Your Debt
An illness, a
layoff, and unexpected bills are just a few reasons why you may be unable to pay
your bills on time. This guide
provides information on what you should do if you fall behind on your debts.
Warning
Signs of a Debt Problem
- Required
monthly payments to creditors totaling 20% or more of your take home income
(not including your rent or mortgage).
- Using
your savings to pay for daily expenses.
- Getting
cash advances from credit cards to pay other creditors and/or daily
expenses.
- Not
knowing how much you owe.
- Arguing
with your family members due to money problems.
- Creditor
lawsuits, repossessions or garnishment of wages.
What
If You Can’t Pay Your Bills
Help Yourself
The first step in trying to resolve your debt
problem is to contact your creditors and work out a payment plan. It may be helpful to explain your situation and reiterate
your willingness to work with the creditor to catch up on your overdue bills.
If you believe you need some advice on how to get a handle on your debt
problem you can contact a debt counseling service.
If You Can’t Work Out a Payment Plan
- Send
the collector a notice by certified mail.
There is a sample letter at the end of this guide to help you decide
what to put in your letter. It
is important to say that you cannot repay the debt and that you do not want
to hear from the collector.
- Once
the collector receives the notice the collector can call or write you one
last time to tell you what will happen because of your non-payment.
You should know that federal and Maryland law protects you from any unfair
collection practices used you by your creditors.
- Contact
a Credit Counseling Agency
- Only
file bankruptcy as a last resort. Bankruptcy
is very complicated; if you would like more information take a look at our
information filing bankruptcy.
Self-Help
Resources
Free
Publications
Myvesta, a non-profit organization, provides a
variety of free on-line publications on topics from how to read a credit report
to information on credit and debt cards.
The
Maryland Department of Labor, Licensing, & Regulation also provides
helpful tips on consumer
credit publications and dept management companies.
Consult
a Credit Counseling Service
Credit counseling services can help you control
your debt more effectively and teach you how to manage your money and help you
create a debt repayment plan. There
are both nonprofit and for-profit debt counseling services here in Maryland as
well as national organizations that can provide you with advice.
What
is a Credit Counseling Agency?
Credit Counseling Agencies are nonprofit agencies
that help debtors work with creditors to arrange a repayment plan as a means of
reducing their debt without filing for bankruptcy. Creditors trying to recoup
their money are both the primary financier and beneficiary of these counseling
services. In one year alone,
creditors recouped over $2.5 billion that would have otherwise been forgiven
under the bankruptcy laws.
How are Credit Counseling Agencies Organized?
Credit Counseling Services are currently divided
into two rival groups: the traditional social services organizations and the
more commercially sophisticated agencies.
National Foundation for Credit Counseling
This non-profit organization makes up the majority of the
market and is comprised of the “social service” credit counseling agencies
that offer the traditional face-to-face debt advice.
These traditional agencies have been criticized for offering poor
customer service because their bureaucratic framework has proven more lucrative
for creditors while typically leaving debtors with unsuccessful solutions.
Association of Independent Consumer Credit
Counseling Agencies
This non-profit organization is in the credit-counseling industry and uses the telephone, email and fax to provide more
convenient and flexible services to debtors. Yet, these “business-like” agencies have also been
criticized for offering generic debt management plans, which do not provide a
solution to a particular debtor’s situation.
How Are Credit Counseling Agencies Funded?
Credit Counseling Agencies are primarily funded
by “fair share” payments made by creditors from the monies, which are
collected through Debt Management Plans. Most
Credit Counseling Agencies also ask the debtor for a donation to cover some of
the costs and approximately 25% actually charge clients fees for the debt
management service.
How Much Do Credit Counseling Agencies Charge?
Average Fees: 1999
Counseling: $11
Plan Enrollment: $17
Monthly Management: $10.50
How
to Find a Credit Counseling Agency?
When Should You Consult a Credit Counseling
Agency?
If your total debt payments, excluding your
mortgage and your car payments, are between 25 and 50% of your after-tax annual
income, you should consult a counseling agency right away.
There are many counseling agencies here in Maryland that you can consult
about your debt concerns. When
deciding on a counseling service you should make sure that the service at least
include a complete discussion of your finances and debts, a diagnosis of your
problem, the creation of an action plan and continuing support during the
repayment process.
TIPS for Choosing a Credit Counseling Agency
- Your credit counselor should take about 90
minutes to fully assess your financial situation before creating a
customized action plan to resolve your debts.
Do not just merely fill out an application for a debt-management
plan.
- Your credit counselor should have a college
degree plus courses in lending, credit, budgeting, saving and investing as
well as continuing training in home finance and bankruptcy.
- Your credit counselor should not charge you
high fees for their services. There
is usually a free initial consultation and only small fees for setting up a
debt-management plan and for continuing service.
Questions to Ask Your Credit Counseling Agency
-
Is
this agency a non-profit organization?
-
How
much will these services cost?
-
Are
agency services confidential?
-
Will
they devise a plan tailored to fit your needs?
-
Are
the counselors certified?Are budget and credit education opportunities
offered?
-
Will
my funds be protected?
Who Offers Credit Counseling Services in
Maryland?
The National
Foundation for Credit Counseling provides
a crisis hotline, 1-800-388-2227, on-line counseling, and lists services in your
area. Its website offers tips for
how to choose a counselor and manage your finances, and tools for analyzing your
situation. Organizations that are members of the Foundation must be
non-profits. You can a Maryland
agency that is a member of the National Foundation for Credit Counseling at
http://www.debtadvice.org/takethefirststep/locator.html.
Association
of Independent Consumer Credit Counseling Agencies
(AICCCA)
Auriton
Solutions
1700 West Hwy 36,Suite 301
Roseville, MN 55113
(888) 562-4557
American Financial Solutions
263 4th Street
Bremerton, WA 98337
888-282-5899
Myvesta is a
non-profit organization providing free or low-cost services to help consumers
with their money problems by providing tips for reducing your outstanding credit
balances as well as helpful publications on topics such as reading your credit
report, purchasing an automobile or home, and money management.
There is also comprehensive financial crisis center with an office in
Rockville, MD. Its website
describes its work and offers a number of free publications and tools for
thinking about your debt. Services
are offered by telephone or in person. You
can call toll-free at 1-800-680-3328.
Online
Directory
You can also consult this online directory of
Maryland Area Credit and Debt Counselors to find an agency in your area.
AICCA
National Credit Counseling Agencies
There are also national agencies you can contact
by phone or learn more information at their website.
Note: they typically only offer clients counseling services via
phone, email or online.
What Do You Need To Bring?
You need to bring your pay stubs, loan
information (including the contact information for your creditors) and
credit-card statements. You may
also need to fill out a budget form that provides information of where you are
spending your money so your counselor has a clear picture of your financial
situation.
What Type of Solution Can You Expect?
Typically the credit-counseling agency will
create a debt-management plan and help you get it approved by your creditors.
Once your creditors have approved your plan, most of them will stop
charging you additional interest and work with you to reduce your credit.
Debt-Management Plans Fees:
Set up fee should not exceed $75
Monthly maintenance fees should not exceed $50
per month
There should not be charge for credit repair
TIPS
About Debt Management Plans:
- Make sure you that your Debt Management Plan only includes the
appropriate debt, especially make sure that you do not include your mortgage.
- Make sure you reset your payment schedule with your creditor if you are
going to pay them once a month so not to incur late charges and fees.
- Make sure your creditors have accepted you for a debt-management plan
before you stop paying your bills.
What Can You Do if You are Not Satisfied with
Your Agency?
If you are unsatisfied with the service provided
by your credit counseling agency you can transfer to a new one by setting up a
new debt management plan. It is
important that you notify your creditors that you are switching credit
counselors and that you need their approval of the new debt management plan.
Who Regulates Credit Counseling Agencies in
Maryland?
The
Maryland Division of Financial Regulation is the primary regulator for consumer
credit counseling agencies. The Division provides a forum for the resolution of
consumer complaints concerning questionable credit practices involving
businesses that it regulates, and also participates in consumer education and
community outreach programs.
Filing a Complaint
The
Commissioner of Financial Regulations investigates complaints involving
credit-counseling agencies. Complaints serviced by the Commissioner's office are
from Maryland residents only. A complaint must be in writing, and must include
the complainant's name, address and telephone number and a brief but accurate
explanation of the problem and advise us of your desired result. Also include
any documentation to support your complaint that will help the agency to more
quickly resolve the complaint, but please do not send original documents only
send copies. Complaints usually take about 30 days to resolve.
Commissioner
of Financial Regulations
500 North Calvert Street, Room 402
Baltimore, Maryland 21202.
(410)
230-6100
What
If Your Creditor Files Suit
If your creditor decides to sue you, the creditor
will file a claim in court. A
hearing date will be set and you will be able to tell your side of the story at
the hearing. If you believe your
creditor violated a federal or Maryland collection act, you can file a claim
against the creditor.
Your
Rights Under the Law
If you believe that a collector is breaking the
law, you should first talk with the collector’s supervisor before seeking a
legal assistance. You can contact
the Maryland Attorney General’s Consumer Protection Division or the American
Collectors Association to stop the collector from continuing his illegal
behavior. If the behavior persists
you may file a lawsuit against the debt collector for violating federal or
Maryland Debt Collection laws. You
may want to contact an attorney for advice on how to file a lawsuit.
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