Tag Archives: debt collections

What You Should Know About Debt Management Plans

In recent months I’ve had a few clients come to my office because of a failed Debt Management Plan (DMP) proposed by a credit counseling service. Basically, a DMP is what a debt Debt management plan or bankruptcyconsolidation provider will sell you if you respond to their TV or radio ad about how you can get out of debt without filing a bankruptcy. For anyone struggling with credit card debt, the offer of making one easy payment and getting creditors off your back can certainly be enticing.

So, what is a Debt Management Plan?

Usually a DMP is a simple agreement saying you will make a monthly payment to the debt consolidator for a 4 to 5 year period. In turn, the debt consolidator splits up your payment, first paying themselves and then your creditors. The DMP providers attract clients with plans that include reduced interest rates, fees and payments. Obviously, credit card companies are more than happy to work with DMP counselors knowing these plans insure many more years of payments on the exorbitant interest they have already charged.

So, do DMP’s work? I assume there are some successful completions of a DMP but as a bankruptcy attorney I see the failures. The sad thing about a DMP failure is the debtors have usually made dozens of payments and still find themselves in the same place as before with little to show for it. Most of the time this means they’ve spent a small fortune and have to file a bankruptcy anyway.

The problems with DMP’s are numerous. First off, the plans can’t deal with mortgages, car loans or student loans. The payment agreement is strict, and one missed payment will usually void the entire repayment plan. Even worse, your credit score will not start to rebound until after you have successfully completed the entire DMP. If you get sick, divorced, lose your job or even if your car breaks down you will very likely not be able to continue with the DMP as you are not allowed to miss a payment or get another loan. And remember, five years is a LONG time for your life to run perfectly without missing a payment.

And then there’s the reality that in many cases a DMP isn’t really a good deal when it comes to your pocketbook. A good debt consolidation example comes from Dave Ramsey on his website here:

Let’s say you have $30,000 in unsecured debt, including a two-year loan for $10,000 at 12%, and a four-year loan for $20,000 at 10%. Your monthly payment on the first loan is $517, and the payment on the second one is $583. That’s a total payment of $1,100 per month.

The debt consolidation company says they can lower your payment to $640 per month and your interest rate to 9% by negotiating with your creditors and rolling the loans together into one. Sounds great, doesn’t it? Who wouldn’t want to pay $460 less per month in payments?

But they don’t tell you that it will now take you six years to pay off the loan. This may not sound that bad until you realize how much more you will actually pay in additional payments. You will now pay $46,080 to pay off the new loan versus $40,392 for the original loans, even with the lower interest rate of 9%. This means you paid $5,688 more for the “lower payment.” Not such a good deal after all.

I agree. This is not a great deal for most folks struggling with debt.

On the other hand, a bankruptcy is often called a “fresh start.” It’s like ripping off the bandage quickly. Your pain is momentary as you unload most of your debt including any upside-down house or car payment. And although your credit score takes a hit when you file bankruptcy, you can immediately begin to rebuild your credit and get on with your life rather than wait the 4 or 5 years to complete a DMP.

For a few people debt consolidation and a Debt Management Plan are a good option. If that is your case we can point you to a non-profit debt consolidator that is actually able to protect your best interest rather than charge a fee for a service.  However, if the math shows that you cannot repay your debts, we can usually solve that problem and get you a fresh start. After all, this is what the bankruptcy laws are for.

Dean Ryan is an experienced Garden City Bankruptcy Attorney
for Southwestern KS. For a free bankruptcy consultation
call 620-275-9614 during normal business hours.

Bankruptcy is a Math Problem

Garden City KS bankruptcy attorneyOver the last 20 years I have helped hundreds of clients put financial difficulties behind them in Garden City KS and the surrounding areas using bankruptcy laws. Over all this time most of my clients struggle with the same questions and concerns during my free bankruptcy consultation. Some of these include…

  • What it will do to my credit? (Although it is already likely ruined)
  • What will people say?  I was taught to pay my bills and just can’t treat the bank/credit card company/doctor/etc that way.
  • Can I work through this? If I just get a raise/job/get over my sickness/win the lottery I am sure I can get through this.
  • If that stupid bank would just give me a loan I could get out of my financial problem.
  • And the hardest one… What will my mom think?

I’ve heard these and many more worries from hard-working folks struggling with the idea of filing for bankruptcy. In fact, many people put off filing a bankruptcy for years with these kinds of justifications.

Basically, each of the above worries is an emotional response to financial difficulties. Recently I had a couple come into my office seeking advice with these types of concerns wondering whether they were a candidate for bankruptcy.  To start, I asked how much they owed to banks, credit cards and medical bills.  The total was about $40,000.  Then I asked if they had $40,000? Of course, the answer was no.  I then asked what kind of a payment they could make on the debt.  It was pretty small and with lots of sacrifices. They would have to slash their food budget, stop maintaining their vehicle and other hardships to pay around $250 towards the debt. I then did some quick math. Here it is…

When you take $40,000 times 18% interest (a very low interest estimate in today’s market) it adds up to $7,200 a year or about $600 a month – just in interest! This means if they paid $600 a month on their debt forever, it would never get smaller.  The two years they had paid $200 a month on this debt only resulted in the amount they owed increasing by $400 a month.  When I showed them that they needed to pay $600 a month just to stay even, it became clear to them that they were bankrupt and they were never going to get out of debt.

Bankruptcy, although it feels like an emotional disaster, is actually a math problem.  If you are unable to reduce your debt on a regular basis, you are bankrupt.  It’s as black and white as that.  If you let your emotions continue to drive your decision rather than take a real world look at the math, you will continue to struggle and never make the decision to get a fresh start using the bankruptcy laws that were created just for this purpose.

If you are not making any financial progress, struggling with bills, fighting with creditors and worse, trying to live with the depression, stress and potential health issues that result from financial problems, let’s have a conversation about it.  Let me help you digest the problem and actually look for solutions.  Bankruptcy is not always the answer, but putting off creditors and getting further and further behind on bills is never the answer.

Dean Ryan is an experienced Garden City Bankruptcy Lawyer
for Southwestern KS. For a free bankruptcy consultation
call 620-275-9614 during normal business hours.

Debt Collection Practices – What You Should Know

garden city ks debt reliefThere’s no doubt that millions of people are struggling right now financially and have found themselves overcome with debt problems. The only thing that makes matters worse are constant debt collection calls…

Unfortunately, some of these collection companies can be very rude and unsettling. Some use intimidation and fear tactics to collect debts without regard to a debtors personal situation or circumstances. If you feel you are being mis-treated by collectors to the point of mental distress you should know your rights against unfair and abusive practices.

First off, the Federal Trade Commission (FTC) has instituted laws to protect consumers against companies who engage in abusive practices. They also investigate reports made against these companies and enforce the laws enacted by the Fair Debt Collection Practices Act. Unfortunately, many collection agencies know that they can easily break these laws because it is up to the consumer to report abuse.

To protect yourself it is good to know the basics of this Act so it can be pointed out to the debt collectors who are crossing the line into abusive practices. Let’s take a look at some of your rights according to the law…

1) Collection agencies cannot call before 8:00 am or after 9:00 pm.
2) They cannot text, email, or use social media websites to contact consumers.
3) They cannot misrepresent that they are the creditor, an attorney or any other entity that hides the fact that they are a third party collector.
4) They cannot use deceit, threats or abusive language when collecting a debt.

The FTC urges you to contact and report any violators.

It is a good idea to inform an abusive collector that you are aware of your rights according to the Fair Debt Collection Act. When you do, confirm the violation over the phone with them, get their full name, company name, address and phone number. Be very polite when you do this and inform them that you will report the violations to the FTC unless they cease and desist. This will usually stop blatant abuse.

You can also stop collection agencies from calling you at your place of business and cell phone. You will need to call them directly and tell them to cease and desist. If they ignore a verbal request you can send them a cease and desist letter by certified mail. In the letter you should request to receive all correspondence from them by postal mail.

If your debt situation has escalated to judgements and potential wage garnishment action you should consider filing bankruptcy. Doing this will stop all debt collection activity.

Garden City KS Attorney Dean Ryan has helped folks get a new start and put debt problems behind them. Call (620) 275-9614 for a friendly, free bankruptcy consultation today.