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Lepant & Lentz, PC LLO

A Law Firm Specializing in Bankruptcy

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Misconceptions about Bankruptcy

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Nuts and Bolts

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FTC Warning about Payday Loans

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Lisa Gets Real About Paycheck Advance

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Settling Credit Card Debt

Posted on November 3, 2017 at 3:45 PM Comments comments (0)

If you've maxed out your credit cards and are getting deeper in debt, chances are you're feeling overwhelmed. How are you ever going to pay down the debt? Now imagine hearing about a company that promises to reduce – or even erase – your debt for pennies on the dollar. Sounds like the answer to your problems, right?

 

The Federal Trade Commission (FTC), the nation's consumer protection agency, says slow down, and consider how you can get out of the red without spending a whole lot of green.

 

Debt Settlement Companies

Debt settlement programs typically are offered by for-profit companies, and involve the company negotiating with your creditors to allow you to pay a “settlement” to resolve your debt. The settlement is another word for a lump sum that's less than the full amount you owe. To make that lump sum payment, the program asks that you set aside a specific amount of money every month in savings. Debt settlement companies usually ask that you transfer this amount every month into an escrow-like account to accumulate enough savings to pay off a settlement that is reached eventually. Further, these programs often encourage or instruct their clients to stop making any monthly payments to their creditors.

 

Debt Settlement Has Risks

Although a debt settlement company may be able to settle one or more of your debts, consider the risks associated with these programs before you sign up:

 

1. These programs often require that you deposit money in a special savings account for 36 months or more before all your debts will be settled. Many people have trouble making these payments long enough to get all (or even some) of their debts settled. They drop out the programs as a result. Before you sign up for a debt settlement program, review your budget carefully to make sure you are financially capable of setting aside the required monthly amounts for the full length of the program.

 

2. Your creditors have no obligation to agree to negotiate a settlement of the amount you owe. So there is a chance that your debt settlement company will not be able to settle some of your debts — even if you set aside the monthly amounts the program requires. Debt settlement companies also often try to negotiate smaller debts first, leaving interest and fees on large debts to grow.

 

3. Because debt settlement programs often ask — or encourage — you to stop sending payments directly to your creditors, they may have a negative impact on your credit report and other consequences. For example, your debts may continue to accrue late fees and penalties that can put you further in the hole. You also may get calls from your creditors or debt collectors requesting repayment. You could even be sued for repayment. In some instances, when creditors win a lawsuit, they have the right to garnish your wages or put a lien on your home.

 

Beware of Debt Settlement Scams

Some companies offering debt settlement programs may engage in deception and fail to deliver on the promises they make — for example, promises or “guarantees” to settle all your credit card debts for, say, 30 to 60 percent of the amount you owe. Other companies may try to collect their own fees from you before they have settled any of your debts — a practice prohibited under the FTC’s Telemarketing Sales Rule (TSR) for companies engaged in telemarketing these services. Some fail to explain the risks associated with their programs: for example, that many (or most) consumers drop out without settling their debts, that consumers’ credit reports may suffer, or that debt collectors may continue to call you.

 

Avoid doing business with any company that promises to settle your debt if the company:

 

  • Charges any fees before it settles your debts
  • Touts a "new government program" to bail out personal credit card debt
  • Guarantees it can make your unsecured debt go away
  • Tells you to stop communicating with your creditors, but doesn’t explain the serious consequences
  • Tells you it can stop all debt collection calls and lawsuits
  • Guarantees that your unsecured debts can be paid off for pennies on the dollar

Researching Debt Settlement Companies

Before you enroll in a debt settlement program, do your homework. You’re making a big decision that involves spending a lot of your money — money that could go toward paying down your debt. Check out the company with your state Attorney General and local consumer protection agency. They can tell you if any consumer complaints are on file about the firm you’re considering doing business with. Ask your state Attorney General if the company is required to be licensed to work in your state and, if so, whether it is.

 

Enter the name of the company name with the word "complaints" into a search engine. Read what others have said about the companies you’re considering, including news about any lawsuits with state or federal regulators for engaging in deceptive or unfair practices.

 

Fees

If you do business with a debt settlement company, you may have to put money in a dedicated bank account, which will be administered by an independent third party. The funds are yours and you are entitled to the interest that accrues. The account administrator may charge you a reasonable fee for account maintenance, and is responsible for transferring funds from your account to pay your creditors and the debt settlement company when settlements occur.

 

A company can charge you only a portion of its full fee for each debt it settles. For example, say you owe money to five creditors. The company successfully negotiates a settlement with one of your creditors. The company can charge you only a portion of its full fee at this time because it still needs to successfully negotiate with four other creditors. Each time the debt settlement company successfully settles a debt with one of your creditors, the company can charge you another portion of its full fee. If the company's fees are based on a percentage of the amount you save through the settlement, it must tell you both the percentage it charges and the estimated dollar amount it represents. This may be called a "contingency" fee.

 

Disclosure Requirements

Before you sign up for the service, the debt relief company must give you information about the program:

 

The price and terms: The company must explain its fees and any conditions on its services.

Results: The company must tell you how long it will take to get results — how many months or years before it will make an offer to each creditor for a settlement.

Offers: The company must tell you how much money or the percentage of each outstanding debt you must save before it will make an offer to each creditor on your behalf.

Non-payment: If the company asks you to stop making payments to your creditors — or if the program relies on you to not make payments — it must tell you about the possible negative consequences of your action, including damage to your credit report and credit score; that your creditors may sue you or continue with the collections process; and that your credit card companies may charge you additional fees and interest, which will increase the amount you owe.

 

The debt relief company also must tell you that: the funds are yours and you are entitled to the interest earned; the account administrator is not affiliated with the debt relief provider and doesn’t get referral fees; and you may withdraw your money any time without penalty.

 

Tax Consequences

 

Depending on your financial condition, any savings you get from debt relief services can be considered income and taxable. Credit card companies and others may report settled debt to the IRS, which the IRS considers income, unless you are "insolvent." Insolvency is when your total debts are more than the fair market value of your total assets. Insolvency can be complex to determine. Talk to a tax professional if are not sure whether you qualify for this exception.

 

Other Debt Relief Options

 

Working with a debt settlement company is just one option for dealing with your debt. You also could: negotiate directly with your credit card company, work with a credit counselor, or consider bankruptcy.

 

Talk with your credit card company, even if you have been turned down before. Rather than pay a company to talk to your creditor on your behalf, remember that you can do it yourself for free. You can find the telephone number on your card or your statement. Be persistent and polite. Keep good records of your debts, so that when you do reach the credit card company, you can explain your situation. Your goal is to work out a modified payment plan that reduces your payments to a level you can manage.

 

If you don't pay on your debt for 180 days, your creditor will write your debt off as a loss; your credit score will take a big hit, and you still will owe the debt. Creditors often are willing to negotiate with you even after they write your debt off as a loss.

 

Contact a credit counselor. Reputable credit counseling organizations can advise you on managing your money and debts, help you develop a budget, and offer free educational materials and workshops. Their counselors are certified and trained in consumer credit, money and debt management, and budgeting. Counselors discuss your entire financial situation with you, and help you develop a personalized plan to solve your money problems. An initial counseling session typically lasts an hour, with an offer of follow-up sessions.

 

Most reputable credit counselors are non-profits and offer services through local offices, online, or on the phone. If possible, find an organization that offers in-person counseling. Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate non-profit credit counseling programs. Credit card issuers must include a toll-free number on their statements that gives cardholders information about finding non-profit counseling organizations. The U.S. Trustee Program — the organization within the U.S. Department of Justice that supervises bankruptcy cases and trustees — also maintains a list of government-approved organizations. If a credit counseling organization says it's government-approved, check the U.S. Trustee's list of approved organizations to be sure. Your financial institution, local consumer protection agency, and friends and family also may be good sources of information and referrals.

 

But be aware that “non-profit” status doesn’t guarantee that services are free, affordable, or even legitimate. In fact, some credit counseling organizations charge high fees, which they made hide, or urge their clients to make "voluntary" contributions that can cause more debt.

 

Bankruptcy. Declaring bankruptcy has serious consequences, including lowering your credit score, but credit counselors and other experts say that in some cases, it may make the most sense. Filing for bankruptcy under Chapter 13 allows people with a steady income to keep property, like a mortgaged house or a car, that they might otherwise lose through the Chapter 7 bankruptcy process. In Chapter 13, the court approves a repayment plan that allows you to pay off your debts over three to five years, without surrendering any property. After you have made all the payments under the plan, your debts are discharged. As part of the Chapter 13 process, you will have to pay a lawyer, and you must get credit counseling from a government-approved organization within six months before you file for any bankruptcy relief.

 

You must get credit counseling from a government-approved organization within six months before you file for any bankruptcy relief. You can find a state-by-state list of government-approved organizations at the U.S. Trustee Program. Before you file a Chapter 7 bankruptcy case, you must satisfy a "means test." This test requires you to confirm that your income does not exceed a certain amount. The amount varies by state and is publicized by the U.S. Trustee Program.

 

Filing fees are several hundred dollars. Attorney fees are extra and vary. For more information visit the United States Courts, and read Coping with Debt.

 

Source: https://www.consumer.ftc.gov/articles/0145-settling-credit-card-debt

Question of the Week: Debt Consolidation and Debt Settlement

Posted on November 3, 2017 at 3:30 PM Comments comments (0)

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Choosing a Credit Counselor

Posted on November 3, 2017 at 3:20 PM Comments comments (0)

Living paycheck to paycheck? Worried about debt collectors? Can't seem to develop a workable budget, let alone save money for retirement? If this sounds familiar, you may be considering the services of a credit counselor.

 

Most reputable credit counselors are non-profit and offer services at local offices, online, or on the phone. If possible, find an organization that offers in-person counseling. Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate non-profit credit counseling programs. Your financial institution, local consumer protection agency, and friends and family also may be good sources of information and referrals.

 

But be aware that “non-profit” status doesn’t guarantee that services are free, affordable, or even legitimate. In fact, some credit counseling organizations charge high fees, which they made hide; others might urge their clients to make "voluntary" contributions that can cause more debt.

 

Choosing a Credit Counseling Organization

 

Reputable credit counseling organizations can advise you on managing your money and debts, help you develop a budget, and offer free educational materials and workshops. Their counselors are certified and trained in consumer credit, money and debt management, and budgeting. They discuss your entire financial situation with you, and help you develop a personalized plan to deal with your money problems. An initial counseling session typically lasts an hour, with an offer of follow-up sessions.

 

A reputable credit counseling agency should send you free information about itself and the services it provides without requiring you to provide any details about your situation. If a firm doesn't do that, consider it a red flag and go elsewhere for help.

 

Once you've got a list of counseling agencies you might do business with, check each one out with your state Attorney General and local consumer protection agency. They can tell you if consumers have filed complaints about any one of them. (If there are no complaints about them, don't consider it a guarantee that they're legitimate.) The United States Trustee Program also keeps a list of credit counseling agencies approved to provide pre-bankruptcy counseling. After you've done your background investigation, you will want to interview the final "candidates."

 

Questions to Ask

 

Here are some questions to ask to help you find the best counselor for you.

 

What services do you offer? Look for an organization that offers a range of services, including budget counseling, and savings and debt management classes. Avoid organizations that push a debt management plan (DMP) as your only option before they spend a significant amount of time analyzing your financial situation.

Do you offer information? Are educational materials available for free? Avoid organizations that charge for information.

 

• In addition to helping me solve my immediate problem, will you help me develop a plan for avoiding problems in the future?

 

What are your fees? Are there set-up and/or monthly fees? Get a specific price quote in writing.

 

What if I can't afford to pay your fees or make contributions? If an organization won't help you because you can't afford to pay, look elsewhere for help.

 

Will I have a formal written agreement or contract with you? Don't sign anything without reading it first. Make sure all verbal promises are in writing.

 

Are you licensed to offer your services in my state?

 

What are the qualifications of your counselors? Are they accredited or certified by an outside organization? If so, by whom? If not, how are they trained? Try to use an organization whose counselors are trained by a non-affiliated party.

 

What assurance do I have that information about me (including my address, phone number, and financial information) will be kept confidential and secure?

 

How are your employees paid? Are they paid more if I sign up for certain services, if I pay a fee, or if I make a contribution to your organization? If the answer is yes, consider it a red flag and go elsewhere for help.

 

Debt Management Plans

If your financial problems stem from too much debt or your inability to repay your debts, a credit counseling agency may recommend that you enroll in a debt management plan (DMP). A DMP alone is not credit counseling, and DMPs are not for everyone. Don’t sign up for one of these plans unless and until a certified credit counselor has spent time thoroughly reviewing your financial situation, and has offered you customized advice on managing your money. Even if a DMP is appropriate for you, a reputable credit counseling organization still can help you create a budget and teach you money management skills.

 

How a DMP Works

In a DMP, you deposit money each month with the credit counseling organization. It uses your deposits to pay your unsecured debts, like your credit card bills, student loans, and medical bills, according to a payment schedule the counselor develops with you and your creditors. Your creditors may agree to lower your interest rates or waive certain fees. But it’s a good idea to check with all your creditors to be sure they offer the concessions that a credit counseling organization describes to you. A successful DMP requires you to make regular, timely payments; it could take 48 months or more to complete your DMP. Ask the credit counselor to estimate how long it will take for you to complete the plan. You may have to agree not to apply for — or use — any additional credit while you’re participating in the plan.

 

Is a DMP Right For You?

 

In addition to the questions already listed, here are some other important ones to ask if you're considering enrolling in a DMP.

 

Is a DMP the only option you can give me? Will you give me on-going budgeting advice, regardless of whether I enroll in a DMP? If an organization offers only DMPs, find another credit counseling organization that also will help you create a budget and teach you money management skills.

How does your DMP work? How will you make sure that all my creditors are paid by the applicable due dates and in the correct billing cycle? If a DMP is appropriate, sign up for one that allows all your creditors to be paid before your payment due dates and within the correct billing cycle.

How is the amount of my payment determined? What if the amount is more than I can afford? Don't sign up for a DMP if you can't afford the monthly payment.

How often can I get status reports on my accounts? Can I get access to my accounts online or by phone? Make sure that the organization you sign up with is willing to provide regular, detailed statements about your account.

Can you get my creditors to lower or eliminate interest and finance charges, or waive late fees? If yes, contact your creditors to verify this, and ask them how long you have to be on the plan before the benefits kick in.

What debts aren't included in the DMP? This is important because you'll have to pay those bills on your own.

Do I have to make any payments to my creditors before they will accept the proposed payment plan? Some creditors require a payment to the credit counselor before accepting you into a DMP. If a credit counselor tells you this is so, call your creditors to verify this information before you send money to the credit counseling agency.

How will enrolling in a DMP affect my credit? Beware of any organization that tells you it can remove accurate negative information from your credit report. Legally, it can't be done. Accurate negative information may stay on your credit report for up to seven years.

Can you get my creditors to "re-age" my accounts — that is, to make my accounts current? If so, how many payments will I have to make before my creditors will do so? Even if your accounts are "re-aged," negative information from past delinquencies or late payments will remain on your credit report.

 

How to Make a DMP Work for You

 

The following steps will help you benefit from a DMP, and avoid falling further into debt.

 

Continue to pay your bills until your creditors have approved the plan. If you stop making payments before your creditors have accepted you into a plan, you'll face late fees, penalties, and negative entries on your credit report.

Contact your creditors and confirm that they have accepted the proposed plan before you send any payments to the credit counseling organization for your DMP.

Make sure the organization's payment schedule allows your debts to be paid before they are due each month. Paying on time will help you avoid late fees and penalties. Call each of your creditors on the first of every month to make sure the agency has paid them on time.

Review monthly statements from your creditors to make sure they got your payments.

If your DMP depends on your creditors agreeing to lower or eliminate interest and finance charges, or waive late fees, make sure these concessions are reflected on your statements.

 

The Telemarketing Sales Rule

 

The Telemarketing Sales Rule, enforced by the Federal Trade Commission, requires companies that sell debt relief services to explain their fees and tell you about any conditions on their services before you sign up; it also prohibits companies that sell debt relief services by phone from charging a fee before they settle or reduce your debt. For credit counseling that promises to get you into a DMP, that means the company cannot collect a fee until you have entered the DMP and made at least one payment to your creditors using the DMP.

 

Other Debt Relief Options

 

Working with a credit counseling organization is just one option for dealing with your debt. You also could: negotiate directly with your credit card company, work with a debt settlement company, or consider bankruptcy.

 

Talk with your credit card company, even if you have been turned down before. Rather than pay a company to talk to your creditor on your behalf, remember that you can do it yourself for free. You can find the telephone number on your card or your statement. Be persistent and polite. Keep good records of your debts, so that when you reach the credit card company, you can explain your situation. Your goal is to work out a modified payment plan that reduces your payments to a level you can manage.

 

If you don't pay on your debt for 180 days, your creditor will write your debt off as a loss; your credit score will take a big hit, and you still will owe the debt. Creditors often are willing to negotiate with you even after they write your debt off as a loss.

 

Bankruptcy. Declaring bankruptcy has serious consequences, including lowering your credit score, but credit counselors and other experts say that in some cases, it may make the most sense. Filing for bankruptcy under Chapter 13 allows people with a steady income to keep property, like a mortgaged house or a car, that they might otherwise lose through the Chapter 7 bankruptcy process. In Chapter 13, the court approves a repayment plan that allows you to pay off your debts over a three to five year period, without surrendering any property. After you have made all the payments under the plan, your debts are discharged. As part of the Chapter 13 process, you will have to pay a lawyer, and you must get credit counseling from a government-approved organization within six months before you file for any bankruptcy relief.

 

You can find a state-by-state list of government-approved organizations at the U.S. Trustee Program, the organization within the U.S. Department of Justice that supervises bankruptcy cases and trustees. Also, before you file a Chapter 7 bankruptcy case, you must satisfy a "means test." This test requires you to confirm that your income does not exceed a certain amount. The amount varies by state and is publicized by the U.S. Trustee Program.

 

Filing fees are several hundred dollars. Attorney fees are extra and vary. For more information visit the United States Courts, and read Coping with Debt.

 

Debt settlement. Debt settlement programs typically are offered by for-profit companies, and involve them negotiating with your creditors to allow you to pay a "settlement" to resolve your debt — a lump sum that is less than the full amount that you owe. To make that lump sum payment, the program asks that you set aside a specific amount of money every month in savings. Debt settlement companies usually ask that you transfer this amount every month into an escrow-like account to accumulate enough savings to pay off any settlement that is eventually reached. Further, these programs often encourage or instruct their clients to stop making any monthly payments to their creditors.

 

Although a debt settlement company may be able to settle one or more of your debts, these programs can be very risky and have serious negative financial consequences for consumers. Additionally, some debt settlement companies deceive consumers by making promises they do not keep and engaging in other illegal conduct (like charging fees before obtaining any settlements, in violation of the TSR). For information, read Coping with Debt and Settling Credit Card Debts.

 

Source: https://www.consumer.ftc.gov/articles/0153-choosing-credit-counselor

FTC Warns About Debt Settlement Scams

Posted on November 2, 2017 at 1:45 PM Comments comments (0)

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Toys R Us Collapses Into Bankruptcy Thanks to Crushing Debt

Posted on September 20, 2017 at 4:15 PM Comments comments (3)

Toys “R” Us Inc., the ultimate toyland for a generation of postwar baby boomers, filed for bankruptcy thanks to a crushing debt load from a buyout and relentless competition from warehouse and online retailers.

The retailer, which has 1,600 stores in 38 countries, said its hand was forced after an attempt to restructure out of court sparked a press report about a potential bankruptcy, spooking critical vendors and credit insurers. But it intends to make the best of the situation and revive its business in time for the holiday shopping season.

“Chapter 11 was certainly not the company’s preferred outcome,” Chief Executive David Brandon said in a court filing. “The timing of all of this could not have been worse.” He cited the immediate need to build inventory for the holiday season, which accounts for 40 percent of annual revenue. Thanks to a new $3.1 billion operating loan, the company plans to stabilize operations and reopen supply channels while in bankruptcy, he said.

The filing is the latest blow to a brick-and-mortar retail industry, which has seen a string of bankruptcies from Payless Inc. and Gymboree Corp. to Perfumania Holdings Inc. Chains are reeling from store closures, sluggish mall traffic and the gravitational pull of Amazon.com Inc.’s lower costs and global home delivery. More than 10 percent of U.S. retail space, or nearly 1 billion square feet, may need to close, convert to other uses or renegotiate rent, according to data from CoStar Group.

‘Unrelenting Race’

To compete with Amazon, Target and Wal-Mart, “Toys “R” Us would have needed to slash prices to maintain traffic into its stores, “decreasing its revenue and cash flows in an unrelenting race to the bottom,” Brandon said in the filing.

The reorganization will focus on investment in marketing, technology, and an in-store experience that will help it compete in the new environment, Brandon said. The bankruptcy filing in Richmond, Virginia, estimated the company has more than $5 billion in debt, which it pays around $400 million a year to service.

Much of that is the legacy of a $7.5 billion leveraged buyout in 2005 in which Bain Capital, KKR & Co. and Vornado Realty Trust loaded the company with debt to take it private. Since then, the Wayne, New Jersey-based chain has struggled to dig itself out.

The $3 billion loan, from a JPMorgan Chase & Co.-led syndicate that includes some existing lenders, will fund operations while it restructures the liabilities, according to a company statement. The funding is subject to court approval.

Staying Open

The company doesn’t plan to close stores and says its locations across the globe will continue normal operations. It’s 1,600 stores, which include Babies “R” Us, are complemented by sales through websites including Toysrus.com and Babiesrus.com.

Operations outside of the U.S. and Canada, including about 255 licensed stores, are not part of the Chapter 11 filing. A Canadian unit intends to seek protection in parallel proceedings. In Australia, Toys “R” Us plans to add another five stores to its existing 39 by Christmas, said Jessica Donovan, a local marketing manager.

“Like any retailer, decisions about any future store closings – and openings – will continue to be made based on what makes the best sense for the business,” Michael Freitag, a spokesman for Toys “R” Us, said in an email.

Mattel Inc., a key supplier, said it stands by the company. “As one of our most important retail partners, we are committed to supporting Toys ‘R’ Us and its management team as they work through this process, particularly as we approach the holiday season," the toymaker said in an emailed statement.

Dangerous Dominos

While Brandon made some progress in reducing the closely held chain’s liabilities, he ultimately was unable to resuscitate its fortunes. He took over Toys “R” Us in 2015 and sought to make shopping there a more enjoyable experience with product demonstrations and the “Hot Toy Finder” to help customers locate items. Last year, he set out a vision of kids “dragging their parents to our stores because they want to see what’s going on.”

Beginning in late August, the company tried to tackle its debt load through talks with term loan lenders. A Sept. 6 report that a bankruptcy was being considered “started a dangerous game of dominoes” in which the company lost the confidence of nearly 40 percent of its international and domestic vendors, who refused to ship products without cash in advance, cash on delivery, or payment of all outstanding obligations, according to Brandon’s court filing. This meant Toys ’R’ Us needed another $1 billion in liquidity.

The company’s roots date to 1948, when Charles Lazarus opened Children’s Bargain Town, a baby-furniture store, according to the Toys “R” Us website. He added toys two years later and opened the first Toys “R” Us in 1957.

The case is In re TRU-SVC, 17-34659, U.S. Bankruptcy Court, Eastern District of Virginia (Richmond).

By Dawn McCarty, Tiffany Kary, and Daniela Wei

— With assistance by Rachel Chang, Angus Whitley, and Richard Weiss

Bloomberg September 18, 2017, 10:42 PM CDT, updated on September 19, 2017, 8:06 AM CDT

www.bloomberg.com/news/articles/2017-09-19/toys-r-us-files-for-bankruptcy-crushed-by-online-competition


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