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THE COMPLETE DEBT RELIEF MANUAL
Step-By-Step Procedures for: Budgeting, Paying Off Debt, Negotiating Credit Card and IRS Debt Settlements, Avoiding Bankruptcy, Dealing with Collectors and Lawsuits, and Credit Repair - Without Debt Settlement Companies
By JOHN OSWALD
AuthorHouse
Copyright © 2013 John Oswald
All right reserved.
ISBN: 978-1-4772-9756-8
Contents
Introduction....................vii
Chapter 1 - The Problem: Slavery to Debt....................1
Chapter 2 - The Secrets....................5
Chapter 3 - Which Debt Elimination Strategy Should You Use?....................15
Chapter 4 - The Almighty Budget....................23
Chapter 5 - How to Create a Budget....................27
Chapter 6 - How to Cut Up Your Credit Cards....................32
Chapter 7 - How to Eliminate Debt by Roll Up....................33
Chapter 8 - How to Eliminate Debt by Settlement....................35
Chapter 9 - How I Eliminated My Debt by Bankruptcy (without an attorney)....................46
Chapter 10 - How to Eliminate IRS Debt....................50
Chapter 11 - How to Deal with Creditors and Collection Agencies....................53
Chapter 12 - How I Dealt with a Creditor Lawsuit (without an Attorney)....................61
Chapter 13 - How to Repair Your Credit Report....................78
Chapter 14 - How to Rebuild Your Credit....................88
Chapter 15 - To Your Freedom (Staying out of Debt)....................93
Chapter 16 - The Checklists....................95
Chapter One
The problem: Slavery to Debt If you're reading this book, you are probably struggling to pay your mortgage and loan payments, medical bills, taxes, insurance, etc. You may be desperate enough to pay an attorney or debt consolidation firm to help you fight lawsuits or negotiate settlements with the credit card companies or other creditors. Or maybe you've already paid someone a bunch of money for help, only to be frustrated by continued phone calls from creditors, Sheriffs serving you court summonses, and your shrinking bank balance.
One of the wisest men of all time likened being in debt to being a slave. Debt is a cruel master. Debt kills - marriages, careers, retirements, and dreams, even though the knuckleheads in the federal government would tell you otherwise. Overspending causes debt, and debt is BAD.
In multiple studies, debt and financial issues stand alone as the top reason for divorce.
In fact, at the end of my first marriage, I had cashed out my 401K (over $150K), which caused me to owe the IRS a hefty sum (over $24K), bought a home I couldn't afford, bought a boat I couldn't afford, bought a new car I couldn't afford, and had around $100K in unsecured debt, mainly credit cards.
While separated, I paid the mortgage, all the bills, the boat payment, her car payments, and child support. I used credit cards to buy food, clothes, gas, etc.
In the mean-time, I had paid my divorce attorney several thousand dollars, by credit card. My attorney, it turns out, didn't do anything for me I couldn't have done better, for myself, if I had known then what I know now. There is a chapter in this book about my experience representing myself in court. It's not for everyone, but it can be done.
And how did I deal with that $24K IRS debt? I paid as much as I could on credit cards. The IRS actually recommends doing this to avoid their steep fees and penalties.
At that point my cards were maxed out and I couldn't get another card. I heard an advertisement on the radio about a debt settlement company. Once again, in my ignorance and desperation, I spent thousands of dollars for help with something I could have done myself, for free.
The debt settlement company (I'll call them "settlers" from now on.) recommended I stop all credit card payments at once and start saving around $634/month in a new savings account. For the first six months, they took over $400 of that $634, and put it in their pockets. They promised to deal with the creditors for me and negotiate settlements when the time was right.
The credit card companies kept calling. And writing. And calling. And writing. I got even more scared. The settlers kept me calm. They did nothing else but keep me calm as they skimmed hundreds of dollars off my savings each month.
One day it dawned on me that the settlers weren't doing anything for me. The credit card companies were still dealing with me directly, offering me settlements, filing lawsuits against me, etc. I told the setters to take a hike. It was a great decision. If you're in a contract with a settler, write them a letter NOW and stop paying them!
When I remarried, my wife and I knew we had to get out of debt. I thank God she is very good with money and hates debt as much as I do. We're a great team. We explored all the options discussed in this book, but our combined debt and some unfortunate income reductions were too much for us. After careful and prayerful consideration, and seeking a lot of advice, we filed for Chapter 7 bankruptcy.
I hope by telling you all this you can see that I had to deal with debt on a fairly large scale, and have experienced what you're probably going through. I have lived this stuff, researched it, tried it, done it, and learned most of it the hard way. This book is my gift to you, and I hope you do better than I did, no matter what you're going through.
Types of Debt
Secured Debt is guaranteed by some form of collateral. Examples are home mortgages, auto loans or leases, alimony, and child support. The collateral for a home mortgage is obvious – your home. Alimony and child support aren't backed by collateral, per se. But since you can be held in contempt of court and even jailed for failure to pay them, they are considered secured debts. If you default on secured debts, you simply give up your collateral or go to jail. We will not be discussing secured debts at length in this book.
Unsecured Debt is the kind that you can get into without any collateral. Examples are credit cards, personal loans, and medical bills. Creditors can come after you with lawsuits to collect their money, and if they win (they usually do), then they can come after your property. The legal process, and how to deal with it, is discussed later in this book.
Good News - you can get out of debt and stay out
Getting completely out of debt is GOOD – good for your health, your marriage, and your future. And it is possible for you, just as it was for me. It's not easy, and it will take sacrifice, no matter how you do it. But the satisfaction of breaking free from debt is truly sweet.
There are many ways you can get out of debt. You can pay it off by (1) making minimum payments for fifty years, (2) consolidation, (3) roll up, (4) settlement, (5) bankruptcy, or (6) Endless Collections and Lawsuits.
Settling, lawsuits, and declaring bankruptcy damage your credit report, but you can repair your credit quickly if you know what to do. I will show you how to repair your credit.
Despite the crazy ads of the settlers (and consolidators and attorneys), you can get out of debt by yourself. It is a demanding but straightforward process. You are about to enter the secret world of the credit card companies, settlers, collection agencies, the IRS, credit reporting agencies, and the Courts. You can deal with them all if you just know what their tactics are and how to beat them.
Chapter Two
The secrets Everyone in the credit game is after one thing – your money. The credit card companies, the collection agencies, the settlers and consolidators, the attorneys, and the IRS are all looking for ways to take money out of your pockets and put it into theirs. Let's look at some of the tricks of the trade:
Credit Card Company Secrets
Credit card companies pretty much all work the same. When you stop paying:
• Your interest rate skyrockets, and they charge you late fees, and over-limit fees if you're over your credit limit.
• If you miss another payment they put a note on your statement reminding you you're late.
• At about month 3 they start writing you letters and calling you.
• At about month 4 they start demanding you pay them and threatening to turn your account over to their legal department and/or collections. Since they're afraid you're not going to pay them, they start offering deals. For example, they might offer to stop charging fees if you start paying them again.
• At about month 5 they may hand it over to their own or an outside collection agency. About the same time they may offer you a settlement (accept part of your balance as payment in full).
• This is called "aging your accounts". The older the accounts get the better the settlement you can get from the creditor.
• The collection agency calls and writes letters and calls and writes more letters.
• If they find out you're paying another creditor or they have access to your bank account, they assume you have the money to pay them, and they may not agree to a settlement.
• They put black marks on your credit report (late payments, over limit, etc.).
• At month 6 they "charge off" your account as a bad debt and take the tax write-off.
• They report the charge off to the credit reporting agencies.
• After that, they usually sell the debt to a collection agency.
• You still owe the money even after your account has been charged off.
• After your account is charged off, it just sits. No more interest is charged in most cases and late fees stop piling up.
• Even though they have written off your debt and taken the tax break, someone will still try to collect from you.
• The amount they write-off as a bad debt, they report to the IRS as income to you, and you may have to pay taxes on that income.
• They may file a Complaint in court and ask for a default judgment against you. If they get it, you then legally owe them, and they can go after your property.
• If the Statute of Limitations for your state has passed they can't sue you (See Chapter 12 on dealing with lawsuits).
• Unless you owe child support or alimony, you can't be arrested for not paying your debts, even IRS debts (based on current laws).
Debt Settlement Company Secrets
Although the debt settlement or consolidation companies (settlers) will reveal some little known gems of truth about how the credit card companies deal with delinquent debts, there are also secrets, about themselves, the settlers don't want you to know. They will all tell you something like this:
'We will help you lower your monthly payments and stop the late fees, interest charges, and creditor calls. We will deal directly with the credit card companies so you don't have to. We will negotiate with them to help you settle your accounts so that you pay only a fraction of what you owe.'
Their whole spiel is nonsense. The truth is, you're not making any payments to your creditors. You're putting money in a savings account, saving up for an amount the creditor will settle the account for. The settler takes their share from that savings account every month.
The creditor is the only entity that can decide to stop the late and over-limit fees. Nobody can stop the credit calls but you. And the only way to do it is to write the creditor a "do not call" or "cease-and-desist" letter or tell them you're declaring bankruptcy (and they will still call you until you give them an actual bankruptcy case number).
Settlers sometimes leave out the fact that some creditors will eventually file lawsuits against you to get a money judgment. The judgment allows the creditor to get a legal, binding document that says you owe them the money, and to take your wages or your property. Even though in some cases the lawsuit is filed just to scare you, many of your defaulted accounts will result in judgments against you unless you know what to do and when to do it.
The settlers are depending on your fear to keep you intimidated and needy for an advocate. What they don't explain to you is that you can settle with creditors for pennies on the dollar on your own, without any help.
• In the end, YOU have to do the saving and deal with creditor hassles anyway.
• The only thing the debt settler did for me was assure me I wasn't going to jail or going crazy. My Mom could have done that! The settlers essentially do nothing!
• They put YOU on a payment plan.
• YOU save a certain amount each month in a savings account.
• Each month, the settler dips into YOUR savings account and takes their share, usually several hundred dollars.
• For paying their fee, they promise to act as a buffer between you and your creditors and negotiate a settlement with the creditor when YOU have enough saved.
• They promise to talk to the creditors and keep them off your back (stop the calls, which they can NOT do).
• Then they tell YOU to call the creditors YOURSELF and tell them to quit calling you.
• They warn YOU not to tell your creditors that you are working with a debt settlement company – it lessens YOUR chances of getting a good settlement.
• YOU will still get hit with lawsuits from your creditors.
• YOU can negotiate your own settlements with your creditors.
Here is a screen capture of my payment plan, before I got wise to them and told them to get lost. Luckily, I didn't end up paying them the entire $6,225!:
You're not going to jail, and you won't go crazy. Hang in there.
Now – I've done everything a debt settler would do. Smile – YOU just saved several thousand dollars!
Collection Agency Secrets
Collection agencies are either part of the creditor's parent company or hired by the creditor to hound you until you pay them. Or, the collection agency buys your debt from the creditor for a discount and tries to collect from you.
Some are reasonable and friendly; some are downright nasty. There are rules that limit what they can do, and the rules are found in a Federal Trade Commission document called the Fair Debt Collection Practices Act (FDCPA). I recommend you visit http:// www.ftc.gov/bcp/edu/pubs/consumer/credit/cre27.pdf, and read it, when you have time. To summarize it:
• They must quit calling or writing you if you write them a letter telling them you refuse to pay the debt or to stop communicating with you (known as a cease and desist letter).
• They cannot call you before 8:00 am or after 9:00 pm.
• They cannot call you at work if they know your employer doesn't approve.
• They cannot harass, oppress, or abuse you in any way (no threats, profanity, etc.).
• If you have an attorney, the collector can only talk to your attorney.
• They can't use false or misleading information to threaten or coerce you.
• If you inform them in writing within 30 days of their first communication, that you dispute the debt, they must verify the validity of your debt (provide you the identity of the original creditor and verification of the debt or copy of the judgment if applicable) before they can pursue it further.
• If the Statute of Limitations in your state is already passed, they can't sue you.
IRS Secrets
The IRS has considerably more power to take your money than other creditors. I don't recommend cheating on your taxes or underpaying them. The results can be very painful.
There are ways to negotiate with the IRS. The best way to learn the facts about how the IRS works is to visit their website, www. IRS.gov, and search on your topic of interest. You can find what you're looking for if you look hard enough. It's easier to talk to a tax accountant, but the IRS website is free.
The IRS is not only involved if you owe them money. They also come into play when a creditor forgives (charges off) part of your balance when you negotiate a settlement. When the creditor charges off part (or all, in some cases) of your balance, they report it to the IRS as a loss and they get a tax break. The IRS, on the other hand, adds the amount to your taxable income for that year.
A creditor files a Form 1099-C (Cancellation of Debt) when they charge off a debt greater than $600.
Continues...
Excerpted from THE COMPLETE DEBT RELIEF MANUAL by JOHN OSWALD Copyright © 2013 by John Oswald. Excerpted by permission.
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