Debt Management FAQs

What is considered an abusive debt collection practice?

The federal Fair Debt Collection Practices Act (FDCPA) prohibits debt collectors from using abusive, deceptive, or unfair debt collection practices against consumers. Examples of unlawful conduct under these standards include making false statements to or about you when seeking to collect a debt, threatening you with legal action or wage garnishment without a lawful basis to do so, threatening you with violence, using obscene language, or misrepresenting the amount you owe. Collectors also may not repeatedly call you for the purpose of annoying you, or call you after hours unless you have given them permission. Most states have also enacted consumer protection laws with similar prohibitions. Steps you can take to stop abusive debt collection practices include filing a complaint with the Federal Trade Commission, or suing the debt collector.

Read more about collections.

Is it possible to change the terms of my mortgage to avoid foreclosure?

Yes. There are a number of ways to modify the terms of your loan if you are having trouble making payments and facing a foreclosure proceeding. A mortgage loan modification allows a tenant to renegotiate the terms of his or her lease with the lender and to execute a new mortgage agreement. Many borrowers often find themselves unable to make sufficient payments on their loans due to the interest rate. Through a loan modification, the borrower can renegotiate the interest rate or agree to modify the interest rate from a variable rate to a fixed rate. Also, during the negotiation process the lender may agree to lengthen the repayment term of the loan, providing the borrower with more time to make payments.

Another tool available to homeowners wishing to avoid foreclosure is a refinancing deal. Unlike a mortgage, in which the parties renegotiate the terms of an existing mortgage, a refinancing deal involves replacing the existing mortgage with a new mortgage featuring different terms. Additionally, homeowners may file for bankruptcy to avoid a foreclosure proceeding. Once a bankruptcy proceeding has been initiated, the lender must cease any foreclosure-related activities. Bankruptcy proceedings typically provide borrowers with methods for protecting their real estate and establishing a new repayment plan.

Read more about mortgage loan modification and avoiding foreclosure through bankruptcy.

What is involved in credit counseling?

Credit counseling can offer a great way to regain control over your finances and to create a plan for putting debt behind you. A credit counseling agency can help you assess your current outstanding balances against your monthly financial income and determine which debt management option is right for you. There are numerous credit counseling agencies on the market, and not all of them offer clients a fair deal. It is important to make sure that your credit counseling company adheres to applicable regulations.

For example, credit counseling companies typically cannot collect a fee from clients until they have achieved a meaningful result for the client, such as a debt management plan or a renegotiation of the terms of repayment for the debtor’s outstanding balances. It is also a good idea to make sure that the agency provides free educational materials about debt management and financial responsibility, instead of charging an additional fee for these materials. After assessing your financial situation, the credit counseling company will contact your creditors and determine whether they are willing to renegotiate the terms of the debt, or whether they will accept a settlement. In many cases, credit counseling companies use debt management plans, which involve consolidating your debts and negotiating a low interest rate over a long repayment term.

Read more about credit counseling.

What is a debt management plan (DMP)?

Often entered into in relation to consumer credit counseling, a debt management plan (DMP) is a formal arrangement between you and a creditor to repay debts you owe according to specific terms when you cannot pay your bills on time. DMPs generally involve only unsecured debt such as credit card bills, but not secured debt such as mortgage loans.

The DMP itself is generally administered by an outside entity (such as a credit counseling agency), and is intended to help you clean up your credit and improve the state of your overall finances. For a fee, the agency will often be able to negotiate with creditors on your behalf in order to to lower your monthly payments or overall amount owed. Your plan may also involve debt consolidation, which serves to combine all of your eligible outstanding debts into one monthly payment. A DMP will appear on your credit report, and thus signal to lenders that you have had difficulty repaying debts in the past. On the other hand, a DMP can be seen as a positive to the extent that it demonstrates your willingness to take the necessary steps to pay your bills and get your budget under control, and may be preferable to filing for bankruptcy. DMPs typically run 3 to 5 years in duration.

Read more about debt management plans.

How can I take control of my credit card debt?

There are many tools available to debtors who want to take control of their credit card debt. One of the most popular tools is credit counseling. A credit counseling company will assist you with reviewing your current outstanding debts and determining which debt management strategies are best for you. This may involve negotiating with your current creditors for a reduced overall outstanding debt or for modified terms of repayment. In many cases, a high interest rate makes it difficult for a debtor to catch up on missed payments and to stay current with the remaining balances due on the debt. Renegotiating the interest rate can provide relief to the borrower while still providing a monthly repayment to the creditor.

There may also be some opportunities to consolidate your debt, which may result in a lower interest rate and lower monthly payment. After you have renegotiated these terms with your creditor, you will most likely execute a debt management plan. The plan includes all of the modified terms and a new promise from you that you will repay the debt according to the plan’s requirements and based on the timeline provided in the plan. In some situations, it may be more advantageous for a debtor to file for bankruptcy. There are some forms of bankruptcy proceedings that allow a debtor to maintain title to his or her property and possessions while working with creditors to create a more manageable repayment plan.

Learn more about debt management.

I have unpaid tax debt from multiple prior years. What steps can I take to resolve it?

When it comes to unpaid taxes, the IRS will be sure to collect them at some point. Initially, the IRS will send you notices letting you know that they will take your unpaid debt to collections if you do not pay your past due tax assessments. Now that the IRS can take advantage of powerful computers and software, it is rare that someone escapes the IRS’ tax collection system. These programs will match an employer’s reported records with the employees’ reported income tax to see whether an employee failed to file a tax return.

If you have past due taxes from previous years, the first thing you should assess is the amount of money that you are financially capable of paying. The amount you owe will typically be listed on the last notice you receive, in addition to any penalties and interest assessed against you. If you have neglected to file a tax return, you will have to file back taxes with the IRS to determine the amount that you owe in addition to any penalties and interest. After determining the amount of money you owe to the IRS, there are a few options for resolving that debt. The options available to you depend on your finances and ability to make payments. The IRS will accept a settlement in some instances, particularly when the debtor’s financial situation does not make it possible for them to provide a lump sum payment, or to pay high monthly payments. It is typically a good idea to consult a tax professional, who can provide you with more guidance specific to your situation.

Read about taxes and bankruptcy.