The numbers are still nowhere near where they were before 2006 (PDF), when the new bankruptcy laws caused a massive drop in filings. If the trend continues, however, we can expect the number of bankruptcies this year to bring us back up to pre-2006 numbers, says the American Bankruptcy Institute:

"The sharp spike in consumer bankruptcies reflects the growing financial stress faced by American families, saddled with household debt and mortgage woes," said ABI Executive Director Samuel J. Gerdano. "We expect consumer bankruptcies to top 1 million new cases this year".

Hi Consumerist,

So two things happened in January. One: I started leasing a dedicated server from Sago Networks, and two: I asked for paperless credit card statements from Capital One. Little did I realize this would cause me
headaches for the next 4 (going on 5) months.

Sometime in February I received an email from Blockbuster Total Access that my card was refused. I thought that was strange, so I tried to login to capitalone.com (as I did every month to pay my bill) to check it out. So one of two things happened here: right after logging in I was either sent to http://www.capitalone.com/?state=timeout or I received a standard 404 message. I thought that was even stranger so I decided to call and see what was up.

Over the next month or two I'd call about twice per week, stay on hold for about an hour, then hang up. As a good Consumerist, I'd call the collect number on the back of my card and try to blast my way through to a human by repeatedly dialing "0". This did little good. Every time I called I was on the phone for a minimum of an hour, at which point I had to hang up because I was calling during my lunch breaks.

Once I finally got a hold of an actual human, I was told I needed the fraud department, which added to my hold time. When talking to the fraud department, I asked several times why my card was marked as fraudulent. They wouldn't answer. I was asked some simple questions, like my mother's maiden name, city of birth, then, "Did you charge $69 with Sago Networks in January?" (Gee, I wonder who was responsible for my card getting stopped.) I said yes, and then they supposedly reactivated my online account and sent me a new credit card.

Next time I logged in to Capital One I could navigate the website without errors, but when I clicked "Pay My Bill," I got an EMPTY SELECT BOX when choosing which account to pay! Over the next TWO MONTHS I ended up playing phone tag with a mysterious "special division of the fraud department." Every person I talked to told me I needed the fraud department. When I was connected to the fraud department, they told me I needed some "special division." They wouldn't give me any names, but they did tell me that this special division is only open M-F 9-5 EST (very inconvenient for me on the west coast). After holding for my entire lunch break, I had to hang up.

HOWEVER: This did not stop them from calling me on Saturdays. I turn my ringer off at night, but when checking my phone later on I'd see up to 3 missed calls from Capital One. Apparently their collections
department works all weekend but the fraud department is only available M-F.

So one day earlier this month I took a personal day and called Capital One again. This time I decided to take notes during my call:

Began phone call - 10:52
Talked to Ashley - put on hold at 11:04
Talked to Evelyn from 11:15-11:29
Talked to Marian (Collections department) 11:35
Talked to Kam (Fraud department) 11:45-12:07
Talked to Michelle (Account Manager) at 12:10
Hung up 12:35

Not one of these representatives explained why I was being transferred or told me I was being put on hold before they did so. Michelle finally helped me. She claimed she removed the 3 late charges attached
to my account and accepted a payment via check right there on the phone. Thing is, I checked recently: no payments have been made. They don't want me to pay them! I also asked Michelle to reactivate snail mail bills so maybe I'll start getting those...

They refuse to let me pay! Anyway, thought this might be interesting...

Keep up the great work Consumerist!

My Debt, all of my worldly bills comes w/house and car [eBay] (Thanks to Ryan!)

So far the market is still small—maybe 5% of collections—but the Times says more contracts are in the pipeline, and that companies are also looking to Mexico, Romania, and the Phillipines. Delinquent mortgage loans will probably continue to be handled in the U.S. because they involve complex state and federal laws, but "credit card, auto and other debt are prime candidates for collection overseas."

"Debt Collection Done From India Appeals to U.S. Agencies " [New York Times] (Thanks to SSH!)
(Photo: Getty)

As for the 1.5% loan origination fee, students will no longer enjoy having that waived by Sallie Mae. The magazine says you should now start shopping around for lenders who are still willing to pay them (they suggest J.P. Morgan Chase).

"Sallie Mae Halts Student-Loan Consolidation" [SmartMoney]
(Photo: Getty)

How long will consumers keep reaching for their credit cards? Are they finally slowing down?

U.S. banks and other financing companies reduced lending after the collapse of the subprime mortgage market. At the same time, consumers are scaling back spending, and those who've exhausted home-equity loans have few alternatives other than credit cards.

``Consumers were still reaching for the plastic credit cards in February, but for how long is a big question mark,'' said Chris Rupkey, chief financial economist at Bank of Tokyo- Mitsubishi in New York. ``The credit-market turmoil is going to eventually take its toll as banks are already cutting back on their extensions of consumer credit.''

According to a survey by the American Bankers Association released April 3, consumers fell behind on credit-card, home- equity and auto loans at the fastest pace in 15 years during the fourth quarter of last year. Banks and other lenders, in turn, increased their reserves against losses.

U.S. Consumer Borrowing Rose $5.2 Billion in February (Update1) [Bloomberg]
(Photo:Getty)

AOL lies to their customers and has a policy of refusing to escalate to supervisors:

If you refuse to pay your bill, AOL will threaten to ruin your credit (with AOL):

AOL's abusive relationship with its "members" is not new, but it is surprising how enthusiastically they have embraced the standard lies and deceit peddled by the debt collection industry. According to our tipster, the guide is from 2006, but the tactics and policies remain unchanged.

The only way to fight back against scummy collectors is to know your rights under the Fair Debt Collection Practices Act.

Read AOL's full collections guide, complete with other despicable practices, here.

PREVIOUSLY: EXCLUSIVE: Old AOL Cancel Script vs. New
AOL Retention Manual Revealed
Quit AOL By Fax, Mail, or Phone

Here's Kimberly's full letter:

I am a volunteer for Catholic Charities and my new client Sandra recently went into Grossinger Auto in Chicago, IL to buy a car. She was approved for a brand new 2007 Pontiac with all the options available by GMAC. She makes $900 a month in social security, has had several strokes so she does not have a valid license, and is in credit card debt up to her eyeballs. She is a 65 year old women who also suffers from Dementia.
 
GMAC approved her loan even with her bad credit rating! I believe the scam is working. Sandra lives in public housing and there is NO way that she has the credit to get a new car. Yet, GMAC gave her the money to do so.
 
One month after she failed to make her payment they repossessed the car. Now they say she owes $7,995.80 for the difference of the car and what they got for the car at auction. I have tried repeatedly to get a hold of someone who could explain to me their loan process but was hung up on. They have not responded to my complaints to the Better Business Bureau. I also went to Grossinger Auto and asked how they could sell this woman a car and they also slammed the door in my face. What a creative way to scam!!

Vigeland: What are the traditional definitions of a recession first and also a depression? How are they different?

Reich: Well, a recession is now officially defined as two quarters — that is six months — where the economy suffers negative economic growth, where the economy actually shrinks. Now, a depression... there is no official definition of a depression. I think one reason is that economists and other policy makers just don't like to use the word — it's such a bummer — but in common parlance it means a very, very severe recession: high unemployment, businesses pulling way, way back from investing and all of the other things that happen during a recession, just more so.

Vigeland: Do those definitions still hold in what we call the new economy? I mean, you mentioned these two consecutive quarters of negative growth. We have not seen that yet, but so many people are saying we are in a recession.

Reich: Yes, I think people are assuming we're in this recession because all of the indicators are trending in that direction: unemployment seems to be moving upward and then businesses are pulling back. You know, if you're somebody like me who looks at the economic data that come in over the transom, it's just bad news.

Vigeland: It certainly feels like that, but how deep and long would the current recession, assuming we're in one, have to be to turn into a depression?

Reich: Well, again, because there's no fixed definition of a depression, nobody really knows. I would say that unemployment would probably have to reach 8 or 9 percent — we haven't seen that kind of unemployment in a long time. Businesses would have to contract considerably in terms of their economic activity before people would start using the "D" word. You know, here's the problem Tess: some of this is psychological. Undoubtedly, the tendency people have to go to the stores and buy things has a lot to do with how much money they have in their pocketbooks and how much they can get access to credit, how easily they can, but it also has to do with their expectations of the future. When consumer expectations drop to the cellar as they are now dropping, the economy has a tendency to follow, so there's a kind of a downward cycle that sets in.

Reich: Well, let's put it this way: it's new to the extent that the extend to which Americans are dependant on credit is new. I mean, Americans are deep in debt; we've never had this much indebetedness and as a result, when they pull back from being in debt, that is new simply because we've never been this deeply in debt. Here we get into a paradox, because what's right and proper and appropriate for an individual — spending less money — if everybody start's being very fiscally responsible together, then we are in a very severe recession.

Vigeland: What's the best thing then that consumers — our listeners — can do to avoid really panicking over the current financial situation when they hear that things really are quite bad.

Reich: Well, the first thing is not to panic. Don't take money out of your savings accounts, our of your 401(k)s — that will just make the situation worse. But I would say if you are earning some more money and you want to save a little bit, probably don't put them into stocks right now. I'd also say that it does make sense for the individual consumer to get out of deep debt, to just be a little more prudent.

You can listen to the full interview here.

Recessions and depressions 101 [Marketplace]
(Photo:Library of Congress)

After spending a year (one of the worst of my life) working at a debt settlement company, I feel that I am obligated to warn as many consumers as possible about how badly you can ruin your financial situation by using one of these companies. My new job is at an all natural bakery, I no longer wish to swerve my truck into a tree on the way to work. Debt settlement is the process of eliminating your debt by ceasing payment to the creditor, and then negotiating with the card companies or collection agency to pay less than the balance owed. The debt settlement company charges a rather hefty fee for this service; however, the consumer should be saving money on the deal because they are paying significantly reduced balances to clear their debt. This is how it is supposed to work. This is not how it usually works.

The clients at the company I worked for ranged from lower class/blue-collar workers who were unable to find jobs, and had mounting medical bills to upper-class white collar workers who had incomes upwards of $9k a month, stay-at-home moms and college students. Some clients were only in $8,000 of debt, and some were upwards of $100,000. Their reasons for accumulating debt ranged from sick children and unemployment to simple avarice.

Our program was designed to eliminate a client's debt in 36 months or less. The client would pay our fee, which was based on the amount of debt they were in, over a period of 12 months. At the same time they contractually agree (a contract I will elaborate on) to save a certain amount of money, so that when the time comes to arrange a reduced pay-off of their debt (usually 50% off of the owed amount), the money would be available, and the transaction would be complete. This sounds like a logical process, and when described to a potential client it is alluringly simple, convenient and quick. The sales person will convince the client that they will somehow be able to save money in their own accounts, and pay our fees for a year. It is nearly impossible for the client to save money due to the heavy fees. Other debt settlement companies will set up a savings account within their company, and the client is obligated to put a stipulated amount into savings every month. If they miss a month, they are canceled with no refund as per the signed contract. There were clients at my company whose income was only $900 a month, who were being asked to save $400 a month, and then put $200 a month towards the program's fee. The program demands that the clients save and spend unrealistic amounts of money for their incomes.

The "client service agreement", which I referred to as a "contract with Satan", confounded most clients.
The contract is written in legal rhetoric that most people wouldn't comprehend, but would end up being persuaded to sign anyways. The average client is not educated about credit reports, FICO scores, and legal vocabulary, so a sales person could easily talk them into the program. The contract actually states that the company is not responsible for any negative repercussions due to their enrollment in our program. It also stated we could cancel a client without refund at any time (which happened a few times in a year), and that if a client cancelled we were still due our year's worth of fees no matter what. Money that we were practically guaranteed because we drafted directly from the client's checking accounts. No person in their right mind would sign this contract if they understood what it meant.

Our sales team and client liaisons ensure clients that if they withhold payments from their creditors, our representatives will effectively negotiate with the creditor, and all will be well. Yet, it states in the contract that our company does not interfere with the creditor/client relationship, and does not instruct clients to cease payment to the creditor.
Many clients had their wages garnished, had liens put on their property and their credit ruined because of not making payments to their creditors. The company was covered by our air-tight contract. If anyone client threatened to see a lawyer my boss would throw the signed contract in their face, and dare them to seek legal council. Usually when a client had finished paying our fees they couldn't afford a lawyer anyways.

I worked in administration while I was at this company. My boss (the owner of the company) made around $17,000 a month from people in debt. Side note: I was only paid $14 an hour, with no benefits, no sick days, and of course no paid vacation. I also felt miserable every day of my life there. My boss was ridiculously petty, money grubbing, and in my opinion he was the definition of a pig. He is the type of person that would sell-out their own grandparents for an extra few dollars. Although, I wasn't one of the employees that were talking people out of their hard earned money and financial security, I felt sickeningly guilty knowing I was working at a place that basically stole from people. My fellow employees and I fielded calls all day from angry clients that weren't paying the reduced balance to their creditors that they were promised at enrollment. Interest charges and late fees pile up on unpaid accounts, so that by the time a 50% pay-off is reached, the client is paying almost what they originally owed. We also had irate clients calling about wages that were garnished and complete harassment by phone from their card companies. My boss refused to take any phone calls, although he was the main decision maker, other employees who were supposed to be client representatives did their best to avoid phone calls because they were sick of being yelled at, or hassled. Getting help from the people who were supposed to be giving it is impossible at this company, and I'm sure it is equally difficult at similar companies.

Here is a short list of thing that horrified me while working there:

• A client was convinced to let their vehicle get repossessed. The sales person told them that while it was secured debt, they couldn't deal with it, but if it was repossessed they could negotiate. Repossession stays on a credit report for 10 years, and can ruin a FICO score.
• A client with a terminally ill child had their wages garnished, although they were promised this would not happen. They were refused a refund, and lost the $3,000 they spent on the company's fees and were still in a huge amount of debt.
• A client that angered my boss was cancelled without refund after paying around $1800 for the service. My boss didn't like how the client spoke to him.

• I could go on for several pages about all the things that were horribly wrong and unethical that I witnessed alone.

  If there is a debt settlement company out there that is truly helpful to the consumer, I'm not aware of it.
  The old saying "If it's too good to be true, it probably is" is absolutely right. If a company is promising anything that seems beyond reason, they want your trust and then your money. The sales team at our company made a pretty decent commission rate from enrolling new clients. They will usually say whatever the potential client wants to hear, so they get that sweet bonus at the end of the month.

  If you are in debt there are a few things you can do that are helpful. If your credit score is decent you can usually negotiate a better interest rate or payment plan with the creditor. Always pay more than the minimum balance if possible because often only 1-2% of the payment is going towards the principle balance. If you pay off a card do not close the account, it's best to keep it open and occasionally spend and pay off a small amount every month. Avoid debt-consolidation. Debt-consolidation is a process where a client pays one large payment, which accounts for all of their debt, to a company that then distributes the payments to the creditors. This process takes 4-7 years to complete, the payments are large and usually carry an interest rate or fee, and 70% of people that use debt-consolidation are in worse debt within 2 years of the program than they were before they started. Avoid bankruptcy, it is on your credit report for 10 years and it is a question you answer for the rest of your life. If you are already behind on your payments, and you have a reason for financial hardship such as unemployment, illness, some sort of disaster, you can often negotiate a reduced balance on your own. If a credit card company does not receive a payment for longer than 6 months, they will often accept up to 50% less than the owed amount, although you normally need proof of financial hardship.

  The best advice I can give to get out of debt, is to pare down to the essentials. Sell some of your stuff, only spend money on necessities like essential food/gas/doctor's visits, if you rent and you can break the lease get a cheaper place, getting a roommate is always an option, don't be above getting a second job if it's possible. A lot of clients were in debt because they couldn't resist the siren call of a plasma screen TV, or a few new things at Banana Republic. They also drove cars that were beyond their income, and they couldn't resist eating out a few times a week. If you are motivated you can get out of debt on your own, it won't be easy, fun, or quick, but you won't risk getting screwed over worse than you already are.

  -C

38.6% demanded more money than allowed by law
19.7% harassed consumers with repeated calls
9.2% used obscene, profane, and abusive language
2% called before 8am or after 9pm
.3% threatened violence
6.5% falsely threatened lawsuits
13.2% called third parties repeatedly to get information about the consumer

Here's more information about the FDCPA. You can lodge complaints with the FTC about FDCPA violations by calling filling out this online form or calling 1-877-FTC-HELP.

It's been my experience that when people do a debt-consolidation loan, all they really end up doing is rearranging the deck chairs on the Titanic. With one transaction, their credit card bills suddenly stop, and those people then say, "Oh, how nice, it's all so tidy now, I now just have everything on one convenient bill."

However, human nature being what it is, most of those very same people will then go and again charge their credit cards back up to where they had been. They'll then have those bills and the bill from their debt-consolidation on top of that, and then what they've created is actually much worse than the initial problem they had.

A CNN/Opinion Research Corp. poll found that 41% of respondents plan to use their rebates to pay off bills, and 32% will put the money in savings. Just 21% of those polled intend to spend the money, while 3% said they will donate the extra money to charity.

Jared Bernstein, an Economic Policy Institute senior economist, notes that taxpayers have in the past spent half to two-thirds of their rebate checks. However, he points out that the current economic conditions are unique.

"We've never done this in a period when American households are so deeply indebted," he said. "While [saving the rebate] is a valiant thing to do, what you want them to do is spend it."

Rebate checks won't get spent [CNNMoney] (Thanks, Matthew!)
(Photo:stirwise)

"Within the industry, everyone knows about Buffalo," said Aaron Siegel, chief executive of Franklin Credit Solutions, an investment firm here that buys debt from lenders and farms it out to collection agencies to pursue.

Demand for collectors is so strong, Mr. Siegel said, that good ones "can walk out the door and get another job that afternoon."

[...]

As an added benefit, Mr. Costa and other executives said, people in Buffalo tend to be loyal, so turnover is only 20 percent after the first 90 days, compared with 50 percent or more at agencies in other parts of the country.

On average, experienced collectors in western New York earn $32,000 a year; homes in the region can cost less than $100,000.

The downside, executives say, is that the best collectors — some of whom get performance bonuses that boost their salaries to $150,000 a year — will quit with little notice if they get a better offer.

Hello,

I'm writing this email to express my interest in your services. I'm looking for some legal help with the matter of my student loans with Sallie Mae. Basically my situation is that for the past 3 and half years I haven't been stable, financially or emotionally. I've also have had difficulty finding and keeping a job and I have not had a steady place to live, basically staying with different friends for a few months at a time. During this time I haven't contacted Sallie Mae about my loans. Initially I had talked to them a few years ago and they threatened to garnish my wages but at the time I wasn't working so there wasn't much I could say in response. I've changed addresses and phone numbers several times in the past few years and I've lost contact with them. My parents have mentioned that they've received calls and letters but without a stable place to live or work I didn't contact Sallie Mae.

Recently I started a pretty good job that I've had for the past 4 months and I'm doing well. I have a stable place to live and I'm making enough money to support myself. With what I make, it's about enough to pay my rent and utilities, but I still don't make much more than that to be able to start making the $400 a month payments they want from me. I would like to start making some kind of payments for now and increase that amount as my financial situation improves.

I'm afraid however to contact them because of threats they've made about garnishing wages in the past. They told me that they can take up to 25% of my pay, and frankly if I lost a quarter of my income I'd lose my place to live and be unable to get to work and be at square 1 again. I've read on the consumerist (www.consumerist.com) about Sallie Mae harassing people and causing them to lose their jobs. So I would prefer to have an attorney contact them for me initially to set up an agreement and to help me understand what they can and cannot do. I've also read about debt collection agencies illegally threatening and insulting people, and I'd to be informed about my rights in this matter.

I'd like to make an appointment for a consultation. Please let me know if you think you can help me and what you can do for me and what your rates would be. Thank you very much for your time.

Regards,
Jennifer

According to the Student Loan Borrower Assistance website, your private lender isn't required to offer you income based repayment like you would get if you had a federal loan. You should contact them, however, and ask them what income-based options they are willing to offer you.

Sadly, the best recourse for you may be to file bankruptcy. It's very difficult to get your student loans discharged through bankruptcy, but it isn't impossible. You'll need to prove that repaying your loan will cause you undue hardship:

Courts use different tests to evaluate whether a particular borrower has shown an undue hardship. A common test is the Brunner test which requires a showing that 1) the debtor cannot maintain, based on current income and expenses, a "minimal" standard of living for the debtor and the debtor's dependents if forced to repay the student loans; 2) additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and 3) the debtor has made good faith efforts to repay the loans. (Brunner v. New York State Higher Educ. Servs. Corp., 831 F. 2d 395 (2d Cir. 1987). Not all courts use this test. Some courts will be more flexible.

If you can successfully prove undue hardship, your student loan will be completely canceled. Filing for bankruptcy also automatically protects you from collection actions on all of your debts, at least until the bankruptcy case is resolved or until the creditor gets permission from the court to start collecting again.

Assuming you can discharge your student loan debt by proving hardship, bankruptcy may be a good option for you. It is a good idea to first consult with a lawyer or other professional to understand other pros and cons associated with bankruptcy. For example, a bankruptcy can remain part of your credit history for ten years. There are costs associated with filing for bankruptcy as well as a number of procedural hurdles.

CHAPTER 13 and STUDENT LOANS

A case under chapter 13 is often called "reorganization." In a chapter 13 case, you submit a plan to repay your creditors over time, usually from future income. These plans allow you to get caught up on mortgages or car loans and other secured debts. If you cannot discharge your student loans based on undue hardship in either a chapter 7 or chapter 13 bankruptcy, there are still certain advantages to filing a chapter 13 bankruptcy. One advantage is that your chapter 13 plan, not your loan holder will determine the size of your student loan payments. You will make these court-determined payments while you are in the Chapter 13 plan, usually for three to five years. You will still owe the remainder of your student loans when you come out of bankruptcy, but you can try at this point to discharge the remainder based on undue hardship. While you are repaying through the bankruptcy court, there will be no collection actions taken against you.

Has anyone successfully negotiated smaller payments with Sallie Mae? Share your advice in the comments.

Student Loans & Bankruptcy [Student Loan Borrowers Assistance]

(Thanks to George!) (Photo: Getty)

I recently reached what I bet is a rare milestone: I have now gone 30 years, basically my entire working life so far, without a credit card.

This may make me seem like some kind of nut, or at least an anachronism. You know, the type of person who still isn't convinced that indoor plumbing is worth the investment.

I do have what's sometimes called a "travel and entertainment" (as opposed to credit) card, in my case American Express. I'm not here to plug Amex, but I believe a card like that, which has to be paid off in full each month, imposes a certain restraint that could keep many of us out of financial trouble.

30 years without a credit card [Consumer Reports]

As a rule of thumb, you should try not to use more than 10 percent of your credit limit when making purchases. "The people with the best credit have a utilization rate of no more than 7 percent," he says.

If your credit utilization is 50 percent or more of your credit limit, you are doing some real damage to your credit score, says Craig Watts of Fair Isaac, one of the companies that provides credit scores. When the new FICO '08 scoring model is adapted in May, if you have a utilization of over 50 percent, you'll be penalized even more heavily.

"When credit cards put you in jeopardy" [CNN]

RELATED
"Do-It-Yourself Debt Reduction" [Credit.com]
"The Debt Snowball Technique"
(Chart: CardTrak.com)

Tax laws consider forgiven debt as income, which can leave those of you with foreclosed homes with some unexpected tax bills this year. Let's say I loan you a million bazillion dollars. Now I go, "Oh, wait. Never mind. You can keep it." The IRS considers that income. You would have to pay the taxes on your million bazillion dollars.

The tricky part comes in when I'm not just loaning you a million bazillion dollars. I'm loaning you money to buy an overpriced home that you can't afford and I can't sell for as much as you owe me once I take it back from you.

Enter the Mortgage Forgiveness Debt Relief Act of 2007. Bankrate sums it up for us:

Under the Mortgage Debt Forgiveness Act of 2007, some homeowners granted forgiveness of mortgage debt won't have to pay taxes on that amount. But there are some restrictions:

1. There is a limit on the forgiven debt: up to $2 million or $1 million for a married person filing a separate return.
2. The tax break also has a time limit. It only applies to mortgage debt discharged by a lender in 2007, 2008 or 2009.
3. The loan also must have been taken out to buy or build a primary residence, not a second or vacation home. If debt is forgiven on those additional properties, the owner will owe cancellation of debt income as usual.

10 Tax Laws You Just Gotta Know [Bankrate]
IRS Form 982 (PDF) [IRS]
March 3: The latest tax-filing deadline [Don't Mess With Taxes]
(Photo:Chad Beckerman)

Among the key provisions of the "Credit Card Bill of Rights Act" are prohibitions on:

• Bait-and-switch interest rate and fee hikes for any or no reason at all during the life of the card;
• Assessing hidden and unfair interest rate charges by charging interest on balances already paid off;
• Unjustifiably maximizing interest charges by requiring consumers to pay off balances with lower interest rates before those with higher rates;
• Charging late fees when consumers mail their payments seven days in advance of the due date; and
• Applying certain unfair interest rate hikes retroactively to balances incurred under the old rate.

"Maloney Bill Targets Credit Card Abuses" [Consumer Federation of America]
"Credit card bill of rights?" [SeattlePI]
(Photo: Getty)

Every state has its own statute of limitations that determines when you can no longer be sued for old debt; however, the FTC says that doesn't prevent collection agencies from attempting to collect time-barred debt provided they don't harass you or engage in anything illegal. Collection companies aren't allowed to collect more than the original debt, "unless your state law permits such a charge." Debt included in a bankruptcy can't be collected at all.

To be considered a "forgiveness of debt" (and therefore taxable), the amount has to be less than the original debt.

None of this answers whether or not it's possible for the following to occur:

• 1. A collection agency legally (according to state law) adds lots of fees to your debt;
• 2. It then "forgives" your inflated time-barred debt without contacting you, resulting in a plus-sized 1099-C in your mailbox.

If you receive an unexpected 1099-C for a time-barred debt, you should definitely contact an accountant or lawyer to review your options, and to make sure that what the collection agency is doing is legal.

(Thanks to Royce!)

"Portfolio Recovery Associates in Financial Trouble?"

RELATED
"Time-Barred Debts" (PDF) [FTC]
"Fair Debt Collection"
Zombie Debt
(Illustration: richt...)

• 40.3%, 27,929 consumers, complained of debt collectors attempting to collect more than they were owed
• 3.4%, 2,387 consumers, complained that collectors were attempting to collect interest, fees, or expenses that were not owed, such as collection fees, late fees and court costs
• 21.2% or 14,656 consumers complained of harassment from repeated or continuous calls
• 22.1% or 15,314 consumers complained of debt collectors making calls to employers, friends and family repeatedly in an attempt to allegedly gather information to assist them in collecting the debt
• 11.5% of the FDCPA complaints or 7,967 consumers complained of being harassed with collectors using obscene, profane or otherwise abusive language
• 11.4% or 7,913 consumers complained that they were threatened with a lawsuit or some other legal action that the debt collector could not or did not intend to take, such as seizure of property or arrest.

FTC publishes its Annual Report on the Fair Debt Collection Practices Act [Alabama Consumer Law Blog]
Federal Trade Commission Annual Report 2007: Fair Debt Collection Practices Act (PDF) [FTC]
(Photo: scoobymoo)

This just gave us an idea: there should be a "Biggest Loser" show for personal debt.

(Thanks to Eric!)

I get a letter in the mail yesterday from FIA Card Services about an "Amendment to your Credit Card Account." I read it and it says that effective the first day following your statement closing date in March 2008 -
* My corresponding APR for "new and existing" category A balances (balance transfers) will increase to 21.99%
* My corresponding APR for "new and existing" category B balances (ATM cash advances, bank cash advances, new check cash advances, direct deposits, and cash equivalents) will increase to 24.99%
* My corresponding APR for "new and existing" category C balances (purchases) will increase to 21.99%
* My corresponding APR for "new and existing" category D balances (as of 4/19/2008 will be balance transfers, cash advances or purchases "as appropriate") will increase to 21.99%
I keep reading and it says that I can "reject this amendment" by doing so in writing by 2/29/2008.

So, I called them last night to find out if my card/balance was affected by this as we have some promotional rates and a fixed rate of 7.99%. Guess what? It was!!!!

I asked the girl I was speaking with why I got this letter and she said that they indicate I have had a "high balance (which I can agree with)" for "quite some time" and they want to see it get reduced. How can I or someone "reduce the balance" when you jack up my/the APR thus increasing the monthly minimum payment and interest charges? I thought they "loved" consumers like me who carry a balance who seem to never pay it off (although I'm trying to)??? In addition, I CANNOT use the card whatsoever! If I do, then the "rate jack" (even with my letter of rejection), will take effect. I destroyed the card last night.

I've never been late with a payment and have tried to pay a little over the minimum each month.

I documented the call and conversation and made a copy of the letter I drafted and sent in case something happens.

I think this all came about from me calling them one night to see what they could do for me on a lower interest rate, payments, etc due to my wife's medical condition, loss of most of her income etc. They wouldn't budge and in fact, suggested that I contact a debt consolidation company that "they work with." They even gave me their toll-free number! Next thing I know, I get a couple of notices in the mail (1 from FIA and 1 from Bank of America who is owned by FIA I think) stating that our credit limits have been reduced! Until this letter last night...

Remember, the minimum monthly payment suggested by the credit card company should not be your guide to paying off your credit card debt. It's the minimum payment required to stretch out your loan nearly indefinitely. These two charts show the dramatic difference between what happens when you pay only the minimum monthly and when you start making serious dents in your debt.

Source: OnMyOwnTwoFeet

Source: AllFinancialMatters

So get off that duff and start making those extra payments! As for everyone else, J's story is a good reminder about when you get those credit card interest rate raise notices, or any other notice of a changing credit card policy. If you don't agree with it, you usually have a minimum amount of time to dispute the change to contract in writing. And if you use your credit card at all after receiving the notice, it constitutes you agreement to the terms of the new contract. So if you get such a notice you disagree with, feed the card to Shredder McShredsky.

(Photo: Getty)

There are mounting anecdotal signs that beginning in December Americans cut back significantly on personal consumption, which accounts for 70 percent of the economy.

A raft of consumer companies — high-end stores like Nordstrom and Tiffany, and middle-of-the-road ones like Target and J. C. Penney — reported a pronounced slowdown in growth last month, and in several cases an outright drop in business.

American Express said that starting in early December the growth in the rate of spending by its 52 million cardholders, a generally affluent group of consumers, fell 3 percentage points, from 13 percent to 10 percent, the first slowdown since the 2001 recession.

And consumer confidence, an important barometer of economic health, has plunged. Andrew Kohut, president of the Pew Research Center, says consumer satisfaction with the economy has reached a 15-year low, according to the firm's polling.

Even wealthier consumers, who were seen as invulnerable to rising gasoline prices and falling home values, are feeling the squeeze.

"People are clearly concerned that we are headed into a recession," said Stephen I. Sadove, the chief executive of Saks Fifth Avenue, the upscale department store whose runaway growth throughout much of the year slowed markedly in December.

Even in tough economic times Americans rarely reduce their consumption, preferring instead to slow the growth in their spending. Since 1980, they have cut spending in only five quarters — a total of 15 months — most of them in the depths of a recession. The 2001 recession passed without a cutback in consumer spending.

Only once before, in 1980, did consumer spending fall during a presidential election year, helping Ronald Reagan in his campaign against Jimmy Carter, the Democratic incumbent.

Americans Cut Back Sharply on Spending [NYT] (Thanks, Molly!)
(Photo:Ben Popken)

ABI Executive Director Samuel J. Gerdano said the situation is likely to worsen in 2008. "The roughly 40% spike in consumer bankruptcies during 2007 presages even higher filings this year, as the heavy consumer debt load is made worse by the home mortgage crisis," Mr. Gerdano said.

"Consumer Bankruptcy Filings Rose 40% in '07" [Wall Street Journal]
(Photo: Getty)

Gone are the days of the three-year car loan. The length of the average automobile loan hit five years, four months in October, up more than six months from 2002, according to the Federal Reserve. And nearly 45% of loans written today are for longer than six years. Even some staid lenders owned by the carmakers, such as Toyota Financial Services and Ford Credit, are offering seven-year financing. And a few credit unions, particularly in the West, are tinkering with the eight-year note.

At the same time, the amount of money drivers owe on their cars is soaring. In October, the average amount financed hit $30,738, up $3,500 in just a year and nearly 40% in the last decade, according to the Fed. More troubling, today's average car owner owes $4,221 more than the vehicle is worth at the time it's sold — up from $3,529 in 2002, according to industry analyst Edmunds.

The longer loans are directly related to the higher balances. By extending the length of loans, lenders keep monthly payments down. But because these loans take longer to pay off, a much larger piece of the principal remains unpaid at the time the car is traded in.

Cindy Gerhardt has rolled over so much debt on successive vehicle purchases — five in three years — that she now owes almost $43,000 on two trucks worth no more than $29,000 and, she says, perhaps as little as $22,000.

Faced with car payments that exceed her monthly mortgage, she tried to trade in the pair for a single vehicle. But with so much unpaid principal on the vehicle loans, the only offer she got from the dealer was to trade in one truck on yet another new vehicle — and increase her debt by another $25,000.

"It's our own fault that we traded in vehicles so many times, but we never thought it would get to this," said Gerhardt, a secretary who lives with her husband and two children in Clinton, Okla. She recently tried to refinance her mortgage, she said, but was declined because her car payments were too high. "Not one dealer ever said this was a problem. Ever. I never had a dealership say no."

New cars that are fully loaded — with debt [LA Times](Thanks, Arthur!)
(Photo:Ken Hurst/Associated Press)

... what's the interest rate on the credit cards you're carrying? How about the default rate? Do you know what constitutes an event of default? What will trigger a penalty fee or surcharge? How much are those fees? If you're like most Americans, you probably cannot answer many or all of these questions.

The absence of this vital information has indebted millions of Americans and nourished the subprime meltdown. The professor concludes that under our current system, it is "virtually impossible to determine the potential costs of carrying a balance."

Credit cards' complex, non-transparent pricing structure also invites abusive fees and billing practices like late fees that do not correlate with either the balance or time a payment is late, universal cross-default and two-cycle billing. If you are among the nearly two-thirds of Americans who do not consistently pay off your card bills in full and on time, then you've probably been hit with some combination of these fees.

The complexity of credit card pricing helps explain the soaring growth of American credit card debt, now approaching $1 trillion. Credit card debt has strong correlations with consumer bankruptcy filings, and contributes to inflation and decreased savings rates and purchasing power for new goods and services. Dollar for dollar, as Ronald Mann of Columbia Law School has shown, people with credit card debt are more likely to file for bankruptcy than people with any other types of debt. Society as a whole ends up holding the bag for the widespread costs of skyrocketing credit card debt.

The Byzantine complexity of credit card pricing structures makes it impossible for people to possibly use credit cards intelligently and responsibly. No amount of increased Truth-in-Lending disclosure or consumer financial literacy education will change this. I qualify as a savvy and dedicated reader of financial contracts, but frequently I cannot calculate with certainty the costs of carrying a credit card balance, and my calls to card issuers' 800-number servicing lines have done nothing to clarify matters. The lack of straightforward, easily comparable and understandable pricing is a major factor in the growth of credit card debt.

Complex pricing of credit cards should be simplified [Chicago Tribune]
(Photo: Maulleigh)

What should you do? Here are few differing view points and strategies from personal finance bloggers who've been there.

Don't Use Home Equity To Pay Off Unsecured Debt [Blueprint for Financial Prosperity]
Using a Home Equity Loan to Pay Off Credit Cards [Get Rich Slowly]
Ready to Tackle Your Debt? Two Alternatives to Home Equity Loans [Get Rich Slowly]

(Photo:Ben Popken)

"Dead" man hid in family home for three years [Reuters via Blogging Away Debt]

This all started in March of this year, St. Patrick's Day, to be precise. While out with friends, my phone slipped out of my pocket without me noticing. It wasn't until the next morning (Sunday) that I realized I didn't have my LG Chocolate phone. I traced my footsteps back, hoping I'd be able to find it, with no luck. A couple of hours later, when my roommate woke up, he realized he had a missed call. Hours after I lost the phone, someone had called his number from it. They left no message, and when we tried calling the phone back, it would go straight to voicemail. Hoping that whoever had the phone would call back again, I held off on contacting Verizon to report the phone stolen. By Monday morning, having still not been able to contact the person who had my phone, I called Verizon and reported all the details I've relayed so far - not only that my phone was lost, but that someone apparently had the phone. I was told that the phone would be placed on Verizon's lost/stolen list so that if someone else attempted to register the phone on a Verizon Wireless account, they would be able to do so (although I would not be given this information to help me find the phone). The phone would also be deactivated for a month and would be removed from my account.

Writing the phone off as gone, I bought a used Verizon Razr off eBay, which I received within a few days. I once again called up Verizon Customer Service. In that call, I registered the Razr with my account, and also checked again that my old phone was off my account. I was told that because my account was a single-phone plan, there was no way for both the Chocolate and the Razr to be registered simultaneously. The Razr was associated with my account, and therefor the Chocolate could no longer be used with my account.

Fast forward one month, towards the end of April. I logged into my bank's online access, and realized I had a negative amount of money, when I should have had a few hundred dollars. Looking at the pending transactions, a charge of $435.03 had been debited from my account the day before. I was stunned. The only bill I pay that's over $150 is my rent - there was no reason I should have such a large debit on my account. I hadn't lost my debit card, so I first checked those accounts which are automatically debited from my checking account. It didn't take long to find the culprit. Verizon showed a just-paid bill - sum $435.03. I opened the bill online and quickly scanned it - I had a couple of new media services that had been added to my bill (which then charged me for the prorated current month, plus next month for each of the services). But the kicker was the hundreds of dollars of data downloads. Music, games, ringtones - if you could get it from VZServe, it was charged to my account.

Remember also that this is the end of April - the 20th, in fact. I have to send my rent check out, but I have negative money. I call Verizon, and explain the situation. I'm already pretty sure of what's happened - the month that the Chocolate was deactivated for is over, and whoever has it is using it to make charges to my account. To make a long story short, I talk to numerous customer service reps over the next few days, explaining and reexplaining the situation. I am told that it is impossible for the Chocolate to still be able to charge downloads to account. I am told numerous times by supervisors and regular reps that they're looking into the issue and will call me back in an hour/this evening/tomorrow morning. I am told that I am lying, and that I must go to my local Verizon store and show them my Razr to prove that the data downloaded is not on that phone. I spend two hours sitting in that store, waiting as the store rep talks to the customer service rep, on my phone. It is determined that the data is not on the Razr.
Finally, on the 26th, I get somewhere. A database tech hears about my problem and looks into it. Apparently, when the Chocolate was deactivated and taken off my account, there was a problem. The Chocolate was removed from my account for the most part, but in some database, it was still connected to my account. This might, incidentally, explain why there were times when friends would call me and the line would ring and ring, without going to voicemail, and without my Razr ever actually ringing. Troy Brice, the supervisor I've been talking with for the past day or so, apologizes again and again. Yes, they can cancel my service. No, they won't charge me an early termination fee. They'll refund my entire bill (even the part that was actually my bill), and they'll even pay me back the horrible $100 overdraft fee that my checking account incurred for being so overdrawn (though I was required to send them a screenshot of my online checking account to prove that I was charged an overdraft fee). I get only apologies for the fact that I haven't had any money for the past week, as this fell between my biweekly paychecks. I should get my money in 4-6 weeks. Yeah, 4-6 weeks. This is, obviously, not acceptable. Troy and I chat for a little while, and he discovers that he can expedite the transaction. I'll have my money in 2-3 days - the amount is just under $600.

Late the next week, I do get my money deposited into my checking account - about $300. This pissed me off. I had no problem paying my actual bill, but my actual bill was only about $55, not $300. I go to their website and attempt to log into my account, but I can't. That was shut down when I closed the account. So I call customer service again and explain the situation. Again. They grant me limited access to my online account so that I'm able to see my last couple of bills. I quickly spot the problem - they're still charging me for the extra services and the data downloaded through them. I call Troy's line and leave a message. No reply back. Ever. So I go back to the regular reps. Again and again, they can't help me. My calls are dropped. They can't request refunds. When they can and take my bank information, the refund request is gone when I call back later to see how it's going. There are no supervisors available.

Finally, after dealing with this for over a month, I give up. I got some of my money back and I'll never have to deal with them again - I've got a new Cingular phone. Not a perfect solution, but better than nothing.
Fast forward to yesterday, December 10th. I have, in the intervening time, moved. I go to my mom's house, where I still get some mail because I used it as my permanent address while I was in college. And I have mail! I owe Verizon $114.07 and they've sold my account to Miracle Financial Inc, a collection agency. Add the agency's fees, and they want $134.60 from me. I have 30 days to dispute the validity of the claim.

I call the agency's number, at about 5:15 PM, and talk to [redacted], who is surprisingly polite and helpful, though she does ask me multiple times if I'd like to settle the debt, even though the first thing I told her was that I was calling to dispute the entire thing. She asks me to explain, and I do. She tells me that she can put a comment that I'm disputing the debt in the notes on the account, but that I should fax a letter, detailing why I'm disputing the debt, to the agency's Client Service Department, and gives me the fax number. They will then contact Verizon directly and discuss it with them.

I then call Verizon. At this point, I now want all my money back, so all I want right now is my bills. I'd had copies of them on my laptop but, foolishly, I'd deleted them after a few months. I need them in order to itemize each item and see what I should and shouldn't be charged for. Zach (who won't give me his last name), the supervisor who I explained my situation to, cannot give me access to my Verizon online account. He also cannot email or fax the bills. He can only send them by mail, which might take a few weeks for me to actually receive them. I inquire as to when I was first billed the $114.07 - July. So my account is already, in Verizon's eyes and quite possibly in the eyes of various credit reporting agencies, five months past due. Plus, I've got that 30 day deadline to dispute the debt.
A quick sidenote - Zach checked what address they had on file for me - it was my previous address. I'd never updated them because I had no business with them anymore. So I never received the bill back in July. Why I was billed in July for a service I cancelled in April, I have no idea.

I told Zach to please send me the July bill, and the last three bills before the account was closed.
I then went to consumerist.com and looked up Verizon's Executive Customer Service number. I called the number, and left a message, detailing my tale much more concisely than I've done here and asked to be called back. It's now 9:30 AM, and I haven't heard back yet. I'll call again later this morning. As soon as I send this, I'm writing a fax to send to the collection agency, ccing it to whatever fax numbers I can find for Verizon.

I'll send updates as more happens (or doesn't happen, which is more probable given Verizon's track record on this issue).

Veronica

(Photo:Ben Popken)