What does it mean when a debt is listed on my credit report as “charged off”?

I often get an inquiry from my clients who have a debt listed as “charged off” on the credit report.  My clients sometimes falsely believe that this designation means that they no longer owe the debt.  It certainly sounds like this could be the case but how often are things that easy in life?  If people could get debts charged off by just waiting then no one would ever pay them.

If a debt is reported on your credit report as charged off you do indeed still owe it.  What a charge off means on a credit report is that the creditor has determined that the debt is bad debt for them and therefore the creditor has sold the debt to a collection agency.  The original creditor then takes a tax deduction for the loss incurred on the charged off debt.  This means that your credit card company actually saves money on its taxes when you don’t pay your debt.

The collection agency which buys the debt then begins to add additional charges to it.  The debt takes on a new life and grows so this new debt collection company can make more money to collect it from you.  These debts though are transferred/sold to these collection agencies with the full rights to collect the full amount.  No lessening or forgiveness of debt occurs during this process and in fact just the opposite happens.  The debt continues to get bigger after the sale.  It does not matter if the debt buyer pays pennies on the dollar.  The collection company will still come after the debtor for the full amount.

These collection agencies are a very big business and they are very profitable.  They buy and sell these debts in lots numbering in the thousands.  Sometimes they just trade them.  If the collector sues you they will add court costs, attorney fees, and interest to boost it up even further.  It is not unusual to have a client come to me with a debt that has tripled over the years.

The good news is that bankruptcy ends the debt merry-go-round and the debt inflation.  It all ends when you pull the trigger and file a bankruptcy.  The debt, the collector, the lawsuit, and all of their various fees and charges just melt away.  You don’t have to argue about how much or whether you owe it and you don’t have to worry about a debtors exam or other techniques to get you into court to collect from you.

The collectors are skilled at collecting.  They are like the terminator and that is all they do.  They don’t care if you are sick, unemployed, pregnant, destitute, or if you have 10 mouths to feed.  They want their money and they want it now.  They get paid by collecting from you and they are trained not to listen to your sob stories.   They will hound you virtually forever unless you pay them or die or file for bankruptcy.

All this ends with a bankruptcy so contact a bankruptcy lawyer today to see if bankruptcy is an option for you.  If you have debts charged off or otherwise owed by you that you cannot pay then check into a bankruptcy to see it is right for you.  A bankruptcy attorney can answer your questions and should not charge for the initial consultation.

I am bankruptcy attorney in San Diego offering free consultations.  Please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com for more info. about any of these topics or call me for a free consultation at (619) 702-5015.  Call now for a free credit report and analysis!

For a free e-book: “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING” please send a request by e-mail to: farquharesq@yahoo.com

Advertisements

Don’t answer your cell phone! New bill would allow collectors of goverment debt to robocall you!

In a move that is not typical of Democrats, the Obama administration is pushing a bill that would make it easier for the private collection industry to robocall your cell phone when you owe a debt to the government.  Robocalling is when a collector calls your phone number endlessly, excessively, and ceaselessly, until you tear your hair out or throw your phone away.

This proposal is tucked into the deficit reduction bill that is in Congress now according to an AP article and it is intended as a means to collect more money for the government.  This law applies to debts owed to government agencies. These debts are primarily student loans but I suppose the law could apply to any government debt like back taxes, tickets, fines, fees or penalties.

These debts may have been owed originally to the government but the government will transfer them to private debt collection companies who want to robocall your cell.  The department of education apparently has the largest share of these debts at $28 billion that they have passed out to 22 private collection companies.

A a Boston-based consumer law center spokesman says in the article that this “is just going to lead to more harassment and abuse, and it’s not going to help the government collect any more money.”  The spokesperson goes on to say that people aren’t paying their student loans because they have not been harassed enough but they are not paying these debts because they can’t find a job.  The administration as of yet has no estimate of how much money they expect to collect from this practice.

I agree that it is likely that very little money will actually be collected by allowing robocalling of cell phones.  This new practice will just result in more stressed out people who cannot answer their cell phones for fear of getting one of these collectors on the line.  My bankruptcy clients which I interview every day typically are broke and out of work and they want very much to pay their bills but they cannot.  They universally have the desire to pay the bills but not the means.

I believe in the old saying that you can’t get blood from a turnip.  If people have no money and no job then no amount of phone calls will change reality.  If you mistakenly pick up a call and talk to one of these collectors then you will get no sympathy and just demands to pay.  If you say you have no money they won’t believe you and tell you to borrow the money.  These collectors are incentive driven and they don’t appear to care what you have to say as they get paid as much as 17% of what they collect from you.

The FTC (Federal Trade Commission) regulates the collection industry.  The FTC receives more than 100,000 complaints a year from the collection industry alleging harassment, demands for ridiculously large and unaffordable payments, and threats of jail time (which is illegal under the Fair Debt Collections Practices Act).  Apparently the collection industry receives more complaints than any other industry in America.

This move by the Obama administration perplexes consumer groups and Democrats alike.  The article points out that this bill aligns the administration more closely with the collection industry.  Democrats normally are more friendly to those in debt and generally Democrats protect consumers from additional potential harassment.  Many Democrats opposed the creditor friendly bankruptcy reform bill of 2005. (Joe Biden supported the law as he was from Delaware where many credit card companies are incorporated).  Many Democrats are now indicating that they can’t support this bill.

Hillary Clinton sponsored a bill a few years ago to make student loans dischargeable in bankruptcy.  That bill went nowhere though and these student loans are still non-dischargeable in bankruptcy.  So are the other government fines, fees, penalties, and most tax debt.  But the point is that they are not going unpaid because people are not being robocalled enough.  People have no jobs and no money and that is why payment is not forthcoming.

Robocalling by private collectors is currently allowed under Federal law on landlines but only individually dialed calls are allowed to on cell phones.  Since more and more people have only cell phones now the collection industry has been lobbying the administration for this change in the law according to a spokesperson quoted in the article.  Apparently the lobbying has worked as the Obama administration has heard the call and pushed for this law.  The spokesperson says that robocalling is the most “efficient” way of collecting debts.  If you have ever been on the other end of the line that is receiving these robocalls you may have a different view as I have.

This is a terrible idea that will collect little money and result in the increased harassment of people with no means to pay these debts.  My clients come into my office already tapped out and they have no extra income even when we get their credit card debts discharged in bankruptcy.  If these people are not paying on these loans it is probably because they have either no job and no income or they are working at a reduced rate and barely affording their current bills.

If you are in this situation or you know someone who is, send them to myself of another bankruptcy attorney in your area.  We can help them discharge the credit card and other private debts so that more money is freed up to pay the non-dischargeable government debts like the student loans.  You can work out a payment plan for the student loans if you can afford one.

If this law is passed then debt collection will become that much more invasive, annoying and bothersome.  My advice will then be: don’t answer your cell!

I am a San Diego bankruptcy attorney.  For more information please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com.  For a free consultation on bankruptcy or debt please call (619) 702-5015.  Call now for free credit report and analysis! 

If you or someone you know may need to file a bankruptcy get my FREE E-BOOK: “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING by e-mailing me at: farquharesq@yahoo.com.

What debts are non-dischargeable and what debts are dischargeable in a chapter 7 bankruptcy?

Non-dischargeable debts

1) Student loans- Sorry!  Totally non-dischargeable unless you can prove undue hardship which is very hard to prove.   Any loan for any educational purpose is probably not dischargeable in bankruptcy.

2) Government fines, fees, and penalties- Generally not dischargeable in a bankruptcy.  Any ticket or fine from a government agency is non-dischargeable.  The exception to this rule is the three-year old income tax debt.  Generally the government exempts its debts from the bankruptcy system.

3) Spousal and child support obligations- All non-dischargeable and in fact the trustees often ask if these obligations are being paid whether the debtor is the party that owes the support or the party that is owed the support.

4) Debts involving criminality and fraud-Not dischargeable and drunk driving is specifically mentioned in the bankruptcy code under debts that are non-dischargeable.

Dischargeable debts

1) Credit cards and personal loans- Generally all dischargeable.  The exception is when the creditor can prove that you had no intention to pay back the debts when you incurred them.  They do this by looking at when you charged something and what you charged.  Generally old charges are safe as are all charges for necessities.  But recent large charges on credit cards for luxuries might be challenged by a creditor at an adversary hearing in bankruptcy court.

2) Medical debts- Usually dischargeable without a problem unless you got some purely cosmetic surgery recently that you had no intention to pay for when you underwent the surgery.

3) Deficiency balances-Deficiency balances on autos, jewelry, furniture, and even second and third loans on homes are all dischargeable in a bankruptcy without a problem if the creditor has already repossessed the original property.  If the creditor has not then all he can do is recover the property.  He must leave you alone.

4) Debts not listed in the bankruptcy- There is case-law that states that if there is an unintentional failure to list a debt in the bankruptcy then it is dischargeable if there was no fraud, and there were no assets that were distributed by the trustee, and you received your discharge.  These are 9th circuit rulings and there are two cases that support this principle so don’t worry about this one.

E-mail me today at farquharesq@yahoo.com if you have a particular debt that you have questions about.

I am a bankruptcy lawyer practicing bankruptcy law in San Diego.

What debts are not dischargeable in bankruptcy?

The most common types of non-dischargeable debts are student loans, government fines and fees and some taxes, spousal and child support.  There are other categories such as debts incurred due to fraud but these are much less common.

Student loans– These debts are almost always not dischargeable.  Whether they are government backed student loans or loans from a private agency they are not dischargeable.  The 2005 BAPCA law saw to that.  Loans issued “for any educational purpose” are now all non-dischargeable in bankruptcy and student loans will pass through the bankruptcy unaffected and you will have to pay them.

There is a hardship discharge for student loans in bankruptcy but it is very hard to get.  To get a hardship discharge of student loans your attorney would have to bring an adversary proceeding in bankruptcy court.  This amounts to a mini-trial where all the facts of the hardship would have to be proven.

It is expensive and time-consuming to bring such a s case and there is no assurance that you will win.  In fact it is apparently very hard to win one of these trials at all.  There are stories of judges looking at a disabled debtor and telling them that they though they cannot work any more in their field, they could teach and earn money to pay the student loan back that way.

Government fines, fees, penalties, and some taxes– If you get a traffic fine or criminal fine levied by a court or other government agency then those fines are not dischargeable in bankruptcy.  That is easy but taxes are more difficult.  The main rule for taxes is the 3 year rule that states that 3-year-old income taxes are dischargeable in bankruptcy.

So in 2012 (after April 15th)  income taxes for 2008 would be dischargeable.  This is because these taxes were due in april of 2009.  Both state and federal  income taxes are dischargeable in bankruptcy if the meet this 3 year rule.  There are other rules too but this is the main one that applies to most people.

Other types of taxes are not dischargeable so consult with an attorney for advice on your tax situation.

Spousal and child support– Forget about discharging these.  You will have to pay your ex-spouse or your children after you get a support obligation levied against you.

Fraud– Debts where fraud is proven will not be dischargeable.  If you get sued and the plaintiff alleges fraud then you want to fight these cases because bankruptcy will not save you from having to pay.  The normal credit card suit usually will not contain a fraud allegation but credit card companies can allege fraud in a bankruptcy.  This usually occurs if you have very large recent charges on your cards for cash advances or luxury items.

If you have such charges then tell your attorney so he can wait some time to file or advise you on the possible consequences if you do file right away.

The good news is that if your debt does not fall into one of the non-dischargeable categories then it is probably dischargeable in a bankruptcy!

For more info. check out my websites at:   www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office to speak toe for free about any bankruptcy or debt related issue  at (619) 702-5015.  Call now for free credit report and analysis!  I am a San Diego bankruptcy lawyer.  For a free e-book: “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING” please send a request by e-mail to: farquharesq@yahoo.com.