California Debt Blog

The Great Bail Out Fraud

I received two emails today from clients asking about the credit card bail out that they read about on the internet or heard about on the radio. Apparently, some folks are advertising about how people who owe more than $10,000 in credit card debt can get relief.

Folks, there is no bail out. There is no government program. There are no secret laws that allow you to get out of debt. You do have options, but none of these options involve some special bail out. Your options:

1. Bankruptcy. You can file for bankruptcy, either a chapter 7 or a chapter 13. Your debts will be legally discharged this way.

2. Negotiation. You can negotiate with your creditors. You can either do it yourself or hire an attorney to do it for you.

3. Let them sue you. You can wait for the creditors or debt collectors to sue you and then you can either fight the case in court or settle at that point.

There is no silver bullet. There is no bail out. There is no free way out of this. You should avoid a debt counselor and talk to a licensed, competent attorney.

Fees for your debt collection case

I have had a rash of questions lately about fees for lawyers. This comes in the context of personal injury cases, consumer law and malpractice cases. So, let me give a very basic explanation of types of fees and typical fees for your debt collection cases.

Contingency fee: This is the most common type of fee in personal injury cases. This is not common in debt collection cases. This means the attorney gets a percentage of the settlement. There is no set percentage. Generally, the fee runs from 30% to 40% of the settlement. I have seen attorneys charge 45% and I have seen attorneys charge 25%. But, this is the general range. So, calculating a fee is quite simple: take your settlement and multiply by the percentage. If your case settles for $10,000, and the attorney fees are 30%, the attorney gets $3,000. There are a few variations of this fee. Sometimes the attorney takes the fee after he subtracts out costs, sometimes before costs. But this is the general concept.

Flat fee: The attorney does the work for one flat fee. So, if the attorney quotes you $1,000 for a flat fee, then this is how much you will pay, regardless of the amount of work the attorney does. If the attorney does an hour of work, he makes a lot of money for that hour. If he takes 100 hours to do the work, he is making close to minimum wage. But you always know how much you are going to pay. This is one way of having a fee for a debt collection case. Typically, this client wants me to negotiate a payment plan with a creditor like Capitol One or with a debt collector.

Hourly: This is what most people are used to. Usually, we do not see this in personal injury cases. It is what it sounds like: take the number of hours worked on a case and multiply by the hourly rate. 5 hours at $200 per hour is $1,000. Usually, a debt collection defense case without a cross complaint against the debt collector is handled this way. So, if the debt collector has not violated any laws and sues you, most attorneys are going to handle it on an hourly basis. Now you know why debt collectors sue people over small amounts like $1,500 or $2,500. If there are no FDCPA or Rosenthal Act violations, it quickly gets expensive to prove that you do not owe the debt!

Hybrid: There are numerous ways of combining these. An attorney can charge a flat rate for some work and hourly for additional work. An attorney can charge hourly to do some things and then a contingency fee. Usually, if there is an FDCPA or Rosenthal Act case, a hybrid fee is best. This could be a small hourly with the rest of the money paid by the collector upon successful completion of the case. Or it could be a flat rate with the rest being paid by the collector upon successful completion of the case.

Pro bono: This is a big one and people ask about it all the time. This means "for free." In other words, the attorney will not be charging you. If an attorney agrees to work for free, you do not get a bill. However, if you call an attorney and ask them to take your case pro bono, most attorneys will tell you no. We like doing pro bono work and most of us take on pro bono cases. But these are cases that we select for a variety of factors.

This is not comprehensive by any means. This is just an overview of different types of fees. You should always make sure you have a signed fee agreement with an attorney and that you fully understand the fee being charged. And make sure you understand if there is a cap. Hiring an attorney and paying the attorney $5,000 to stop a collector from getting $1,500 that you owe may not make any sense. So read the fee agreement, ask questions and make sure you understand the fee.

I have had a rash of questions lately about fees for lawyers. This comes in the context of personal injury cases, consumer law and malpractice cases. So, let me give a very basic explanation of types of fees and typical fees for your debt collection cases.

Contingency fee: This is the most common type of fee in personal injury cases. This is not common in debt collection cases. This means the attorney gets a percentage of the settlement. There is no set percentage. Generally, the fee runs from 30% to 40% of the settlement. I have seen attorneys charge 45% and I have seen attorneys charge 25%. But, this is the general range. So, calculating a fee is quite simple: take your settlement and multiply by the percentage. If your case settles for $10,000, and the attorney fees are 30%, the attorney gets $3,000. There are a few variations of this fee. Sometimes the attorney takes the fee after he subtracts out costs, sometimes before costs. But this is the general concept.

Flat fee: The attorney does the work for one flat fee. So, if the attorney quotes you $1,000 for a flat fee, then this is how much you will pay, regardless of the amount of work the attorney does. If the attorney does an hour of work, he makes a lot of money for that hour. If he takes 100 hours to do the work, he is making close to minimum wage. But you always know how much you are going to pay. This is one way of having a fee for a debt collection case. Typically, this client wants me to negotiate a payment plan with a creditor like Capitol One or with a debt collector.

Hourly: This is what most people are used to. Usually, we do not see this in personal injury cases. It is what it sounds like: take the number of hours worked on a case and multiply by the hourly rate. 5 hours at $200 per hour is $1,000. Usually, a debt collection defense case without a cross complaint against the debt collector is handled this way. So, if the debt collector has not violated any laws and sues you, most attorneys are going to handle it on an hourly basis. Now you know why debt collectors sue people over small amounts like $1,500 or $2,500. If there are no FDCPA or Rosenthal Act violations, it quickly gets expensive to prove that you do not owe the debt!

Hybrid: There are numerous ways of combining these. An attorney can charge a flat rate for some work and hourly for additional work. An attorney can charge hourly to do some things and then a contingency fee. Usually, if there is an FDCPA or Rosenthal Act case, a hybrid fee is best. This could be a small hourly with the rest of the money paid by the collector upon successful completion of the case. Or it could be a flat rate with the rest being paid by the collector upon successful completion of the case.

Pro bono: This is a big one and people ask about it all the time. This means "for free." In other words, the attorney will not be charging you. If an attorney agrees to work for free, you do not get a bill. However, if you call an attorney and ask them to take your case pro bono, most attorneys will tell you no. We like doing pro bono work and most of us take on pro bono cases. But these are cases that we select for a variety of factors.

This is not comprehensive by any means. This is just an overview of different types of fees. You should always make sure you have a signed fee agreement with an attorney and that you fully understand the fee being charged. And make sure you understand if there is a cap. Hiring an attorney and paying the attorney $5,000 to stop a collector from getting $1,500 that you owe may not make any sense. So read the fee agreement, ask questions and make sure you understand the fee.

Mann Bracken Btes the Dust

Another one bites the dust. The interesting thing about this, though, is that Mann Bracken was the largest debt collection law firm in the country and possibly the world. Mann Bracken was formed by the merger between Eskanos and Adler and Wolpoff and Abramson, two mega law firms that specialized in debt collection. Now, none of them exist.

What does this mean for consumers? First, one less large debt collector to harass you. That is a good thing! Second, Mann Bracken is in the process of dismissing its cases against people. If they have sued you recently, you can expect a dismissal from them. Yes, that is right. A dismissal. However, this does not mean that someone else will not come along and sue you. Erica Brachfeld could take some of these cases and sue the folks for the creditors. Or, you could see new debt collection law firms pop up to take their place.

This is good news for consumers. Hopefully it is a good start to 2010 and a sign of things to come!

Don't let bill collectors bite

I wish I could claim credit for the creative title, but I am borrowing it from the Dallas Morning News and Pamela Yip. Ms. Yip has a great column on making sure you don't let debt collectors bite, even though they are getting more aggressive.

Her tips include:

1. Don't ignore calls or letters;
2. Make the debt collector prove the debt;
3. If the collector calls on a bill you have already paid, show proof that you paid it;
4. Don't tolerate abuse from debt collectors;
5. Take action if the debt collector breaks the law.

Regular readers of my blog know that I have been advocating this for years. It is nice to see the media get involved. Remember, I offer you a free debt validation letter at this website. Use it, especially if you receive a call from Brachfeld and Associates. Most debt collectors will go away once you follow step 2 of Ms. Yip's advice.

Removing an item from your credit report

A lot of people are doing a "New Year, New You" type program. You can buy new diet products or you can get a Bowflex on sale. But now is also a good time to review your credit report. As a reader of this blog, you understand how important it is to review your credit report regularly. Your credit report affects your interest rates, offers for credit and could impact your job.

When you get your credit report, there may be a mistake. Common mistakes include items that are not yours being reported, items not being reported properly and items that are just flat out wrong.

Get your credit report and review it carefully. If there is a mistake, you can either dispute this online with the credit reporting agencies (CRA) or you can report it in writing. I prefer to report it in writing. A simple letter with your name and social security number will do the trick. You list each account that is wrong and why it is wrong. For example "Account 1234 with NRS reports that I am delinquent when this account has been paid off." You list each account with the reason and send the letter off.

The credit bureaus will then investigate and send you a response in 45 to 60 days. All inaccurate information should be removed and you should see your credit score increase. Finally, you do not have to use a service that claims it will clean up your credit score. Only inaccurate information can be removed and anyone who claims to have a system to "fix your credit" is probably trying to just separate you for your money. 

California Debt Collector Settles Class Action

A California debt collector has settled a lawsuit brought by a Pittsburgh, PA attorney for violation of debt collection laws. The settlement: $2.5 million.

According to the Associated Press: "The company sent out letters as recently as last winter purporting to be from various Pennsylvania district attorneys' offices to people who bounced checks.

The letters indicated that a crime had been committed, but that the check bouncers could clear up the matter by paying off the checks and various fees and by attending a financial accountability class."

Public Citizen has also brought suit against this company. Deepak Gupta of Public Citizen says that lawsuits have been brought in many states. Again from the Associated Press: "They are renting out the name and authority of the prosecutor," he said. "It's a misuse of public authority and also, it's a scam."

"Consumers think they're talking to their local prosecutor's office, but they're actually talking with the debt collector in California," he said."

If you receive a letter from National Corrective Group or any other company about a bouned check, please contact your local district attorney before you do anything else.

Holiday Gift to Yourself: Settle Your Debt

It is that time of year - the holiday season. You want to go out and buy presents. You want to spend your money. And trust me - most businesses want you to as well to get the economy going. One group who really wants your money - debt collectors.

This is a good time of year to settle your debts. Debt collectors are willing to deal. They want to settle your case and move on with life. They know that most people are going to get into more debt over the next 60 days. They also know that will make it harder to get money that is owed on accounts. And, they want to get accounts off their books for the end of the year.

If you have a debt collector calling you for money you owe, talk to an attorney about negotiating your debt away now. You should also include a demand that the trade line, the line on your credit report, be removed as well.

FTC Proposes New Rules for Debt Settlement

The Federal Trade Commission has proposed new rules for debt settlement companies. (Thanks to my friend, Dallas personal injury attorney Robert Kraft for sharing this.) Among the rules being proposed:

1. New fee can be collected until the services are performed; and
2. Improved disclosures, including the time it takes to perform the services.

This is great. This really is important for consumers. Debt settlement companies promise the world and collect huge fees to do it. Then, when the time comes for service, they often end up lacking. Of course, their contract makes it almost impossible to sue them for failing to perform. So, consumers get left holding the bag, out the fee and sued by the creditors who do not deal with debt settlement companies.

If you are behind in your debt, email me for my report on what you can do to protect your credit. Calling a debt settlement company is the last thing you should do and you should know your rights before you call them.

North Carolina Protects Consumers

Effective October 1, 2009, North Carolina consumers have additional protection from debt collectors. Debt collectors in North Carolina are required to produce documents showing that they are the ones who are owed the money. Why is this important?

Most credit card companies do not do their own collection. They refer the cases to debt collectors. But these collectors are actually debt buyers. What is a debt buyer? A debt buyer is a company that purchases large quantites of debts from different creditors. These companies buy thousands of debts and then decide which ones to collect and which ones to sell - again. The new debt buyer than buys thousands of debts and decides which ones to keep and which ones to sell - again. This goes on and on. The paperwork is called an assignment and many times the assignment is dated after the sale.

This North Carolina law is going to restrict this behavior. Debt buyers are going to have to actually track the paperwork and make sure they can prove what is owed and that it is owed to them. This is a huge win for North Carolina consumers.

Bad credit mistakes

Yahoo Finance and Creditcards.com have a story on how bad your credit mistakes are. Here is their list of how bad things are on a scale of 1 to 10:

1. Using a card in a pinch: 2
2. Paying the minimum: 4
3. Balance transferring: 5
4. Too many cards: 6
5. Paying late: this is a 6
6. Maxing out a card: 7
7. Cash advance: 8
8. Missing a payment: 9
9. Debt settlement: 9.5.

The one thing missing from their list: cancelling your old cards with no balance. This is a 7.5. One of the big factors in your credit score is the length of time you have had credit. If you cancel an old card, this will have a negative effect on your credit.

Read the whole article for more from Creditcards.com on how to be responsible with your credit.