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Solve Your Money Troubles
Debt, Credit & Bankruptcy
Margaret Reiter, Attorney and Robin Leonard, J.D.
July 2013, 14th Edition
Take charge of your debt and get a fresh financial start
Feeling overwhelmed by your debts? Here is the detailed legal and practical information you need to get back on your feet and make a fresh start. Whether you are over your head in debt, or are being hounded for debts you don't believe you owe, this book is the tool you need to regain your financial sanity. Find out how to:
- stop collector harassment
- negotiate with creditors to reduce debts
- prioritize your debts
- challenge wage garnishments
- contend with repossessions
- respond if you get sued
- obtain and correct your credit file
- decide if bankruptcy is right for you
- get government help to avoid foreclosure
- create a budget you can live with
This new edition of Solve Your Money Troubles is completely updated and includes sample letters to creditors, state-specific legal information, and worksheets that will help you create a repayment plan.
“This book is a must-have, even for people who don’t have debt problems.”
-Los Angeles Times
“One of the best books you can buy on all aspects of personal debt.”
-Michael Pellecchia, Nationally Syndicated Columnist
“This book will give you strength and the skills needed to respond to bill collectors and to rebuild your credit….”
-New Orleans Times-Picayune
Worksheets and Forms
- Worksheet 1: Monthly Income
- Worksheet 2: Your Debts
- Worksheet 3: Property Checklist
- Worksheet 4: Property Exemptions
- Worksheet 5: Daily Expenses
- Worksheet 6: Monthly Budget
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Margaret Reiter
Attorney Margaret Reiter was a consumer investigator with the Los Angeles County Consumer Affairs Department for four years and worked for 20 years as a consumer prosecutor with the California Attorney General's Consumer Law Section. She has investigated or prosecuted businesses engaged in consumer fraud including foreclosure "consultants," mortgage lenders, debt settlement companies, vocational schools, living trust mill/annuity sellers, prepaid phone card companies, and tax refund anticipation loan providers. She has drafted consumer protection legislation, advocated for stronger consumer protection before regulatory agencies, trained other prosecutors and investigators, and prepared consumer alerts and spoken to the public on Truth-in-Lending, telephone slamming and cramming, truth in phone billing, bankruptcy, and vocational schools, among other consumer topics.
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Robin Leonard
Robin Leonard is a former attorney who gave up the law to become a rabbi. She is the author of many Nolo books including Solve Your Money Troubles: Debt, Credit & Bankruptcy and Credit Repair. She also helped write How to File for Chapter 7 Bankruptcy and A Legal Guide for Lesbian and Gay Couples.
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Table of Contents
Your Legal Companion to Solving Your Money Troubles 1
Chapter 1
How Much Do You Owe? 3
How Much Do You Earn? 5
How Much Do You Owe? 5
Chapter 2
If You're Married, Divorced, or Separated 9
Community Property States 11
Common Law States 14
Chapter 3
Debts You May Not Owe 19
You Are the Victim of Misrepresentation or Other Fraud 20
The Seller Breached a Warranty 23
Your Car Is a Lemon 26
Home Mortgage Contracts 28
You Canceled a Contract 28
You Received Goods You Didn't Order 32
Canceling Automatic Deduction Payments 33
Chapter 4
Prioritizing Your Debts 35
Secured and Unsecured Debts 36
High-Priority Debts 38
Medium-Priority Debts 40
Low-Priority Debts 42
Review Your Worksheets 43
Chapter 5
Finding Money to Pay Your Debts 45
Cut Your Expenses 46
Increase Your Income 50
Get Some of Your Tax Refund Early 50
Get Your Tax Refund Fast 51
Sell a Major Asset 51
Sell Smaller Items 52
Withdraw Money From a Tax-Deferred Account 53
Apply for Government and Agency Help 54
Consider a Home Equity Loan 58
Use the Equity in Your Home If You Are 62 or Older 61
Borrow the Money 64
What to Avoid When You Need Money 65
Avoid Bank and Credit Union Prepaid Cards With Advances 70
Chapter 6
Negotiating With Your Creditors 73
Prepare a Negotiating Plan 75
Communicate With Your Creditors 75
Tips for Negotiating With Creditors 78
Rent Payments 79
Mortgage Payments 80
Utility and Telephone Bills 82
Car Payments 83
Secured Loan Payments 85
Insurance Payments 85
Medical, Legal, and Other Service Bills 87
Child Support and Alimony Payments 88
Income Taxes 88
Student Loan Payments 89
Credit Card Payments 89
Negotiating When the Creditor Has a Judgment Against You 92
Pay Off a Debt for Less Than the Full Amount 92
Don't Write Postdated Checks 96
Beware of the IRS If You Settle a Debt 97
Chapter 7
What to Expect When You Can't Pay Your Debts 101
Eviction 102
Repossession 103
Tying Up Property Before a Lawsuit 110
Lawsuits 112
Lawsuits Against Third Parties Who Hold Your Assets 112
Liens on Your Property 113
Jail 114
Bank Setoff 115
Intercepting Your Tax Refund 115
Loss of Insurance Coverage 116
Loss of Utility Service 116
Chapter 8
Reducing Mortgage Payments and Dealing With Foreclosure 119
Foreclosure 120
Nonjudicial Foreclosure 121
Judicial Foreclosures 122
Right to Cure Default 122
Right of Redemption 122
The Sale 124
Defenses to Foreclosure 125
Watch Out for Deficiency Balances 126
Alternatives to Foreclosure 126
Short-Term Informal Payment Plans 128
Federal Programs for Homeowners Facing Possible Foreclosure 129
Mortgage Workouts 133
Refinancing 135
Selling Your House 137
Short Sales and Deeds in Lieu of Foreclosure 137
Other Programs to Help Homeowners 140
Chapter 9
Dealing With Debt Collectors 141
Creditor or Debt Collector? 142
Negotiating Secured Debts 144
Before Your Debt Is Sent to a Debt Collector 144
When Your Debt Is Sent to a Debt Collector 145
Illegal Debt Collection Practices 157
How to Fight Back If a Debt Collector Violates the Law 160
Chapter 10
Choosing and Managing Credit Cards 165
Avoiding Credit Card Traps 167
Consumer Credit Card Rights 167
Use Credit Card Disclosure Forms to Identify Traps 167
Trouble Paying Your Bill 175
Should You Get Rid of Unnecessary Credit Cards? 175
How to Close a Credit Card Account 177
Shopping for a New Card 178
Using Credit Cards Wisely 179
Cards You Didn't Request 181
Rejected and Blocked Cards 181
Liability If Your Credit Card Is Lost or Stolen 182
Unauthorized Use of Your Card by an Acquaintance 184
To Dispute a Credit Card Bill 185
Debit Cards 190
Prepaid Cards 191
Chapter 11
Understanding Loan and Other Credit Documents 193
Credit Disclosures 194
Common Terms in Credit Agreements 195
Chapter 12
Student Loans 205
What Kind of Loan Do You Have? 207
Figuring Out Who Holds Your Student Loan 209
Canceling Your Loan 209
Postponing Payments 212
Changing Your Repayment Plan 214
Getting Out of Default 219
Filing for Bankruptcy When You Can't Pay 220
Consequences of Ignoring Student Loan Debt 221
Where to Go for Help 222
Private Student Loans 222
Chapter 13
Child Support and Alimony 225
How Child Support Is Determined 226
Modifying the Amount of Child Support 228
If Paternity Is Disputed 232
Enforcement of Child Support Obligations 232
Alimony 240
Bankruptcy and Child Support or Alimony Debt 240
Taxes, Child Support, and Alimony 241
Chapter 14
If You Are Sued 243
How a Lawsuit Begins 245
Negotiate 248
Alternative Dispute Resolution 251
Defenses and Claims 254
What to Expect While the Case Is in Court 259
When the Creditor Gets a Judgment Against You 261
Stopping Judgment Collection Efforts 272
Chapter 15
Bankruptcy: The Ultimate Weapon 275
Chapter 7 Bankruptcy 276
Chapter 13 Bankruptcy 277
The Automatic Stay 278
Bankruptcy Exemptions 279
Will Bankruptcy Solve Your Debt Problems? 280
Getting Help With Bankruptcy 282
Chapter 16
Property Creditors Can't Take 285
Property Subject to Collection 286
Types of Exemptions 291
Is Your Property Exempt? 292
Claiming Exemptions 299
Chapter 17
Rebuilding Your Credit 301
Avoid Overspending 302
Understand Credit Scores and Credit Reports 307
Clean Up Your Credit Report 310
Your Credit Score 317
Rebuilding Credit Without Getting New Credit 320
Rebuilding Credit by Getting New Credit 323
Avoid Credit Repair Organizations 327
Chapter 18
Help Beyond This Book 329
Looking Up the Law 330
Lawyers 336
Debt and Credit Counseling Agencies 341
G
Glossary 347
Appendixes
A
Where to Complain 351
B
Contact Information for Useful Agencies, Organizations,
and Other Entities 355
C
Worksheets 359
Worksheet 1: Monthly Income 360
Worksheet 2: Your Debts 361
Worksheet 3: Property Checklist 364
Worksheet 4: Property Exemptions 368
Worksheet 5: Daily Expenses 374
Worksheet 6: Monthly Budget 376
Index 379
Sample Letters and Forms
Sample Letters Dealing With Fraud, Warranties, and Unordered Goods
Sample Letter Asking for Refund Because of Misrepresentation or Fraud 22
Sample Letter to Stop Paying After Failure to Repair on Warranty 25
Sample Letter to Landlord
Sample Letter to Landlord 80
Sample Letters to Creditors or Debt Collectors (Negotiation or Debt Settlement)
Sample Letter to Creditors 76
Sample Letter to Creditor Confirming Agreement to Reduce
Payments Temporarily 77
Sample Letter Offering to Give Back Secured Property
in Exchange for a Written Agreement Waiving Deficiency 86
Sample Letter: Cashing Check Constitutes Payment in Full on
Disputed Amount (Outside of California) 93
Sample Letter: Cashing Check Constitutes Payment in Full on
Disputed AmountÑFirst Letter (California) 94
Sample Letter: Cashing Check Constitutes Payment in Full on
Disputed AmountÑSecond Letter (California) 95
Sample Letter: Cashing Check Constitutes a Release of All Claims
When You Send Check for Less Than Full Amount Owed 96
Sample Letter to Creditor or Debt Collector to Make Lump Sum
Payment If Negative Information Removed from Credit Report 156
Sample Letters Regarding Debt Collection
Sample Letter to Collection Agency Requesting Verification of Debt 149
Sample Letter to Collection Agency to Tell It to Cease Contacting You 151
Sample Letter to Creditor or Debt Collector to Make Lump Sum
Payment If Negative Information Removed from Credit Report 156
Sample Letter to Creditor About Debt CollectorÕs Improper Collection Tactics 162
Sample Letters to Credit Card Issuers
Sample Letter Confirming Telephone Notice of Lost or Stolen Card 184
Sample Letter to Notify of Credit Card Billing Error 186
Sample Letter Raising Claim to Credit Card Bill 189
Sample Letters and Court Documents Dealing With Lawsuits
Sample Settlement Agreement or Release 249
Sample Letter to Creditor Requesting Mediation 253
Chapter 1
How Much Do You Owe?
How Much Do You Earn?.................................................................... 5
How Much Do You Owe?.................................................................... 5
“There can be no freedom or beauty about a home life that depends on borrowing and debt.”
—Henrik Ibsen, Norwegian poet
and dramatist, 1828–1906
To successfully plan your strategies with your creditors, you need to come to terms with your total amount of debt. This may make you shudder.
But happily, most credit counselors will tell you that people tend to overestimate their debt burdens.
To figure out your financial situation, you need to compare what you bring in each month with what you owe on your monthly expenses (such as food, housing, and utilities) and your other debts (for example, student loan payments).
Having a ballpark idea of the amount of your income and debt burden is not enough to tackle your debt problem. Getting precise numbers is a crucial part of the process—don’t skip it. In addition to laying out how much you earn and owe, this process will help you prioritize your debts, which will then help you decide which strategies to use to solve your money troubles.
To figure out how much you earn and how much you owe (both in monthly payments and overall), follow the instructions on the next pages and use the worksheets in Appendix D. If you are married or have jointly incurred most of your debts with someone, fill out the worksheets together.
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Warning Signs of Debt Trouble |
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If you have panic attacks when you try to figure out your total debt burden, you’ll feel better if you skip this chapter and come back to it when you are better able to confront the information. Before doing that, however, ask yourself the following questions. If you answer “yes” to any one of them, you are probably in or headed for serious debt trouble: • Are your credit cards charged to the maximum? • Do you use one credit card to pay another? • Are you making only minimum payments on your credit cards while continuing to incur charges? • Do you skip paying certain bills each month? • Have creditors closed any accounts on you? • Have you taken out a debt consolidation loan? Are you considering doing so? • Have you borrowed money or used your credit cards to pay for groceries, utilities, or other necessities (for reasons other than convenience or to get perks on a credit card)? • Have you bounced any checks? • Are collection agencies calling and writing you? |
How Much Do You Earn?
Start by figuring out how much you earn each month. Grab a calculator, your pay stubs, and complete Worksheet 1 in Appendix D, by entering your monthly income from each listed source. If you are paid more often than monthly, see the instructions in Worksheet 1 to convert your pay to a monthly amount. If you have income that doesn’t fit into one of these categories, list it as “other.”
How Much Do You Owe?
In Worksheet 2 in Appendix D, you list your debts. Gather the documents that show payments on all your debts, the total amount owed on each debt, and any amount past due, including any interest or fees that have been added. Be as thorough and complete as possible. The completed Worksheet 2 will tell you exactly how much you should be paying each month (to be current on your debts) and how far behind you are. Here’s how to fill it out.
Column 1: Debts and other monthly living expenses. In Column 1, enter the type of debt. Don’t enter a debt more than once. So, for example, if you already deducted from your income in Worksheet 1 a debt that is paid out of your paycheck, such as child support, don’t deduct that same debt again here.
If you are married, you may not be certain which debts are yours and which belong to your spouse. If your marriage is intact and you’re having mutual financial problems, approach your debt problems as a team. That is, enter all your debts in Column 1. If, however, you are separated or recently divorced, or are married but having financial problems of your own, see Chapter 2 for help on figuring out the debts for which you are obligated. If you generally share expenses and maintain a household with someone else, consider combining your income and paying all of your debts with joint funds, regardless of who actually incurred the debt. Enter both partners’ debts in Column 1.
Column 2: Outstanding balance. In Column 2, enter the entire outstanding balance on the debt. For example, if you borrowed $150,000 for a mortgage and still owe $125,000, enter $125,000. If you don’t want to contact the creditor until you are ready to negotiate (and that will only be after you’ve determined how much you can pay), you have a few options. Your latest account statement might list the entire outstanding balance. If not, the creditor’s automated telephone system or online account information might provide the information you need. If you can’t get the balance and you prefer not to talk to the creditor, use your best guess for now.
Columns 3 and 4: Monthly payment and total you are behind. In Columns 3 and 4, enter the amount you currently owe on the debt. If the lender has not established set monthly payments—for example, for a doctor’s bill—enter the entire amount of the debt in Column 4 and leave Column 3 blank. If the debt is one for which you make regular monthly payments—such as your car loan or mortgage—enter the amount of the monthly payment in Column 3 and the full amount you are behind (monthly payment multiplied by the number of missed months, plus any fees or charges that have been added, like over-limit fees or late payment charges) in Column 4.
For credit card, department store, and similar debts, enter the monthly minimum payment in Column 3 and your entire balance in Column 4. But keep in mind that eventually you should make more than the minimum payment on your credit cards. (Chapter 10 discusses the danger of making only minimum payments each month.)
Column 5: Is the debt secured? In Column 5, indicate whether the debt is secured or unsecured. A secured debt is one for which a specific item of property (called “collateral”) guarantees payment. The most common type of secured debt occurs when you sign a credit agreement (sometimes called a security agreement) that allows the creditor to take a particular item of property under certain specified conditions—without suing you first. Examples of conditions that might allow the creditor to take your property include your failure to make a payment, your failure to maintain insurance on the property, or your failure to comply with the payment agreement in some other way. Typically you sign a credit agreement, giving the creditor a security interest in your property when you finance a car purchase; get a mortgage; get a second, third, or additional loan on your home; or buy an appliance or piece of furniture with store credit.
A creditor may also be able to secure its debt without your agreement by filing a lien against your property. This can happen in two circumstances. First, the creditor can file a lien if the law specifically allows for it. An example is a mechanic’s lien—the law specifically states that a worker or material supplier may file a lien against your real property if you or the contractor fail to pay them. Second, a creditor can file a lien against your property if it has sued you and obtained a judgment against you. This is called a judgment lien.
Unsecured debts are typically bank credit card debt; bills owed for utilities, medical, or legal services; student loans; and spousal or child support.
Secured property is usually something very important, like your car or house. Because it can be taken quickly, without the delay of a lawsuit, secured debts are usually a high priority for you to pay.
Specify the collateral the creditor is entitled to grab if you default. (After you have read more about whether a debt is secured or not in Chapter 4, you can come back and review Column 5 to see if you need to make any changes.)
Column 6: What priority is the debt? Leave Column 6 blank until you read Chapter 4. It will help you prioritize the debts.
Add it up. When you’ve entered all your debts in the worksheet, total up Columns 2, 3, and 4. Column 2 represents the total balance of all your debts, even though some of it may not be due now; Column 3 represents the amount you are obligated to pay each month; and Column 4 shows the amount you would have to come up with to get current on all your debts.
Related topic
Don’t forget your other expenses. None of us have monthly expenses consisting entirely of loan or credit payments. We also have to pay rent and buy groceries, pay for movies and restaurants, buy clothing and household goods, and so on. These other expenses are covered in Chapter 17. Now might be a good time to review the information in Chapter 17’s “Figure Out Where Your Money Goes.” By listing your non-debt-payment expenditures, you will get a more complete picture of your finances.
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