Session 8 - Debt Management



Oregon Money Management TrainingSession #8 -- Clients with Excessive Debt – revised 5/17/16Welcome to the Oregon Money Management Program, New Volunteer Training Session #8. In this session, we will cover how to help clients who have excessive debt.Excessive DebtMany clients come to our program with debt. In some cases, debt is slowly accumulated and in others, it’s created by unexpected events like a medical emergency. Some clients worry about debt, and others don’t. Because of these differences, there is no one best way to resolve debt problems. Spending PlanWhen a volunteer begins working with a client, they work together to develop a spending plan. The spending plan provides a picture of the client’s current financial status and is the starting point for creating financial stability. In creating a spending plan, you and your client will be able to determine if funds are available to pay outstanding debt. If it’s possible to pay the debt, payments should be included in the spending plan. However, if the debt exceeds the client’s ability to pay, other arrangements must be made. Paying DebtIf the client has funds to pay some, but not all of it, the debt must be prioritized. For example, because we know that federal debt must be paid, it should be at the top of the list for payment after basic living needs such as; food, shelter, electric, heating, and pharmacy bills. Simply ignoring debt can result in legal action by a creditor. Legal actions may include a judgment against the client, garnished wages and bank accounts, placement of liens against vehicles, homes or other personal assets, and forced sale of property. Volunteers are encouraged to help clients research and understand their options for resolving the debt. However, volunteers may not make decisions for their client or recommend specific debt solutions. Credit CounselingVolunteers may help clients connect with a reputable consumer credit counseling agency. Credit counseling agencies are non-profit organizations that specialize in helping people resolve the personal debt. To locate a reputable credit counseling agency, check the National Federation of Credit Counselors membership list at . Be aware that there are un-reputable credit counseling services to avoid. Credit counseling service should be free or offered at a very low-cost. Decreasing Non-critical ExpensesVolunteers may help clients consider discontinuing or reduce non-critical expenses to free up funds to pay the debt. Non-critical expenses may include cable TV, cell phone service, bank fees, internet service, transportation costs, and eating out. Look for lower cost options such as the use of public library resources for entertainment, discount cell phone services, and use of the food resources such as the food bank, Meals on Wheels or food stamps. Bank fees are a good place to find savings. Look to see if bank fees can be reduced or eliminated. Is there a lower cost or free checking account available? Avoid expensive overdraft fees. Stop using credit cards and pay them off as soon as possible to reduce interest expense. Owning and maintaining a car is a huge expense that many people cannot afford. People seldom consider the true costs of owning and operating a car beyond the actual cost of the vehicle. Insurance, fuel, maintenance, registration and license all add up to a pretty significant bill. Volunteers can help clients consider alternate and lower cost transportation options. When a car is infrequently needed, explore short-term, low-cost car rental services like Zip Car. Consider public transportation options, or using a taxi. Perhaps moving to a location where using public transportation is more accessible could be considered. When possible, the client should return purchases that helped create the debt.Increasing IncomeVolunteers may help clients consider opportunities to increase income to repay debt. Added income may be employment, starting a small business, renting out a room, selling non-essential possessions or handcrafted items, babysitting, etc. Consider lower cost living arrangements such as shared housing, renting a smaller apartment or just a room. There are federal, state and local housing programs for people with low incomes in most urban areas. To learn about housing options in your area, please connect with the Adult and Disability Resource Center (ADRC) by visiting or calling 1-855-673-2372. Reverse MortgageIf the client owns their home, a reverse mortgage or a property tax deferral program may be considered. Check with National Council On Aging to find free reverse mortgage counseling.Property Tax DeferralProperty tax deferral programs may help veterans, seniors and people living with disabilities stay in their homes. Because deferral programs are different for each county, it is necessary to contact the client’s county tax assessor’s office to find out if your client is eligible. BankruptcyDepending on the client’s circumstances, bankruptcy may or may not make sense. For most clients bankruptcy isn’t the best option because of the costs associated with filing. People who plan to file must get credit counseling from a government-approved organization and complete a debtor education course. In most cases there are fees for bankruptcy counseling and educational courses in addition to court filing fees and attorney costs. Be sure to discuss options with your Region Coordinator before helping a client with bankruptcy issues. For information about filing bankruptcy in Oregon, check Oregon Legal Aid at . Volunteers may help clients negotiate with creditors to reduce fees, interest or payment amounts if doing so will enable the debt to be paid. However, negotiating interest only payments will not help the client get out of debt and should not be considered. Creditors are willing to negotiate if doing so will reduce their loss. Collection AgencyWhen a creditor is unable to collect a debt, the debt is usually sold to a collection agency for pennies on the dollar. Creditors are usually much easier to work with and interested in negotiation than collection agencies. Addressing the debt early is important because once the debt has been sold negotiating with the creditor is no longer an option. It is difficult to negotiate with a collection agency. They are typically demanding, abrasive and sometimes threatening. If the collection agency believes that they will not be able to collect the debt, they will often sell the debt to another collection agency to recover some of their investment. It’s important to get information about the debt that is being collected. Clients should never agree to make payments until they have a full understanding of the source, the amount of the debt, and an affordable payment plan has been offered. After seven years the debt is discharged and no longer collectible, however, if a payment is made on an old debt, the clock is reset for an additional seven years. For this reason, collection agencies will work hard to convince a debtor to make a payment on an old debt even if it is just a small amount. Collection agents may be willing to speak with a volunteer if the client has given the agent permission to do so. Telling the collection agent that you would like to help resolve the debt may cause them to be more cooperative. Ask your client if they have received any letters from the collection agency. Within five days after contacting the client for the first time, the collector must send a written notice that explains the amount owed, who it is owed to, and how much time there is to dispute the validity of the debt. If the debt isn’t disputed within 30 days of receiving the notice, the debt will be assumed to be valid. Collection Agency HarassmentCollection calls can be stressful to clients. There are consumer protection laws in place to protect individuals from unreasonable harassment. However, many collection agents tend to push the limits of this law. The basic rules regarding collection efforts are: they must identify the agency and that they represent; they may only call between 8:00 a.m. and 9:00 p.m.; and if asked they must stop calling.If a client wants the collection agency to stop calling, the client should write a letter to the collection agency. The letter should include information that will identify the debt, and ask that calls stop. Once notified, the collection agency may call only once more to inform the client of any future action that will be taken. However, just because the calls have stopped doesn’t mean that the debt has been resolved. GarnishmentCollection agencies may attempt to obtain a court order to collect a debt. Garnishment is a legal process that lets a creditor take your money or property to pay a debt you owe. Creditors may garnish your client’s bank account or property only after they have sued and obtained a court ordered judgment. Because there are costs associated with filing a suit to collect a debt, if the creditor is made aware that the client has little or no assets available for repayment, they are less likely to take legal action. Federal and state laws protect federal benefits from court ordered garnishment. If the client’s only source of income is federal benefits, and they do not have the ability to repay the debt, a letter should be written to the creditor or collection agency. The letter should advise that the only source of income for the client is federal benefits and that the benefits are needed for the client’s basic living expenses. It should also advise that there are no other assets available to repay the debt and ask that collection efforts be discontinued. A sample letter is provided at the end of this session. If a Payee client is unable to sign the letter to the creditor, the Payee volunteer may write and sign the letter on behalf of their client. Bill-Pay clients must sign their letters. Be sure to give a copy of such letters to your program office to be placed in the client’s permanent file. Other payments protected from garnishment are: Public assistance payments from the state or a state agency; unemployment compensation; public or private retirement payments, workers’ compensation payments, and Black Lung benefits payments. If the client has income that is not protected but does not have sufficient funds to repay the debt, a letter should be written and signed by the client, advising that all of his or her income is needed for basic living expenses and that no further collection efforts should be made. However, on-going attempts may be made to collect the nonfederal funds or attach other assets such as a car or home. If your client receives notice of a lawsuit, it is critical that it be followed up promptly. If the client receives a notice to appear in court, they should plan to appear and provide the judge with an explanation of their situation. This approach could result in a ruling in the client’s favor. However, if the client does not make an appearance, the collector will prevail by default and a court order is likely to be issued and used to garnish income legally and attach assets. The best way to protect Federal benefits from being wrongfully garnished by creditors is to have them directly deposited into a bank account with no other funds. Direct deposit provides proof that the funds in the bank account are federal benefits. It’s important not to add any other funds in benefit accounts. Other deposits made to the account may be considered nonfederal benefit dollars and may make the entire balance attachable. If it is suspected that legal action may be taken to collect a client’s debt, the bank should be able to provide the client with an “Affidavit of Income Not Subject to Garnishment.” This Affidavit is designed to protect the client’s federal benefits that were directly deposited into their bank account from garnishment. Typically Affidavits must be notarized so the client should be prepared to provide two pieces of ID. There should be no cost to file this Affidavit, and once it is in place, the financial institution must protect funds from garnishment. Because Payee accounts may not hold funds other than federal benefits these funds are protected. Bill-Pay clients involved in collection efforts should also not co-mingle their federal benefits with other monies. There are a few exceptions to the federal protection rules. Federal benefits may be attached to repay federal tax debt, child and spousal support, and other federal debt such as student loans, federal mortgages, etc. Additionally, in Oregon, garnishment of SSI benefits to collect child or spousal support is not allowed. In Oregon, banks are allowed to offset overdraft charges and bank fees from direct deposited federal benefits. Debt can sometimes be sold to other collection agencies which can result in on-going calls and the need for additional letters. Communication with creditors should be done in writing with copies of the correspondence saved as evidence if the creditor does not follow debt collection laws. This concludes session #8 of the OMMP volunteer training. For questions about the information covered in this session, please contact your Program Coordinator or Team Leader. If you are ready to take the quiz, log into ClassMarker using the username and password: ................
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