One of, if not the largest shortcoming that exists in the current system designed to provide people struggling with debt an alternative to bankruptcy is – Information. That we have come through the “information age” and fallen short of including more of it in professional debt relief products and servicing is a failing that can and should be fixed.

A system that better educates and thoroughly informs consumers about their debt relief options; intervention steps available to them that can be accomplished on their own; through service providers charging only fair and affordable fees; all with a consumer first focus – Is Here.

In an effort to be a catalyst for continued industry change; deliver enhanced value to consumers; and to bring complete information and tools direct to consumers; CRN now offers industry professionals training and access to efficient and effective technology systems for our successful methods in educating and supporting consumers through the debt relief decision process and delivery of debt reduction solutions.

So – what’s on the table? Let’s dig in.

Program Design:

The initial focus of this education platform is to assist customers with reaching informed decisions about their options for managing debt they can no longer afford to pay weighed against current and projected income, individual hardship circumstances, and future financial goals.

The education, support and communication systems next place consumers in the best position to take actions steps to manage some or all of the debt relief activities on their own, while offering continued access to professionals and peers. Consumers can also connect with service providers directly when needed or requested.

Your customers will be subscribed to information and individualized support allowing them to:

• Reduce monthly payments via DIY DMP efforts or as provided by a CCA
• Negotiate debts for less than balance owed through DIY settlement or full negotiation services provided by attorneys who charge based on contingency and at a rate of 15% of savings
• Why bankruptcy may be the option of first resort, not last – as it is often referred to.
• Direct access to discounted bankruptcy assistance
• Cost/Time/Resource benefit analysis

Capitalize on existing market reach:

You can simply refer people into the system with confidence knowing that the education and information is supported by knowledgeable professionals with years of experience in delivering unique and tailored strategies to your customers who can depend on fair and honest experienced support beginning with assessment and continuing through implementation and ultimately – successful resolutions.

You will be able to monitor and track activity with access to reports set at intervals and frequency you choose.

Expand existing products and services:

Established industry participants have the opportunity to earn while you learn. We provide executive level, supervisor/manager, intake/consultant/counselor training that will allow you to manage your own platform delivery, product and servicing support. In this way, you can provide meaningful value and experienced support to your customers while your internal resources are acquiring skill sets and compenetncy levels consistent with your management, and control protocols.

Give yourself and your customers a competitive edge:

One significant market impacting attribute of this product and delivery system is the inclusion of proven upfront DIY settlement education that is supplemented with ongoing information and detail accessible to subscribers. This feature encourages consumers to:

• Confidently speak directly with their creditors in order to effectuate settlements without the need and expense of third party negotiation services.
• If direct debt settlement services are requested or needed they are available and offered by attorneys and established industry professionals at a rate of 15% of savings.

Access to proven DIY settlement strategies and support often lead to accelerated customer success because money is going to creditors instead of fees for services. With direct services available on an as needed basis, at half or less the cost of the industry norm, more customers will reach their debt relief goals.

Help people help themselves and connect them to affordable services:

Connect customers with your designated product and service partners. Whether you work with partners who deliver HUD or bankruptcy counseling, or provide same internally; where you connect those seeking bankruptcy or other competent legal resources; connect customers to debt and credit products and services of virtually any type – you have the ability to manage internal and external relations. If you need recommendations we can provide them.

The ability to maintain your internal and external work flow assists our partners with managing their reputation while maintaining current professional relationships or creating new ones, further economizing CPA and/or maintaining existing revenue channels.

Some of the partnerships you may already have, or may choose to connect with include:

• Bankruptcy attorneys
• Attorneys providing direct debt settlement services charging a performance fee of as little as 15% of savings
• Credit Counseling
• HUD approved housing counseling
• Judicial foreclosure defense (in court)
• Attorney managed loss mitigation
• FDCPA protections

Systems delivery and efficiencies using proven technology:

With over 500,000 custom lines of code, there are many features to outline. What follows are but a few.

• Custom Enrollment Package, program types, program length, and EP submission pages for the Sales team.

• The Create EP module uses actual settlement data history to calculate estimated settlement for creditors/collectors

• Electronically store documents

• Custom enrollment checklist with multiple categories and items

• Ability to group creditors for easy deployment of policy changes

• Access to hundreds of built-in letters and reports

• Ability to modify our built-in reports and request custom reports

• Easily print and export data to Excel

• Users can define their default searches and activity views

• Easy navigation through the use of tabs and context menus

• Ability to track changes made to customer data

Client Login:

• Educational links and courses

• Financial Analysis tools, including custom form for the client to submit or change their monthly budget

• Useful debt, credit, and financial related links, calculators and tools

• Custom Company Contact info page

• Real time access to their account status, including all enrolled accounts and current statuses

Tasks and Events:

• Add notes and create follow-up reminders

• Attach documents to the client’s file

• Set up appointments based on availability and easily check the availability of every specialist or counselor

• Easily set up your appointment slots several weeks in advance with recurring appointments if necessary

• Ability to schedule for follow-up for a specific date and time

• Link documents or other attachments to each issue note

• Customize your own To-Do lists and set up custom workflows for automatic redirection of work

Fees, ACH, Payments:

• Set up multiple due dates and disbursement dates

• Automatically calculate one-time fees and monthly fees

• View balance forecast of each account using custom dates

• Create and submit ACH debit files to your financial institution

Customizing to fit your needs and the needs of your customers is available

This partnership platform will be ideal for existing service providers to immediately help customers who do not qualify for programs you currently support while providing substantive upfront value. Given time and levels of market adaptation, this platform will usher forth broad and helpful impacts to:

• Debt relief industry servicers
• Marketing
• Financial services
• Media
• Regulatory oversight

The content and delivery platform is where the industry needs to be when informing and assisting consumers. This is where we as an industry should be given current and ongoing regulatory and oversight realities. The system provides lower cost efficiencies for current market needs while maintaining flexibility to adapt to future opportunities and realities.

Whether you simply wish to connect people to affordable and reliable resources when looking for answers and effective tools to deal with overwhelming debt, or would like to expand your available product and services, I invite you to ask questions and comment below. If you would like to schedule a time to learn more details you are welcome to contact me directly.

Working together we can build a more effective and productive debt relief industry future.

Michael Bovee

info@consumerrecoverynetwork.com

208-265-8884

I generally begin any consultation I do with people who reach out to my company in search of help with debt with this question: “What has you reaching out to a perfect stranger? What is going on with you financially”? Then, I shut up and listen. I am sometimes the first person the caller has ever spoken to about the situation they are in.

The responses I hear vary, as does the time someone will take to outline the details of their hardship. By listening closely, I am able to hear the stress and fear they have about their debt. I often hear the struggles they have gone through to try and keep current with credit card bills, or the difficulty they have had in communicating with creditors and collectors.

The other day, I heard one of the simplest and shortest answers to my initial question that I have had to date.

“My Debt Is Crippling Me.”

While this response does not provide details I generally look to key off of in order to identify the debt pieces or solutions to putting the person’s financial puzzle back together, it said a great deal in a very powerful way.

Struggles with debt DO feel crippling. In the very sense that someone with a physical disability is forced to deal with every day of their lives. The stress and fear with debt problems are debilitating and can often manifest into actual maladies. The worry and frustration about money, and the lack of money, carries over from one day to the next. What am I going to do at the end of the month when these other bills are due? When will I ever be out of credit card debt? How did I get trapped in a home now worth far less than I owe? What if I get laid off with no savings? How would I get by with maxed out credit cards and no income?

One of the overwhelming benefits to people we talk with is that we can reduce, or even remove the stress and fear they have about their debt problem in one phone call.

This gentleman did not feel crippled when we finished talking about his problem because I plainly laid out the facts of his finances (after several additional questions to be sure), and was able to point out to him the mathematical rational solution to his debt. His solution did not involve needing to engage my company for a product or service, as he was past the point of debt settlement or a creditor sponsored hardship plan being a viable option.

He learned that, unlike someone who has a physical disability for the rest of their life, his crippling debt could actually be cured and with little fuss or expense. He was not at all excited to know that his only real option was to file for chapter 7 bankruptcy, but he saw the wisdom in doing so and hung up the phone with no fear and less stress.

I asked him before we hung up from the call “How crippling is your debt now?”.
He replied “Not at all.”

There is always and answer to recover from debt. The answers do often involve tough choices and some action steps that are not exactly a thrill to take, but can be arrived at through the process of elimination. Generally, I can walk through the following things and eliminate 3 or 4 out of the 5:

• Creditor monthly payment concessions
• Debt Management Plans through a credit counseling group
• Bankruptcy
• Debt Settlement
• Doing nothing (sometimes the right thing for brief period – couple months)

Knowledge removes the fear of the unknown, and unemotional, boring, old arithmetic is the compass to find your way to healthier finances.

My advice to anyone feeling crippled with debt boils down to the “Four Gets”:

• Get real about your finances;
• Get informed about your options;
• Get a plan in place; and
• Get started

If you would like to start getting informed the same way the man who inspired this article did, think about enrolling as a CRN member. Click here to learn more: Debt Help

Your credit score and loan product modeling is calculated not just by your timely payment history, but is also based on your credit utilization, debt to income ratio and a few other key points.

Due to how information in your credit report is factored, mistakes made by those furnishing information about you to the reporting agencies can have a major impact on how much credit will cost you and whether you are approved for a credit product at all.

This morning, I read a good example of the type of damage that can be inflicted by a simple loan classification error:

Issue: Most scoring systems take data at face value with little or no interpretation. If you track the erroneous “Installment Loan” designation downstream, the credit scoring systems would see the following:

• An installment loan for an extremely large sum (i.e. $200,000).
• Duration of payments for these loans was reported as 30, however, the number reported for an installment loan is seen by Metro 2® as 30 months, whereas, the number reported for a mortgage is seen by Metro 2® as 30 years.

Result: Most credit scores would be calculated based on the facts reported — “Installment” loan of $200,000 with what looks like payment term of 30 months. In effect, a 30 month payback period would require each payment be approximately $6600, whereas a 30 year payback period would yield a monthly payment in the vicinity of $1000. The perceived debt of $6600 per month could potentially negatively impact multiple factors of consumer lending such as approval scores, debt ratios, bankruptcy scores, pre-screen scores, etc.

And those types of errors are just the tip of the credit reporting iceberg. From a potential litigation standpoint, data furnishers that do not invest the time and resources required to evaluate the accuracy and integrity of their credit reporting on an ongoing basis are making a potential titanic mistake.

To read the full article click here: troubling times ahead for credit bureau data furnishers

This type of loan classification error would seem easy for the furnisher to fix. Indeed, common sense dictates that it should be fixed.  It will cost money to do it though.

My experience with reporting agencies and furnishers is that they do not always think with “sense”, but think more in terms of dollars and “cents”.

The key to “common-cents” and violations of the Fair Credit Reporting Act (FCRA) is that it is more profitable to do the wrong thing than the right.

Some credit report information furnishers get it absolutely bass-ackwards.

They seem to be saying “We know we have a problem and that it screws people over, but we will continue to do so until it is more cost effective to fix the problem than to continue to get sued”.

The linked article above speaks to a specific case in the 9^th circuit that allows a class action to proceed against one company that may end up costing them between 29 and 290 million. My guess is that their legal defense bill alone would have covered the costs of auditing and correcting their reporting systems on a regular basis which would prevent actions like this from occurring.

It is a small wonder to me that more legal action is not brought against furnishers of bad information about you to credit bureaus.

Similar to the economy of furnishers and reporting agencies making changes only when it makes “cents” to do so, suing them for their transgressions and missteps has long been about the costs for bringing the action and what can be gained from doing so.

Perhaps this attitude will change with the potential for more class action lawsuits that can lead to tens of millions in costs.

Perhaps there is a class out there forming to bring the particularly egregious practice of reporting a balance still due after a settlement on a past due debt is reached, accepted and funded, and where both parties agree that the debt is settled, there is no balance due, but the amount of debt forgiven remains on the trade line and shows that portion of the balance as outstanding when it no longer is!  I wrote about this practice recently. Read more about it here: Why Does Capital One Screw People Who Settle Their Debt.

It is as important now as ever before for people to take responsibility for policing the accuracy of their credit profile. No one else is going to do it for you.

If you find inaccurate, erroneous or out of date information – You Can Fix It!

You have the ability to dispute bad information with the reporting agencies and you can also send direct disputes to the furnisher of the information. If they do not correct the discrepancies after sending your dispute certified mail return receipt it may be the best use of your time to next consult with a skilled consumer law attorney.

There are not that many attorneys experienced with FCRA violations around the country, but a case they may bring can be filed in federal court, which may make speaking with one you find with an office outside of your state worth the effort.

To locate an experienced FCRA consumer attorney you can go to www.naca.net and search using your zip code to find one nearest you.

Two attorneys I know that specialize in this area are:

Jason Rapa in PA

www.rapalegal.com

Michael or Justin Baxter in OR

www.baxterlaw.com

If you have a specific question about debt or credit, click here to post your question and get it answered.

If you have questions or feedback about this topic, feel free to participate in the comment section below.

Media Contact:

Ken Luck

(336) 553‐1804

kluck@rlfcommunications.com

Debt Relief Companies Form New Consumer Advocacy Organization

Raleigh, N.C. (Feb. 9, 2011) – In an ongoing effort to raise standards in the debt relief industry and improve consumer protections, a diverse group of leading debt relief companies have formed a new organization devoted to consumer advocacy. The organization is spearheaded by Steve Rhode, aconsumer advocate and founder of the website GetOutofDebt.org. Membership is by invitation only to companies who promote transparency and have a demonstrated track record in properly helping consumers address financial hardships.

The American Association of Credit Counselors (AACC) will include nonprofit credit counseling agencies, debt management companies, debt settlement companies and other providers who are focused on serving consumers in financial distress. The AACC name reflects the revival of an organization that existed with a similar mission but has been defunct for more than 20 years.

This is the first debt relief association formed solely to find collaborative ways to work for the betterment of consumers rather than to lobby on behalf of the industry.

“We’re not an official association, we’re not a traditional industry group that anyone can join as long as they are willing to pay the membership dues,” said Rhode, one of the most vocal and active advocates for consumer interests. “We’re really a club, a club that only accepts the best companies who’ve demonstrated a commitment to the highest standards in serving consumers and who want to work collaboratively to protect consumers facing money troubles.”

All member companies in the AACC have agreed to a set of common standards, including:

• • Charging no upfront fees for debt settlement services;
• • Providing customers with good faith estimates before they enroll in any debt relief service;
• • Outlining the potential risks of a debt settlement or debt management program in easy‐to understand language;
• • Providing openness and transparency regarding performance results; and
• • Making top management readily available to their customers.

The group has adopted the motto “Putting Consumers First.”

“We are thrilled to be a part of this group, which is really focused on creating educated consumers and campaigning for their rights and protection,” said Chris Schornak, president of Debt Solutions Network, one of the founding members. “There are a wide range of debt relief options out there, but not every option will work for every individual. It’s exciting to see a group of companies standing up and saying that education is more important than deception and that the needs of the consumer are more important than a company’s bottom line.”

The genesis of the organization came out of an event Rhode hosted in late November called “A Group Conversation about Restoring Truth to Debt Relief.” The day‐long meeting brought together heads of debt relief companies, consumer advocates and regulatory agencies to discuss ways to improve consumer protections while still making debt relief services available to those in need and explore ways to increase the credibility of legitimate debt relief providers.

“That meeting created some great conversations among various debt relief providers about ways to better the industry as a whole and to make services from credible providers more readily available to consumers,” said Rhode. “Those discussions have continued over the last few months as these companies, while competitors, have found they have common interests and a shared vision for improving the industry. They felt there would be strength in numbers and have decided to work together for change.”

Charter members of the organization are:

• • Active Debt Solutions, a Florida‐based company that offers credit counseling, debt consolidations, bankruptcy referrals, and debt settlement programs;

• • Cambridge Credit Counseling , a Massachusetts‐based nonprofit that offers financial education and debt management services;

• • CareOne Services Inc., a Maryland‐based company that offers credit counseling, debt management and debt settlement programs and bankruptcy referral services;

• • Consumer Recovery Network, an Idaho‐based company which provides DIY instruction and offers debt settlement services

• • Debt Solutions Network LLC, a Michigan‐based company that offers debt settlement and debt consolidation services;

• • New Era Debt Solutions, a California‐based company that offers debt settlement services; and

“We take great pride in being part of a group that puts consumers first,” said Alex Viecco, vice president of New Era Debt Solutions. “This is something that has been lacking in this industry for a very long time.”

The original AACC was created in 1955 and disbanded in the 1980s.

About the American Association of Credit Counselors

The American Association of Credit Counselors was founded with the mission of “Putting Consumers First” in debt relief services. Membership in the organization is by invitation only and all of the members have agreed to meet specific standards and principles in offering their services. The AACC has eight members. For more information, visit http://newaacc.org/.

In order to have reached charge off, you will have survived the many collection attempts from your original creditor that typically last six months. Here is where your account goes from the frying pan to the fire. This is where your stress level regarding unpaid bills will increase. I know, as if additional stress was even possible….

It is.

Creditors have 3 options available to them once they charge off an unpaid debt. The most popular of the 3, at least with newly charged off accounts, is to place the debt with a collection agency.

Debts placed with an outside agency are generally done on a contingency basis and with short time frames built into the assignment contract.

The amount of time your account remains with an assignee collection firm will vary, but it is usually no longer than 90 days.

The typical debt collector working for your creditor as an assignee has two primary tools available in their attempts to get you to pay; your phone and your mailbox. There are other methods of collection, such as calls to your work place, friends, family members, neighbors, but I want to keep the focus of this post to the most general efforts used by the debt collector who has been assigned your account just after charge off.

First, similar to when you first fell behind in payments to your original creditor, the phone rings, a lot…. Next, the phone rings some more, and then… some more.

WARNING: Do not use your phone for target practice! You may need it later.

If you want to resolve an account that has been placed with an outside collection firm, you will have opportunities to do so. Here are some important details to consider in your effort:

• You will have to pick up the 2 ton telephone receiver in order to identify your available options with the account. Do not limit yourself to written communications
• You will be speaking to someone who has been trained to push your buttons using the most effective and proven methods for collecting
• The agency can only work out arrangements for payments that are consistent with the guidance they have been given by their boss, your creditor
• You will not be able to re-age the account
• Avoid some of the nut job advice on the internet about handling this stage of collection
• In some ways you have more payment term options than you would with the original creditor
• The collector only gets paid if they can get money from you

You should know that a charge off event is going to be reported to the credit reporting agencies.

The reason to point this out is that the damage to your credit is now done. You do not get to re-age charge off accounts. The credit carnage from not paying a charged off account can now only get worse by being sued, followed by a judgment entered against you. A judgment can later show up in the public record section of your credit profile. Also, a collection trade line may later appear on your reports, and this would be considered additional damage (this aspect will be covered in additional posts to the Charge Off series).

Any threat or comment from a debt collector about how you should be concerned with your credit report and score after the account they are collecting on is charged off is just a collection tactic. Collection agencies will have no ability to change how your creditor reports the debt to Equifax, TransUnion or Experian.

There are tactics and timing you can learn that will better prepare you for dealing with outside debt collectors. You can optimize your results by knowing:

• When and how to get a deal
• When to pass on an offer
• What your specific creditor will allow the collector to do (which leads to you getting the best deal)
• The tricks and tactics that will be used to get you to pay more than was necessary
• What is considered collection abuse
• You can get professional help at a reasonable cost

If you are struggling with multiple credit card debts that are in the post charge off collection stage, it is important to understand your options and identify your resources for handling the accounts before they end up in, or are immediately placed into, the more advanced stages of collection which can include being sued in order to force you to pay.

You can learn more about how “charge off” can be friend or foe by following the Debt Bytes continuing series on the topic: Click Here

It is important that your next step to deal with your now charged off debt be the step you take to put the debt to rest before the situation can deteriorate further.

If you would like to learn the details that will assist you to navigate dealing with and settling collection accounts, while having ongoing access to professionals. Consider becoming a CRN member: Learn more about benefits to CRN membership

Debts that go unpaid follow a relatively predictable pattern.

When first missing a payment, the phone rings… a lot.  After 30 days late your account is reported to credit reporting agencies (CRA’s) as such.

Next, the phone rings… a lot.

The pattern of the phone calls when you are 60, 90, 120 days late will often include offers of lower payment arrangements and hardship plans. Your credit report will continue to receive unsightly blemishes in 30 day intervals.

As you get nearer 180 days of nonpayment, some of the collection calls will take on a new tone. If you have not already thrown your phone out, changed your number, or continue to answer in your best disguised voice informing the caller that “um… that person does not live here”, you may get offers to settle the debt for less than what you owe.

At 180 days of delinquency (sometimes 210), something strange happens. Suddenly the background melody you became so accustomed to while watching television, or spending time with family, suddenly ceases. No more getting up to check the caller ID to see if you want to answer. No more checking messages for 10 minutes listening to “this call is for ____”, quickly followed by “message deleted”.

When you realize that the incessant phone calls have ceased seemingly overnight, you may even be compelled to dance a jig while singing “ding-dong, the witch is dead, the witch is dead” like scare crow traipsing down the yellow brick road in the Wizard of Oz.

Not so fast…. All that has happened is that your debt has been charged off and is in limbo while your creditor figures out which part of the collection pipe line they are dropping your account into.

Within a matter of days, or weeks, the monkey reappears and plants itself firmly on your back. He announces his presence daily, starting at 8 am and continuing through 9 pm. Riiiinnnggg… Riiiiinnnggg.

Your account has now been placed with a collection agency.

The pattern I present here typifies what will occur in the first 6 months of nonpayment with most credit card issuers. As you can see, there will be some opportunities.

For many people faced with the inability to pay their credit card bills on time, all the time, it can make sense to capitalize on these opportunities. You should look to optimize your success by:

• Following an intelligent design that can be tailored to your specific set of financial circumstances.
• Design a plan using information about what each of your specific creditors will do and when.
• Be prepared to adjust. Your creditors may change their recovery policies requiring you to tweak your plan.

You can learn more about how “charge off” can be friend or foe by following the Debt Bytes continuing series on the topic: Click Here

If you would like to speak with someone who can assist you in determining what your next best step to getting out of debt may be: Click Here to schedule a Consultation. A CRN specialist can assist you in learning the details you will need to consider once they know more about you. Consults are provided at no cost.

The term “charge off” describes an accounting function followed by your lenders. When speaking of revolving consumer credit card accounts, a charge off occurs when the credit issuer either chooses, or must, recognize an unpaid loan balance as a loss.

For lenders, losses are bad news. The bad news gets reported and can affect anything from loan loss allowance/reserves, securitization, liquidity, even solvency.

Because of the bad news nature of a charge off, your credit card issuer will generally wait until the maximum time allowed to charge off your unpaid debt. The time frame for your creditor to recognize the loss on your unpaid credit card balance is outlined in Generally Accepted Accounting Principles (GAAP) and is typically 180 days of consecutive nonpayment, or what the Office of the Comptroller of the Currency (OCC) has designated as “seven zero billings”. There will be instances where charge off will seem to occur at 210 days of nonpayment.

Most lenders will wait as long as is allowable to take the charge off hit to their books, but they can take the hit earlier than 180-210 days. It’s just not a common practice.

What does this mean to you?

While charge off is an important accounting function for lenders, it is also a major event that applies to, and will affect, the efforts of a consumer who is experiencing financial difficulty.

While you are trying to navigate your inability to pay all of your debts and when evaluating the different debt relief options available to you, understanding the timing and affects of your accounts charging off will give you a needed advantage in your planning and timing.

The period leading up to, during, and after a charge off of your unsecured debts will impact:

• Debt collection efforts with your original creditor
• Debt collection with outside collection agency
• Debt Purchasing and subsequent collection efforts
• Debt Settlement/Debt Negotiation
• Credit Reporting
• Debt Management Plans
• Risks of being sued on unpaid debt
• Biting the Bullet and Filing Bankruptcy
• Delaying a Bankruptcy

Each one of the bullet items above are deserving of a separate article and will be posted on debt bytes as I complete them. If an above bullet is a click-able link, it will lead to coverage of that topic individually.

If you would like to speak with a pro for free to discuss your specific situation and what you may be able to do to deal with it, Click: Free Consultation Request. You will be contacted by a CRN specialist who can assist you in identifying your options and next best steps related to pre or post charge off debts.

You are Invited…

…to share your story, feedback, and/or review of your experience working with Consumer Recovery Network in the comment section of this post.

There are no rules for posting. You may want to follow an outline of what brought you to CRN, how we compared to other options or companies you looked into, what happened along the way, and what the ultimate result of working with us has been, to date. Or, just have fun and express yourself!

ALSO:

Not everyone we consult with qualifies for our more aggressive approach to dealing with debt. Many of you we consult with still appreciate the time we take to inform you of what debt settlement really involves after having contacted other service providers. Our consults are often a refreshing dose of blunt honesty for people just looking for information and answers they can trust. You are invited to share too!

Tell you what….if you having anything to share about CRN, the Debt Bytes Blog, or any facet of the work we do…. chime in! We look forward to hearing from you!

P.S. You can identify yourself using your initials or first name only, unless you are comfortable sharing your identity, like Jonathan Grossman, who blogs about his experience with CRN at Debtsettlementstory.com

Your Credit Scores Less Than Filing for Bankruptcy

FICO, the company that calculates consumers’ FICO scores — the scores that are the most widely used by American creditors to determine whether or not they will extend credit to a particular consumer and the terms of that credit — recently released data showing how different negative actions consumers might take in regard to their credit will affect their scores. Among other things, the data shows that settling your debts is far less damaging to your FICO scores than filing for bankruptcy. In other words, the data helps make the case for why settlement rather than bankruptcy is an excellent alternative for many cash-strapped consumers, assuming that they either settle their own debts or work with a reputable settlement firm that charges fairly for its services.

The data released by FICO and available on its web site at: http://www.myfico.com/crediteducation/questions/Credit_Problem_Comparison.aspx, shows that as a consequence of filing for bankruptcy, consumers may see as much as a 240 point drop in their FICO scores. In contrast, if they settle their debts, their FICO scores may drop by 125 points at most. Interestingly because of the way that FICO scores are calculated, when consumers have higher scores prior to either filing for bankruptcy or settling their debts, their credit scores are harmed more by settlement or bankruptcy than are the scores of consumers who had lower FICO scores to begin with. According to FICO, the reason for this difference is that the scores of lower scoring consumers already reflect their credit missteps.

Despite the FICO data, I must caution you not to base your decision about which debt relief option to pursue based on that information. All debt relief options — credit counseling, settlement and bankruptcy — will have a negative effect on your credit histories and/or FICO scores for some time. (See my recent blog, Debt Relief Options vs. Your Credit Score).

When you are deciding how to deal with your debt, your primary concerns should be gaining a clear understanding of how each option works and its pros and cons, and determining whether the numbers associated with a particular option make sense for you. For example, your first test if you are considering settlement should be whether or not you can accumulate the money you need to fund your creditors’ settlement offers before your risk of being sued by them for what you owe begins to escalate. If you cannot come up with the money you need to settle your debts relatively quickly, then bankruptcy is probably your better option.

For free help determining which debt relief option would work best for you, fill out CRN’s consultation request form.

One of the biggest concerns for Americans who are struggling with debt, and looking for solutions to get out of debt, is their credit score. The question that I’ve heard most frequently over the years of working and consulting with consumers is; what will “this” do to my credit report? My answers are generally pretty enlightening, and because there are so many misconceptions, and even people willing to mislead consumers in order to sell them on some approach, I want to lay out some facts.

Let’s start with this fact: Risk aversion by lenders, in the extension of credit, has returned with a vengeance! This means that if your Debt to Income (DTI) is unhealthy, you will frequently find that additional credit is unavailable to you regardless of your credit score. Many consumers are finding that existing credit lines are being cut down to current balances and unused accounts are being closed. There is much more to discuss on this topic, but for the consumer struggling with debt my point is; stop thinking about your score. Additional credit availability is unlikely right now, anyway.
The credit score has been so indoctrinated into our consumer based society; people make irrational decisions, negatively impacting themselves and their families, all in the name of the all mighty FICO. So, as if through a megaphone from 10 stories below; “Put down that credit report and step away from the ledge”!

If you’re struggling with debt, whatever the hardship, and are forced to consider your options. I will lay out the legitimate options and outline the effects to your credit.

Debt Management Plan (DMP, sponsored by for profit or nonprofit credit counseling companies):
Your accounts that are accepted into the program will be closed and this will have a slight impact on your score. While enrolled in the program, it is typically very tough to get financing of virtually any nature in the first 24 months, due to the DMP notation in your credit report, next to each of the accounts enrolled. Debt Management Programs run, on average, 5 years. You are basically in “unsecured credit purgatory” for this entire period (such as obtaining new credit cards). You may be able to get financing on a vehicle or even purchase a home, modify an existing home loan, or qualify for a student loan (either your own or parental) after the first 2-3 years of successful participation in your DMP. When an account in your DMP is fully paid, the DMP notation is removed. This is a good option, if the math supports your finances (more on the math in a moment).

File Bankruptcy:
Chapter 7 – will stay on your credit report for 10 years. This does not mean you won’t have access to credit for the full 10 years! This is one of the biggest misconceptions out there, and partially what motivated me to write this. There are many reasons to try to avoid bankruptcy. Your ability to get credit in the future is one of the flimsiest. Up until the economy started crashing in 2007, consumers who discharged debt in a chapter 7 were finding unsolicited credit offers in their mailbox within 6-12 months of discharge. The credit offers were generally subprime, so not the best limits and rates, but were offered nonetheless. With the return of risk aversion, and many of the subprime credit card issuers having left the market, I don’t see these solicitations for credit just outside of bankruptcy being offered much, at the time of this writing. I find them even less likely moving forward, as banks will be repairing their balance sheets for years to come. Besides, having just obtained discharge of unsecured debt, one should not be in a hurry to obtain more, and most certainly not at subprime rates.

Current FHA underwriting standards mean you will not qualify for FHA funding after filing bankruptcy for a period a 2 years. It is, therefore, unlikely you will get a loan for a home purchase in this time frame, in the current loan market. Student loans are generally off the table for a few years, including ones you would apply for in order to assist your child. You may be able to finance a vehicle purchase after a chapter 7 within 12 or so months after discharge.
Your credit score is factored on several data points. 35% of it is reportedly factored on utilization/Debt to income (DTI). After discharging debt in a chapter 7, your DTI and utilization should be fabulous. Now, you wait out some of the 2-3 year timelines lenders and underwriters use as a standard, take a few effective steps to rebuild credit, and this whole 10 year misconception is seen for the baloney it is.

Chapter 13 – is totally different. It’s the worst of all options. The court is overseeing a repayment plan of 3 or 5 years. It’s on your credit report, you’re on a court approved household budget, and if you were to seek a new credit contract of virtually any type, you must first get approval from the court appointed trustee, who has been empowered to tell you “NO”. This version of bankruptcy is credit purgatory. It is rigid and inflexible. You will have court protection from creditors, but at the highest cost. It is an option, but should be seen as a last resort.

Debt Settlement:
Settling debts for less than the balance requires you to be behind in payments. Since another 35% of your credit score is factored on repayment history, your credit report and score is going to get clobbered! The clobbering itself and the duration of the pain will be different for each person. Once you achieve zero balance reporting, your credit score will begin to improve. How long it will take to improve will depend on several factors, such as:

• How long you went delinquent before a zero balance was reported
• Was the account charged off (settling debt inside of 6 months delinquency is optimal)
• Was it sold after charge off and re-reported (original creditor reports the charge off and the debt collector reports as well)
• What accounts were current during the settlement process (mortgage, car payment, other)
• What was the depth of your positive credit history (have you had cars, mortgages etc… paid off in the past)
• Did you take prudent steps to rebuild credit along the way

My experience has shown that roughly 18 months after completing the last settlement, and the zero balance due reporting, you’re in decent credit shape again, when contemplating legitimate needs. I have seen CRN members qualify for FHA funding on a new home purchase 9 months after finishing their settlements (focusing on the above 6 items) . The primary reason for this is that your debt to income is in better shape, and the math shows you can comfortably service the mortgage. This aspect should be considered by those who have been turned down for a modification on an existing home loan based on their DTI, and who have resources that can be creatively deployed.

Summary:
These 3 options are what a consumer, who cannot keep up with payments, has to consider. The fact is; every one of them is going to hurt your score. Even just slogging along and struggling to meet your minimums is going to keep you from any new credit, based on a poor DTI ratio, regardless of the FICO score. The days of fog a mirror – and get credit – are gone.

Basing your decision on which option to go with because of the affect on your credit report, is like arguing over whether to punch a one foot or two foot hole in the bottom of the boat while at sea. The boat sinks no matter what.

These 3 options actually track pretty well when you boil them down to which one will put you in position to obtain legitimate loans, like a home/car purchase or student loans, the quickest.

The point is, when you are drowning in debt and are worried about your credit score, you’re worried about the wrong thing.

The media, lenders, regulators, unwitting commentators, have all contributed to the credit score hype. Sure, it is important when you are out shopping for loans and better interest rates, but that’s not what someone who cannot keep their payments up should be thinking about. They are not going to get credit, and they cannot service the additional debt anyway. Anyone saying something different is talking up their book, has the luxury of not struggling with debt, or is a pump monkey for some special interest.

When determining which debt relief option will best suit your situation, and you’re mid-to-long term goals, always start with the math. The math doesn’t lie and should assist you in narrowing down which option is best.

Chapter 7, for those who qualify, and who fully understand all of the implications associated with filing (sans the credit score), will provide the quickest, most thorough relief.

Other than a discharge through bankruptcy, my experience would suggest that consumers weigh and compare a debt management plan (DMP) beside a debt settlement approach, and make a rational decision based on the math and the flexibility that is built into either option. Settlement will generally win this test. When doing the math to qualify for a DMP, you will need to factor your ability to consistently and comfortably make a monthly payment of 2.5% of your current unsecured credit card balances. If you cannot, or question your ability to maintain this type of payment, I question why you would even start a DMP. You have a high probability of not completing it and will have wasted resources that would have contributed to your success using a settlement approach and the ability to regain your financial freedom sooner.

If you are considering settlement, be sure to consider the hype and fees associated with its pump monkeys, too. Please read: Debt Settlement Marketing-The gist, The Juice & the lies or Dude Meets Debt Wall

If you have hit the debt wall and want to learn about all of your debt management options, including debt settlement, visit Consumer Recovery Network. While you’re there, learn about becoming a member of Consumer Recovery Network, with no risk to you, and schedule a consult to find out if you should pursue debt negotiation.

By: Michael Bovee, CRN President