay back this significant loan debt.

Gaining relief from student loan debt is not easy, as it is not dischargeable in bankruptcy. Nevertheless, the federal government is now attempting to use a program called “income-based repayment” or IBR to address for students the significant burden they bear in paying back student loans when just out of college.

Although income-based repayment is an excellent solution in theory, many servicers are slow in processing the request for payment adjustment, and this can cause significant hardship. The cost of college tuition is still quite high, as governments (which once assumed almost all the risk of college by heavily subsidizing the cost), are now withdrawing a large portion of their support. One could easily ask the question: “is it wise for state and federal governments to ask the young and impecunious student to bear larger and larger portions of the cost with student loans to finance increasingly expensive college education?”

At this point in time, 40 million people hold student loans, and that debt has risen to $1.1 trillion, compared to $300 billion just a decade ago, according to research by the Federal Reserve Bank of New York. Student loans are now the third largest form of household debt in America today, and 7 million borrowers are in default, with many more behind on their payments. Young borrowers, fresh out of college, often do not realize that with a damaged credit record they face higher interest rates on all goods (including cars and homes), and could easily be rejected on apartment rental applications, or lose job opportunities where credit is evaluated. Indeed, the cost of college and the financing of it is one of the larger crises in the lives of young people today.

One study by Brent Ambrose, a professor risk management at Pennsylvania State University, indicates that the burden of student loan debt may cause people to take different directions in their life choices. Those who are burdened by too much debt are less likely to start businesses, and have a much harder time shouldering the load of a house payment. As Ambrose puts it simply, “when students use up their debt capacity on student loans, they can’t get committed elsewhere”.

This sort of financial disruption shuts down the ability of the young entrepreneur to create a new business, and also affects career choices, such as working in a low-paying teaching job simply because you love to teach.

I seriously doubt that the cost of college tuition will be coming down dramatically in the near future. But we must find a way to finance college educations so that young people are not overly burdened with debt immediately after coming out of school, debt that frequently cannot be paid. Should the federal or state government take a greater hand in subsidizing college costs, and in restraining unrestricted growth of expenses on college campuses? Only time will tell, but the question is worth asking and considering.

Offers In Compromise To The Indiana Department of Revenue

In a procedure similar to the federal offer in compromise, the state of Indiana allows a taxpayer to be considered for a lesser payment, provided he makes full financial disclosure and is current on tax filings.  According to the rules of the Department of Revenue, an offer in compromise can settle a debt which is owed for a lesser amount in two ways:  1) with a “one time” lump sum payment, or 2) with a short payment plan starting with an immediate down payment.  If a payment plan is proposed, these offers are considered most favorably if they are for 24 months or less.

Of course, many taxpayers want to consider the offer in compromise after a levy of wages or a bank account freeze.  Most often, this is an attempt at settlement that is “too little too late”.  At this point, bankruptcy should be considered to stop the collection process.  Bankruptcy is normally quite effective here, and I have used it personally many times as a negotiation tool, or as a remedy of last resort.

Nevertheless, if income is fully disclosed (including past tax returns), and income and expenses are documented in detail, an offer in compromise will be considered.  At the time the offer is submitted, the  specific down payment should be forwarded, along with the taxpayer’s proposal for a monthly payment amount. Note that the down payment must be received with that offer before it can be considered.

The Department of Revenue reserves the right to review these cases periodically even after they have been accepted and payments commenced.  They may require updates on information previously submitted. However, if all future returns are filed on time and all amounts due are timely paid, the chances are good that a taxpayer who has had his offer in compromise accepted will be able to successfully complete the program.

Having reviewed a number of these situations with the Department of Revenue, it is my opinion that offers in compromise are difficult to achieve, through the Department of Revenue Taxpayer Advocate Office.  Nonetheless, working with the revenue officer at the government center in downtown Indianapolis frequently will lead to a settlement that is effective for all parties.

Questions?  Please don’t hesitate to call and talk to me personally, at (317) 266-8888.

How The IN Department Of Revenue Enforces Tax Collection

Once a demand is made, the Indiana Department of Revenue (“DOR”) expects a reply in 10 days.  DOR has very powerful options at that point: if the taxpayer has not responded, DOR can cause liens to be placed on the property of the corporation or  individual. Of course, this affects credit ratings and the ability to borrow money.  The ability to sell titled properties is also hampered.  In short, a bad situation will rapidly get worse.

Many interesting possibilities are provided for by Indiana laws, specifically Indiana Code 6–8.1–8 –1 and following sections up to 6–8.1– 8–17.  These are the collection provisions for “trust fund” taxes in the Indiana code.  The first enforcement action from the Indiana Department of Revenue is the issuance of a demand notice. If the demand is not paid within 10 days, the Department of Revenue may issue a tax warrant, and add 10% to the unpaid tax as a collection fee. That warrant may be filed with the circuit court clerk in the county where property is owned, 20 days after the demand is mailed to the taxpayer.  It becomes an enforceable judgment at that point.

These “automatic judgments” can be entered without a trial before the circuit court.  This is a streamlined procedure that allows the state to garner a judgment fairly quickly. And these judgments are valid for 10 years from the date that judgment is filed  The judgment may be “renewed” for an additional 10 years, simply by filing an “alias” tax warrant at the end of the initial judgment’s 10 year effective period.

These tax judgments may be enforced by ordinary means, such as foreclosure and sale of real or personal property, with that sale by the sheriff or an auctioneer. Further, the sheriff keeps a part of the additional collection fee of 10%.  Thus, he has an incentive to conduct sales of property where warrants have been issued.

In addition, the state will often employ a collection agency to collect on unsatisfied tax warrants. In these cases, additional penalties may be assessed against the taxpayer, for the cost of private collection.  A restraining order may be issued by the courts of the county where the taxpayer does business, to restrain him from conducting business. In addition, the state may ask that a receiver be appointed, to manage the business so that those taxes can be paid over to the state.

The most significant power that the state has regarding a tax assessment is the mentioned automatic enforcement.  Note that this is without the normal legal protections of serving a complaint, waiting for a trial before the Circuit Court judge, and then obtaining a judgment.  The “normal” process for collecting on debt takes a number of months, and allows a full hearing of the facts before an impartial judge, before any lien or garnishment.  DOR can bypass that normal process.

The department may, without judicial proceedings, place a lien on monies of the taxpayer which are held by a financial institution, and require that the financial institution place a 60 day hold on funds. This includes not only funds the taxpayer has on deposit at that time, but also those that he subsequently deposits. In addition, DOR can garnish his wages by sending notice to his employer, without judicial proceedings as are normally required for garnishment. Further, the DOR can lien and sell property, or take it to a storage facility and require a bond before returning the goods.  The DOR can initiate a debtor’s exam, to inquire (under oath) about all assets that the debtor owns. Obviously, all of these requirements under the law are very powerful investigation tools for the DOR.  Of course, as the situation becomes rather grave, the use of seasoned counsel is recommended.

Retail Merchant Employees Can Be Responsible To Collect Taxes!

Not everyone in a retail business realizes it, but whatever goods are sold, taxes must be collected for the state by the business.  This applies to both sales and payroll taxes. Of course, some in the middle of a cash flow pinch will choose to ignore this responsibility, or pay the taxes “when they get around to it”. What happens in these cases?

Many don’t realize that the individual who runs the corporation, and those who cut the payroll checks for the corporation, can also be liable for payment of the taxes. The theory is that the taxes are held “in trust”, which means that the individual working for the corporation, and the corporation itself, are holding funds for the state.

It’s similar to how the bank holds funds for an individual in an ordinary checking account.  In this way of looking at it, the “bank account” which the business holds for the benefit of the state (which is the 7% sales tax and employee state income taxes withheld) cannot be drained of funds. It is the duty of the business, and the chief financial officer, to make sure that “bank account” is maintained for the state, and that those funds are paid over to the state. If those funds are not maintained, it’s considered embezzlement.

This theory can result in significant problems for the retail merchant.  Officers of the corporation who are considered responsible for its money affairs, are often unaware that they can be held personally liable. Of course, if the corporation goes broke, the liability does not go away; responsible officers can and will be pursued by the state for the trust fund tax liabilities, including both sales tax and state payroll tax withholdings.  Even if those officers move on to other employment, they can find that they owe significant liabilities due to their activities as past corporate officers.

All of these unpleasant possibilities can be avoided, if the taxes are paid on time. Nevertheless, where this is not possible, it is appropriate to consider the effects of delinquent tax payment, and how the corporation’s business or the assets of the responsible officers may be affected.

It should be noted that one of the more harsh but frequently neglected provisions of the Indiana code regarding taxes concerns the priority of payment, or how payments are credited against monies owed. When a taxpayer is behind, the partial payment is first applied towards penalties, then to interest, and last to the tax liability. This means that partial payments do not have a strong effect to reduce the original tax liability, until penalties and interest are paid in full.

In addition, the corporation which is struggling but which has not yet gone out of business may find that its registered retail merchant certificate (RRMC) will be revoked. In this case, the Department of Revenue will place signs on the taxpayer’s place of business, informing customers that the corporation can no longer conduct retail sales at that location. If those signs are removed or retail sales are continued, there is a risk of additional fines (or even imprisonment) as these offenses are considered a class a misdemeanor according to Indiana Code 6–2.5–4.

Of course, as long as monthly tax reports are submitted, along with appropriate payments, there will be no problems. But if those reports are not submitted on a timely basis, the state will investigate, and issue a demand notice for payment.  My next blog post will explain the problems that can arise in such a situation.

Budgeting

BUDGETING
The first step in budgeting is to create a spending plan. Using a spreadsheet program, such as Excel, is an excellent way to plan expenses and spending. It allows “what if” analysis; by simply changing the expense number, we can see immediately the impact on our finances.

Take a good hard look at your “discretionary” expenses. These are the only expenses which can be cut without strong lifestyle changes. The following expenses are easy to adjust: excess tax withholding, life insurance, 401(k) deductions which are not mandatory, clubs and recreational activities, cable TV expense, dining out, gambling, etc…

We must be careful to distinguish needs and wants. We all want many things, but need far less. Keep in mind that Money = Time, and Time = Money. The more you ‘want’, the more you will spend. The more you spend, the more time you must use to acquire, maintain, and pay for possessions.

Impulse buyers have more bills than they can pay, and have to spend more and more time working, just to stay afloat financially. They have little time for themselves or family. Health and relationships break down, just as possessions do if they are not maintained. The impulse buyer ends up tired and broke.

Don’t get distracted from your spending plan by retirement concerns or worries about health, rising expenses, changes in family situations, etc. A good plan is a good plan, no matter whatever else happens.

Realize that a spending plan is ultimately what you want, and what would be best for you and your finances. As we live in an imperfect world, it may take a while to get reality to match your plan. The plan can also be adjusted, as it merely establishes a target rate for spending. When in doubt, estimate income low, and expenses high.

How can we budget for variable expenses such as utilities? Use an average from the last year, and don’t forget to establish an emergency fund with a spending plan that allows a little bit of savings each month.

If you want a free excel budget spreadsheet, please do not hesitate to contact us. Take the time to create a budget…you’ll end up worrying less.

Recently I have posted on my blog a series of 6 videos which address the mechanics of budgeting. Interested? Watch the following: Planning part 1. If you feel that it’s helpful to you, go on to the next: Planning part 2. After, go on to part 3, part 4, part 5, and part 6.

Credit Reports (Part 1)

Years ago, it occurred to me that we all need to know something about credit, and how credit reports are made.  I put together a CD for clients explaining credit reports.  Now with advances in the web, I can get it to you without a CD! I hope this 12 part series is of use to you. Immediately thereafter, I will publish my 11 part series on credit report correction.

Here is the first audio clip.  Hope you can find the time to listen to the whole series.  There is a lot of good information in these old CDs from several years ago, still relevant today.

Audio clip: Adobe Flash Player (version 9 or above) is required to play this audio clip. Download the latest version here. You also need to have JavaScript enabled in your browser.

Planning the use of money (Part 6)

By now, if you have reviewed the five videos in previous blog posts, you should have a fair idea of where your money is going, and where it needs to go. Now comes the hard part: actually making the necessary decisions.  Some expenses will definitely have to be modified.

Remember: every dollar saved is a dollar earned.  Indeed, the dollar saved is an “after tax” dollar, all of which you get to keep.  The dollar earned is a “before tax” dollar, and you will only get to keep 70 cents of it, at most.  So we can see that keeping expenses down definitely helps in money terms.

In personal terms, the stress that comes from unpaid bills is removed.  Family life is easier, and there is time for exercise and good diet.  Medical bills are less in the long term.  Although this is not true in every case, a simple budget can often help to organize and reduce stress in many other areas of life.

So make your life easier with a budget!  If you want the sample file I used to create these videos in MS Excel, just email me at
mike@mikenorrislaw.com
and I will be happy to send it with a reply.

I suggest you download the video file below, as viewing is easier due to a bigger screen size.  Or you can just click on the icon and the video will play immediately.  As always, please call if you have questions.

 

Download This Episode

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Planning the use of money (Part 5)

This is the video that shows a full month of expenses for our sample consumer, who can now see how the month’s spending all adds up.  Is more income needed?  Can some expenses be cut?  Which expenses?  How much?

All of these questions are the ones a prudent consumer or small businessman must ask himself, in any case where he is late on paying bills.  There is an obvious reason he is late on paying bills:  he did not have the money!

When the money is just not there, go through a three step process.  First, track expenses.  Second, ask yourself: can I make more income?  If not, step three comes into play: expenses must be cut.

Hopefully, this series puts it in perspective for you.  As always, we are here to help, just call (317) 266-8888.

I suggest you download the video file below, as viewing is easier due to a bigger screen size.  Or you can just click on the icon and the video will play immediately.  As always, please call if you have questions.

Download This Episode

PlayPlay

Planning the use of money (Part 4)

This is the fourth of six videos detailing how to keep track of the expenses, so you know when you are on “safe ground” with your spending.  In this video, we look at the daily and weekly expenses which occur, and which can be added up to get an overall picture of monthly income and expenses.  With this information, you can finally get an accurate picture of what is going on in your financial life.  With these tips, you can control the “ebb and flow” of your cash, as you gather enough information to predict with confidence.  When you find yourself able to predict that money will be left over at the end of the month, and that money is put into a modest savings account, you’re really getting the hang of it!

I suggest you download the video file below, as viewing is easier due to a bigger screen size.  Or you can just click on the icon and the video will play immediately.  As always, please call if you have questions.

Download This Episode

PlayPlay

Planning the use of money (Part 3)

What does it take to live nowadays?  This question is hard to answer for today’s expenses, unless you know the answer already (and have been tracking your spending for the last six months).  So start the process now:  start saving cash and card receipts.  As you learn more and more on how to track income and expenses, you will have the records ready to plug into a worksheet.  And keep watching this series of videos as you learn how to track down dollars and cents.

I suggest you download the video file below, as viewing is easier due to a bigger screen size.  Or you can just click on the icon and the video will play immediately.  As always, please call if you have questions.

Download This Episode

PlayPlay

Planning the use of money (Part 2)

So just how hard is it to be safe with money?  A plan will go a long way in creating security.  If you are wrong, you will know that “things did not go according to plan”.  If the plan is working, then you were right!  Remember, it’s just math.

What will the math tell you?  It answers the question:  “What are your habits?”  Once you know that answer, you can proceed to ask: “What do I want to be my money habits?”  Then a plan can be formed and carried out.  But first, observe what you are doing with your money every month.  Awareness of your habits is the most powerful tool you can use to change them.

I suggest you download the video file below, as viewing is easier due to a bigger screen size.  Or you can just click on the icon and the video will play immediately.  As always, please call if you have questions.

PlayPlay

Planning the use of money (Part 1)

Does it make sense to plan the use of money?  All the experts say it does.  But how do we do it?  Simply put, tracking our spending allows us to predict how fast it our money will “go out the door”.  This short video is the first of 6, showing how to be aware of your use of money.  Remember: if you can track where your money has gone, you can predict where it will need to go in the future.  In addition, planning helps to distinguish between needs and wants, so you can sort the necessities from the luxuries.

I hope this video helps you to a prosperous future, free of financial worries!

I suggest you download the video file below, as viewing is easier due to a bigger screen size.  Or you can just click on the icon and the video will play immediately.  As always, please call if you have questions.

PlayPlay

Will picking the right college help control your budget?

One of the greatest expenses for parents is college tuition for their young ones.  Of course, the older student also feels the pinch.

Of course, we all know that private colleges cost more, and for profit colleges suffer from two problems: high cost, and credits that do not transfer to obtain a college degree from an accredited university.  For these reasons, state funded colleges (such as IU or Purdue) offer a “bigger bang for your buck”, giving lower cost and coursework that is accepted at any other institution of higher education.

Likewise, Ivy Tech is an excellent value, as it offers accredited courses at even lower tuition rates.  But how about distance learning?  Can a Indiana resident attend a state school with accredited courses, lower tuition cost, and learn off campus via the internet?

Now there is an alternative.  Western Governors University Indiana, or WGU, offers transferable credits, full time tuition of $6,000 per year, and course work measured by papers and exams, with all instruction online.  What a great idea for the busy mom or dad who is trying to advance their career!  In addition, all courses transfer from Ivy Tech associate degree programs into relevant WGU programs.

If you are a beleaguered wage earner too busy to spend nights on campus, this may be a great opportunity for you.  The attached article explains further, and is recommended reading:  WGU Indiana .

Of course, if more expensive options in time and money are practical, they are advised.  Nevertheless, internet learning can be a great advantage for those determined to take it seriously.

 

 

Is budgeting really worth it?

Quite simply in the opinion of this writer and most financial experts, it is always worth it.  Ask any college kid with student loans:  do they create a burden in his/her life?  The “buy now, pay later” mindset ends up leaving us exhausted.

What is the solution?  People need to start saving, as has begun to trend in recent years in the U.S.  We need to watch what we spend, and “make do” without always desiring more.  As we have learned in the last few years, a new trophy home is not always necessary.  

Do you want more control over your life?  BUDGET!  A good article on this topic by the President of the Sagamore Institute is attached, and I wish to give credit to Jay Hein for the clarity of his thoughts.  See the attached:   Jay Hein on Budgeting

Just think about it.  Every dollar saved is one more you don’t have to work for.  Just remember what Ben Franklin said:  A penny saved is a penny earned!

Does it all add up?

Can inaccurate credit reports be corrected?

Yes, they can.  The Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act (FACTA), allows the consumer to question accuracy of reports, and furnish proofs to be considered in making corrections.  Several years ago, I taught a seminar just after a change in the law.  You can examine those seminar materials here:  Fair Credit Reporting and mortgage reporting, bky issues .  If you want to read the law yourself, you can access it here:  FCRA as amended by FACTA

In essence, those rules provide that you have the right to one free report each year, and you can apply for that report from each of the three credit reporting agencies (CRAs): Experian, Equifax, and TransUnion.  If you would like the form to use, you will find it here:  Annual Credit Report Request Form .  If you are turned down for a loan, you can get the credit report which was used to evaluate your credit, and it is also at no cost.

In order to dispute inaccurate (including incomplete) credit entries, you must contact the CRA with information showing the inaccuracy, and they have 30 days to investigate.  Hopefully, they will make the correction with no further effort on your part.

Review my attached writing to consider all the myriad ways a credit report can get inaccurate.  Frankly, it is amazing we have accurate reports.  A number of years ago, it was estimated that 40% of the reports have errors which will lead to denial of credit, and 80% of reports have errors in general.  With that in mind, looking at your report once a year is a good idea.

One common area of inaccuracy is the listing of debt discharged in  bankruptcy.  Often, the report is not updated after bankruptcy.  Even though debt is washed out in bankruptcy, the credit report is silent as to that issue, giving the impression that the debt is still owed!  Thus, it is always wise to review the credit report 6 months after a bankruptcy discharge.  If you continue to pay on debt after a bankruptcy, the creditor must continue to report your payments after bankruptcy, in order for the report to be accurate.

Why do credit counselors insist on bloated debt payments in consumer budgets?

So often, people come into my office to talk about debt, after talking to a “consumer credit counselor”.  The counselor has recommended a budget to them, lean on basics but heavy on consumer debt payments.  After a few months, the budget collapses under the strain of unrealistic expectations.  Why are these “counselors” so unrealistic about budgets?

This entire industry was studied in a Senate Report in 2005.  The title of that report is: “Profiteering in a non-profit industry: abusive practices in credit counseling”.  The U.S. Senate Homeland Security Committee was up in arms over “the marketing of debt management plans”, and the practices of the industry as a whole were examined.  See the Senate Report:   Credit Counseling, Senate report.

That report reviews that “credit counseling” was first started and funded by credit card companies in the mid-60s to stem losses from customers who did not pay.  The theory was that a “kinder, gentler” collector might increase yields for credit card lenders.  By encouraging the consumer to “tighten his belt” and use the lender’s “counseling service” to collect monies for credit card and debt payments, more money could be collected.

Of course, referrals to any third party source of information, such as attorneys, are actively discouraged, (which I’ve found in my experience).  The lender doesn’t want his collection agent to lose control over the consumer’s cash flow.

The arrangement is quite cozy.  The consumer is charged an extremely modest amount for the “credit counseling” service, say $15 per month.  Of course, the goal is not to raise funds from consumer fees.  The goal is to get as much of the consumer’s income as possible, for debt payments.  Modest changes in interest rate and payment are made with some lenders who use the collection service, other lenders refuse to alter any payment terms but will still pay the “counseling service” for collecting payments for them.  All the while, the consumer is told that this collection agent is “in his corner”.

And this is the key:  As long as the debtor doesn’t know that the credit counselor is actually a collector working on a percentage, then any payment plan seems to make sense.  But what the counselor rarely reveals, and the consumer who trusts his counselor doesn’t know:  the counselor is a collector working on commission, to be paid a percentage of what he collects.  Lenders who pay these collection fees understand that this is just another business expense, a cost of collection.  Why lower interest rates or payments? The more the counselor/collector collects, the bigger the payoff for all.

What are the percentage fees collected as a kickback?  See on page 33 of the report, footnote 164:  up to 30% of the monies collected is the kickback.  At this rate, everybody makes money…except the consumer.

It is no stretch of the imagination to believe that lenders have controlled the “credit counselors” they fund, and that they have done it for years.  See footnote 166:  “Some creditors also began issuing more detailed…standards, in effect becoming a regulator of credit counseling practices”.  Clearly, with the majority of credit counseling monies coming from lenders, this is an industry that has been “bought and paid for”.  Footnote 177 makes it clear that the credit counselor get the majority of his revenue from kickbacks, and is “obligated to comply with creditor standards”.

Wisely, the Senate Report insists in its’ last page on full disclosure of the “existence and nature of any financial relationship with a creditor of the consumer”.  Armed with information on kickbacks, any consumer would be well advised to steer clear of the conflicted consumer credit collector who portrays himself as a counselor.

Are collectors obliged to be polite?

From time to time, we get questions about the Fair Debt Collection Practices Act, and so I have posted it to this blog entry.  In essence, this federal law protects the consumer from harsh and abusive collection practices, allowing him/her to discuss debt issues without being threatened, harassed or humiliated.

This brief outline is hoped to be, for most consumers, a sufficient summary of the most relevant points.  Please bear in mind that I have not covered all of the law in its context; I am merely suggesting answers and statutory references for the questions I am most frequently asked in my practice.  For your reference, I have placed a highlighted copy of the statute here: Fair Debt Collection Practices Act

The first thing to remember is that only the debt collector is regulated.  The full time employee of a creditor does not have to pay attention to this set of restrictions.  See Section 803(6).

Collectors must call during normal hours, 8am to 9pm.  In addition, they may not call a consumer when they know he is represented by an attorney, or at the consumer’s place of business when such calls are prohibited.  See Section 805(a).

Further, all communication must cease if the consumer writes the collector, unless the communication is to notify the consumer of an impending lawsuit.  See Section 805(c).  These measures allow common sense structure to the phone contact with the consumer.  This is, in my opinion, good for everyone.

Certain obviously deceptive practices are forbidden, such as threats of violence, profanity, repeated calls to harass, and the failure to identify oneself.  See Section 806.

In addition, false and misleading representations are banned. Among those commonly  used statements are: exaggerating the amount or status of a debt, misrepresenting oneself as an attorney, threatening arrest, threatening a false credit report, or any other “deceptive means of collection”.  All of these misstatements are violations of the law.  See Section 807.

The collector cannot collect more than is owed, per Section 808.  The same section also puts some restrictions on postdated checks.  Read that section to become more acquainted with your rights.

Damages under the statute at Section 813 are realistically limited to $1,000 per occurrence plus attorney fees.  And the collector who can prove an innocent mistake will be absolved of fault, with no damages awarded to the consumer.  Nevertheless, this federal statute places significant limits on the abusive collector, who now must “mind his manners”.

Does this automatically curb all collection abuses?  Of course not.  But a polite reminder that you are aware of the statute will often lead to a more civil conversation.  A more polite conversation is often a more productive one.  Ultimately, this is often the best way to save time and money for all parties concerned.

A radio show…….why bother?

Most Saturday mornings, I start the day with a warm cup of coffee while I read the newspaper, or maybe several different newspapers, if I haven’t yet caught up with the news of the week.  After immersing myself in reading for a while, I take some time to peruse the articles that I’ve arranged on the kitchen table in front of me.

As the “theme of the week” becomes clearer, I’m typically lost in thought while I organize the main “themes” and my presentation.  And before you know it I’ve got the topic for my weekly radio show.

Once done, I critique it. Was it compelling?  Lucid?  Relevant?

Why bother?  Just for the thrill of thinking out solutions to everyday problems in a world where people need someone to trust.  In the practice of law, communication is everything.  Let us start with building trust, based on reliable and solid advice.

Time is Money, both are Freedom!

Time is Money, both are Freedom!

Money is derived from time spent focusing on a task.  We make more or less money for more or less time, but how one uses his time will, within certain limits, allow him to make money.  Likewise, how one uses his money will, within certain limits, allow more freedom in use of his time.

We want to focus not on making money, but the use of money once we have acquired it.  If both of these precious resources are conserved, this gives us more freedom.

In other words: Time determines how much freedom we have with money, and Money determines how much freedom we have with time!

So if we want more freedom and control in our lives, we must be careful in our use of our time, and our use of our money.  Since the burden of making money is one of the principal time constraints for most of us, when we have wisely accumulated and saved that resource, we are able to direct and channel our time into the issues which we consider more important than making money.

Because we use our time to make money, and often feel we are at a loss financially because the time has not been used productively, it is critical to make the connection between profitable use of one’s time, and conserving cash, so that one has more time for pursuits other than purely the making of money.

The prudent use of time and money allows one many benefits, such as

  • Maintenance of physical health
  • Improving family harmony
  • Involvement in community affairs
  • The ability to learn on new subjects, for personal benefit or profitable endeavors
  • Time to relate to others, with a more enlightened point of view
  • Time for relating to self, unburdened by money problems
  • Time to explore the use of solitude
  • Time to cultivate better personal habits
  • Time to exercise stronger self-discipline
  • Time to work on one’s marriage
  • Time to work on relationships with other people.

So I encourage you: use both time and money wisely!

Note: We are a debt relief agency.  We help people file for bankruptcy relief under the Bankruptcy Code.