Debt negotiation differs greatly from credit counseling and debt management plans (DMPs) put together by legitimate firms such as Money Management International, the largest credit counselor in the nation, headquartered right here in Houston. Debt negotiation or “debt settlement” companies can be very risky, and have a long term negative impact on your credit report and, in turn, your ability to get credit. That’s why many states including Texas have laws regulating debt negotiation companies and the services they offer.

The Claims

Debt negotiation firms may claim they’re nonprofit. They also may claim that they can arrange for your unsecured debt — typically credit card debt — to be paid off for anywhere from 10 to 50 percent of the balance owed. For example, if you owe $10,000 on a credit card, a debt negotiation firm may claim it can arrange for you to pay it off with a lesser amount, say $4,000.

The firms often pitch their services as an alternative to bankruptcy. They may claim that using their services will have little or no negative impact on your ability to get credit in the future, or that any negative information can be removed from your credit report when you complete their debt negotiation program. This is not true. The firms usually tell you to stop making payments to your creditors, and instead, send payments to the debt negotiation company. The firm may promise to hold your funds in a special account and pay your creditors on your behalf. I have seen these companies file bankruptcy, or just close down and leave with all their customers’ money.

The Truth

I have had several prospective clients come into my office to see me that have hired a Debt Settlement or Debt Negotiation Company to help them "settle" their debts, particularly credit card debts.  Needless to say, the people that come in to see me about bankruptcy have not had satisfactory experiences with these types of companies. Some of them have paid them many thousands of dollars, and finally realize that they have to file bankruptcy anyway.

  In fact, many of these services are not operating legally in Texas. In Texas, debt management or debt "pooling" services are regulated by the Texas Debtor Assistance Law, which is Chapter 394 of the Texas Finance Code. The Texas Finance Code can be located at: http://www.statutes.legis.state.tx.us/Docs/FI/htm/FI.394.htm (See Chapter 394). 

Also, these services must be registered with the Texas Consumer Credit Commissioner in order to be operating legally. A list of those services that are registered is on the web site of the Texas Consumer Credit Commissioner at http://www.occc.state.tx.us/pages/searches.html Click on "List of Debt Management Services Providers" to see if your service is listed.  

 

If you are a Texas resident, and your debt management service is not listed on that page, or if they have violated other provisions of the act, you may have a right to recover from them: (1) all the money you've paid them; (2) any actual damages you've suffered as well as punitive damages; (3) attorney fees for enforcing your rights; and (4) injunctive relief (a court order stopping them from continuing to operate illegally). ■

NEW CREDIT CARD RULES

(Continued from last month) 

Improved disclosures: As of February 22, 2010, credit card issuers must provide new, clearer and

more timely disclosures of account terms and costs — before and after an account is opened. This will help consumers choose the right card, shop for better deals and avoid mistakes.

Monthly credit card statements will be changing significantly. Card statements must include a box showing cardholders how much they have paid in interest and in fees during the current year. Statements also will include details warning consumers about the high costs of making only the minimum payment. 

To further help cardholders plan how to repay outstanding balances, the law will require statements to show the monthly payment amount required to pay off the existing balance in 36 months, including the total cost (payments and interest). Periodic statements also must disclose, in a prominent location, the due date for the next payment as well as the amount of any potential late fee and the date it would be charged. Statements also must include a notice that one or more late payments may trigger an increase in the interest rate on the account, and they must show the penalty rate.

Finally, consumers may benefit from a requirement that card companies post their standard credit card agreements on the Internet. This is intended to make it easier for consumers to compare the terms of different credit cards and understand the interest rates and fees that are being charged.

Other changes worth noting:

• Fair deadlines for credit card payments:

As of February 22, 2010, the due date for card payments must be the same day each month. This change is intended to prevent consumers from incurring late fees as a result of accidentally missing a due date because it changes from month to month. If the due date falls on a holiday or

weekend, the deadline is considered to be the next business day. Also, card companies must accept and promptly post payments received by 5 p.m. (local time) on the due date. They can no longer, for example, have early morning deadlines for payments to be credited on the due date.

Lots more, continued next month. ■

Something funny—

Sneaking around

Three co-workers decided to take the day off because their boss, a busy lawyer, was out of the office. One of them went shopping; another one went to the bar.

          The third employee went home to surprise his wife. But when he walked quietly in, he spotted his wife and his boss heading upstairs to his bedroom, holding hands. They didn’t notice him, and he quietly left.

          The next day, the first co-worker said: “That was fun. Let’s do it the next time the boss is gone.”

         “Absolutely,” said the second.

         “Are you kidding?” asked the third employee. “I almost got caught! ■

Irish proverbs

You’ve got to do your own growing, no matter how tall your grandfather was.

If you’re lucky enough to be Irish, then you’re lucky enough.

It is better to be a coward for a minute than dead for the rest of your life. ■

ARE YOU IN CHAPTER 13 NOW? Always keep the law office updated with your current address, telephone numbers, and email address. We may need to reach you quickly. 24 hours/7 days a week, you can check on the status of your Trustee payments, how much you still owe on your case, etc., by going to www.13datacenter.com to set up your user ID and password. Lose job or overtime? Expenses increase? Want to give up property to lower payments? Go to www.jthomasblack.com , click on “ Current Clients Click Here” on home page, and fill out the Motion to Modify worksheet. Fax to office at 713-772-5058. We’ll review it and contact you if a change to your plan is possible.

J. Thomas Black was licensed as an attorney in Texas by the Texas Supreme Court in May, 1982. Mr. Black is Board Certified in Consumer Bankruptcy law by the Texas Board of Legal Specialization.