A Michigan couple that paid of $92,000 in credit card debt in 5-1/2 years has been honored with an award by a national debt relief organization.

Jerry and Sue Bailey, from Jackson, were awarded Clients of the Year this week by the National Foundation for Credit Counseling (NFCC), a nonprofit association of credit counseling agencies that help consumers manage their finances so they can get out of debt.

Between 1992 and 2005, the Bailey’s racked up $92,000 in debt across 17 credit cards paying for things like weddings for their daughters, car repairs, and home repairs. Everything they paid for went on a credit card. “We got caught up with ‘More is better’ and ‘How much is enough’,” Jerry Bailey said (“Michigan Couple Honored for Paying off $92,000 Credit Card Debt,” Fox Business, Sept. 28, 2011).

When they were faced with putting the cost of their daughter’s wedding reception on a credit card, they realized how much debt they had.

And then came the mail and phone calls from creditors.

When the couple sought help from their local credit union in 2005, they were eventually referred to GreenPath Debt Solutions, a nonprofit credit counseling service and NFCC member based in Farmington Hills.

Credit counseling agencies provide clients with debt relief by enrolling financially troubles consumers in debt management plans. In debt management plans, the agencies typically negotiate affordable monthly payments with creditors. Clients then make monthly payments to the agency, which in turn distributes the money to creditors each month until the debts are paid off.

The Baileys’ debt relief program, combined with stubborn budgeting, sacrificing, and taking on extra work to earn more income, allowed the couple to finish paying off their staggering debt in October 2010. When Jerry Bailey got the call from his credit counselor that they had completed the program, he couldn’t believe it. “I had her repeat it because I wasn’t sure,” he said.

The couple offers simple advice for those who may be in the same position they were six years ago: save a little bit from each paycheck and get rid of all but one credit card and pay it off each month.

Sue Bailey also recommends that people think hard before buying something. “If you don’t have money to buy something,” she said, “then you have to ask, do I need it or do I want it and can it wait until later.”

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The U.S. Federal Trade Commission (FTC) has filed a lawsuit in against the owner of several websites that fraudulently offer debt relief, mortgage relief, and tax debt relief services while purporting to be federal consumer agencies or associated with such agencies.

According to the federal complaint, websites operated by Christopher Mallett of San Antonio, Texas illegally claim a connection to the U.S. government and purposefully mislead consumers into thinking they are visiting federal debt relief websites. Mallet allegedly does business as the official-sounding but nonexistent Department of Consumer Services Protection Commission. He also does business as U.S. Debt Care, World Law Debt, and U.S. Mortgage Relief Counsel, and his websites include gov-usdebtreform.net, worldlawdebt.org, usdebtcare.net, and FHA-HomeLoan.info.

When consumers signed up for the services — under false promises of that their debts could be settled by official government programs for 16 percent to 40 percent less than what was owed — their information was simply passed on to various private-sector debt relief companies that contracted with Mallett for the sales leads.

Mallett, who is a “lead generator,” allegedly used the names of his businesses and his websites to imply and promote a connection to the federal government. The websites “depicted the FTC’s official seal, copied language about the fictitious agency’s supposed consumer protection mission almost verbatim from the FTC’s site, and claimed that the fictitious agency ‘monitors and researches’ member companies that provide financial assistance to American consumers” (“FTC Asks Court To Halt Defendant from Impersonating Federal Agencies,” FTC press release, Sept. 22, 2011).

The website FHA-HomeLoan.info, representing the fictitious government agency Mallett called the U.S. Mortgage Relief Counsel, “included a picture of the U.S. Capitol building and promised that the ‘Counsel’ would direct consumers to ‘officials licensed with the National Mortgage Licensing Service (NMLS), persuant [sic] to the SAFE act of 2008.’ ”

According the FTC, neither Mallett nor any of his businesses or websites has ever had a connection to the FTC or any other government agency or program.

The FTC has asked the U.S. District Court for the District of Columbia to permanently shut down Mallett’s operation.

Curiously, the FTC vote to file the complaint wasn’t unanimous. FTC Commissioner J. Thomas Rosch voted no, making the final vote 4–1 in favor of filing the complaint.

Further Reading

Complaint for Permanent Injunction and Other Equitable Relief: Federal Trade Commission v. Christopher Mallett. Filed September 14, 2011.

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A Maryland District Court judge on Wednesday provided yet another round of debt relief for beleaguered Maryland consumers under attack from debt collection companies operating improperly in the state.

Chief Judge Ben C. Clyburn, who has already dismissed thousands of debt collection lawsuits, dismissed another 314 lawsuits filed by a debt collection company that was not licensed to collect debts in Maryland.

Clyburn dismissed the cases under the terms of a settlement agreement reached last week between Cantonsville-based Sunshine Financial Group and the Maryland State Collection Agency Licensing Board. The lawsuits, which sought to collect consumer debts, can be re-filed in the future after the company receives a Maryland debt collection license.

As part of the settlement, hundreds of other Sunshine Financial lawsuits were also resolved. Clyburn ordered that attorney fees be indicated as satisfied on 323 other cases that had already gone to judgment. On 19 other cases that had already gone to judgment, Clyburn ordered that attorney fees and pre- and post-judgment interest be indicated as satisfied (“Judge Dismisses Hundreds of Maryland Debt Cases,” The Baltimore Sun, Sept. 21, 2011).

Under terms of the settlement agreement, Sunshine Financial agreed to drop hundreds of debt collection lawsuits and repay or forfeit $665,000 in attorney fees and compound interest that the company improperly sought.

Tis week’s settlement agreement with Sunshine Financial is just the latest in a series of judgments that Clyburn has handed down against debt collectors. Last year, the judge dismissed more than 27,000 debt collection lawsuits against Maryland residents after the dissolution of the Mann Bracken LLP law firm. In March, he dismissed 10,000 debt collection cases under the terms of a settlement agreement in a class-action lawsuit against embattled debt collector Midland Funding.

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There’s a lot of talk about debt relief programs, including debt settlement, debt management, and debt negotiation, that promise to decrease your debts in exchange for sometimes hefty fees. Some people may need these programs, but others could do with help that’s a little less extreme. If you’re one of these people, and just need some help organizing your debts and staying on top of them, here are six steps for making your own personal debt relief program.

1. Create a system for paying bills

The first step to building your own personal debt relief program is to create a system to organize and stay on top of all your bills, not just your credit cards, so you can avoid late fees and interest charges that might put you further in debt. Consider setting up a little “bill station” at your computer desk or kitchen counter with an envelope opener, checkbook, pen, and stamps, if you pay your bills by mail. Open all your bills immediately and pay them immediately, regardless of when they’re due, or create a system to file and pay bills by their due date. Whatever you do, keep your system simple and use it every day.

2. Consider using prepaid credit cards

Prepaid credit cards allow you to front-load money so that you can still use the card — and gain all the conveniences and benefits of using a credit card, such as building a credit history — while easily budgeting for what you can spend over a certain period.

3. Use software tools to help you create and maintain a budget

Software such as Quicken or websites like Mint.com allow you to manage your finances easily on your computer and often come with smartphone apps to help when you’re out and about. You can use the tools to set spending limits, track your purchases, and send alerts when you’re over budget.

4. Sign up for text message and e-mail alerts

Many credit cards offer to send you text message and e-mail alerts when your statement has been issued. You can also probably set up your account to send alerts as certain number of days before your bills are due. Other companies, such as cell phone companies, also provide alerts. Sign up for all of them so that you’re never blindsided by a past-due notice.

5. Set up automatic payments

While alerts are very useful, the most sure-fire way to avoid past due bills is to set up automatic payments on your accounts. Automatic payments can be set up to draw the minimum due from your bank account each and every month so that you never have to worry about being late. You can always make additional payments on things like credit cards when you have the money. However, make sure you budget for the payments and have the money in your account. You’ll get charged a fee if you don’t.

6. Build an emergency fund to stay out of debt

Now that you’re on your way out of debt, the best way to avoid going back into debt in the future is to build up an emergency cash fund. To avoid using your credit cards for emergencies, set up a free savings account with your bank as soon as possible and make deposits to it each paycheck. You can start small — even $10 helps. Make sure you find out if your free savings account requires that you have to deposit a certain amount each month or if there are minimum balances. You don’t want to have to pay to have an emergency fund.

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For over 50 years, Wisconsin residents have been able to take full advantage of a unique debt relief option that allows them to select debts an amortize them with creditors. But a Milwaukee County judge put an end this month to a wildly popular maneuver that let residents avoid power disconnections, or even get re-connections, despite owing utilities thousands of dollars.

Unlike Chapter 7 or Chapter 13, Chapter 128 is not bankruptcy and it offers no federal protections. However, it does offer residents debt relief by allowing them to consolidate their debts and pay them off over a three year period. Examples of debts that are eligible for Chapter 128 include credit card debt, medical debt, rent, and utility payments.

But, according to We Energies, a Milwaukee-based utility, some residents have been using the debt relief protection as a way to skirt their responsibilities and prevent power disconnections while avoiding making payments on their utility bills.

We Energies for years treated Chapter 128 like federal bankruptcy and wouldn’t disconnect power to delinquent customers. In some cases, the company would even restore power when they received a Chapter 128 petition. But the dramatic increase in Chapter 128 filings of the past several years led the company to question the practice and seek clarification from the courts as to whether the stature required that they refrain from turning off a petitioner’s power.

Circuit Judge William Pocan ruled that it does not.

According to Todd Nelson, the attorney representing We Energies, most of the Chapter 128 filings in Milwaukee County last year included the utility as on of the creditors and hundreds listed only the utility.

“It’s one thing to file and actually make payments,” Nelson said. “It’s another to file with sole intention to avoid disconnection and (no intention) to make a payment, or even have any means to make payment” (“Milwaukee Judge Takes Away Popular Debt Maneuver,” The Milwaukee Journal Sentinel, Sept. 9, 2011).

Lawyers Criticized for Turing Debt Relief Statute Into Huge Money-Maker

Chapter 128 has provided debt relief for Wisconsin residents since the 1930s, but has only recently become popular. Although the statue first provided protections for small businesses, residents have had personal debt relief protections under the statute for more than five decades. Chapter 128 was rediscovered about 10 years ago and filings exploded when the recession hit in 2007. Filings doubled from 2008 to 2009 and tripled from 2009 to 2010. Filings are on pace to double again this year.

Some attorneys in the state have been criticized for using the renewed popularity of Chapter 128 as a cash cow, since consumers typically pay lawyers hefty fees in such cases. One attorney reportedly took her first Chapter 128 case in 1994 and now her and her staff of three keep an active caseload of about 500, with fees averaging more than $500,000 a year (“Chapter 128 Filings on the Rise in Wisconsin,” The Milwaukee Journal Sentinel, July 5, 2010).

Other attorneys remain wary of Chapter 128. They point out that it doesn’t offer the same protections as Chapter 7 or Chapter 13 federal bankruptcies and, because Chapter 128 is unique to the state, it can still end up on credit reports as a bankruptcy.

“You can’t cram down or strip down the debt,” said Richard Check, a Milwaukee-based bankruptcy attorney. “In Chapter 13, you might pay pennies on the dollar. In Chapter 7, maybe nothing.”

Check said that many who file for Chapter 128 could probably do better by turning to a nonprofit credit counseling service, which can negotiate lower interest rates and a five-year repayment plan while providing debtors education about credit, budgeting, and personal finances.

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A federal class-action lawsuit against a debt collection company and several co-defendants accused of altering their true identities in collection letters was allowed to continue Wednesday after a U.S. District Court judge denied the defendants’ joint motion to dismiss.

U.S. District Judge P. Kevin Castel refused to dismiss a class-action lawsuit against Cohen & Slamowitz LLP — a New York–based firm that provides legal representation for debt collectors — and co-defendants Encore Capital Group, MRC Receivables Corporation, and Midland Credit Management Inc., ruling that the co-defendants could be held vicariously liable for alleged violations of the federal Fair Debt Collection Practices Act (FDCPA) committed by Cohen & Slamowitz (“Class Action Lawsuit Filed Against Cohen & Slamowitz Continues,” Weisberg & Meyers LLC press release, Sept. 14, 2011).

According to the original complaint against Cohen & Slamowitz, filed in Nov. 2010, the company allegedly mailed thousands of debt collection letters from “The Law Offices of Cohen & Slamowitz” that contained multiple FDCPA violations, including altering the identities of the parties involved in collecting the debts and offering a “special discount” to settle the debts in full.

Although plaintiffs’ debts were originally purchased from Citibank by Encore Capital Group, the letters allegedly falsely represented the creditor as “Midland Credit” rather than “MRC Receivables.” Additionally, Cohen & Slamowitz allegedly altered its legal name in the letters by adding the prefixes of “The Law Offices of” and “Law Firm Of.”

The debt collection letters mailed by Cohen & Slamowitz also allegedly contianed a “Tax Season Special Discount” offer to settle plaintiffs’ debts for 50 percent off the amount owed.

Cohen & Slamowitz is one of 75 debt collection law firms that comprise an outsourced legal collections channel used by Encore Capital Group’s network of complex operational channels, which include MRC Receivables and Midland Credit Management. According to the lawsuit, the interconnected relationship makes Encore Capital Group, MRC Receivables, and Midland Credit Management liable for FDCPA violations committed by Cohen & Slamowitz.

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Maryland’s highest court last week approved changes to a set of rules that will require debt collection companies operating in the state to do a little more work before they start suing debtors.

The Maryland Court of Appeals said that debt collection companies should provide greater proof that consumers actually owned the debts that debt collectors were attempting to collect by filing debt collection lawsuits. In it’s ruling, the court agreed to revise three rules of the Maryland Rules of Procedure that will force debt collection companies to present evidence that sufficiently verifies the nature and ownership of supposed debts.

In June, the Maryland Attorney General’s Office and the Department of Labor, Licensing and Regulation urged a court committee to recommend the new rules to counter insufficiencies in data and recordkeeping that are common in the debt collection industry (“Md. High Court Approves Rules to Protect Consumers From Debt Collection,” The Baltimore Sun, Sept. 7, 2011).

Debt collection companies purchase past-due consumer debt — typically credit card debt — from creditors at pennies on the dollar and then attempt to the collect the debts using various tactics. When debts are paid, debt collection companies share a portion of the recovered money with creditors. When it isn’t paid, debt collection companies file lawsuits against consumers in an attempt to recover the debts.

However, when debt collectors buy defaulted accounts from creditors, they usually don’t bother paying the money necessary to acquire corresponding documents, like signed agreements or a list of purchases, that would verify the details in the databases of defaulted accounts acquired from creditors. Nevertheless, debt collectors often swear in affidavits that their information about the nature, amount, and ownership of the debts they’re suing to collect have been reviewed and are accurate.

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Thousands of Maryland consumers will gain significant debt relief from a settlement agreement reached in a class action lawsuit against a debt collection company that filed debt collection lawsuits against consumers but was unlicensed to collect debts in the state.

Under the terms of the settlement agreement, South Carolina–based LVNV Funding LLC will forgive about $10 million in personal debt for about 3,500 Marylanders, an average of $2,800 per consumer, as well as additional $2,000 payments to Jason Hauk and Freddy Velasquez, the two men who led the class action lawsuit.

Hauk and Vasquez accused LVNV of “systematic, intentional, and predatory debt collection activities” against Maryland consumers while allegedly operating in Maryland without a license.

The debt collection company didn’t admit any wrongdoing in the settlement. LVNV attorney Ronald S. Canter said that the company “feels its interpretation of the law, which is in keeping with the licensing agency’s initial guidance, is reasonable,” the company “decided to settle this matter with the plaintiffs rather than face protracted litigation with an unknown outcome” (“Debt Collection Firm Forgives $10M in Class-Action Settlement,” The Baltimore Sun, Sept. 9, 2011).

Debt collection companies typically buy consumer debt from creditors for pennies on the dollar and then use various techniques to get consumers to repay their debts. Once paid, the debt collector will share a portion of the payments with the original creditor. In recent years, debt collection lawsuits filed against consumers have increased sharply. Consumers have started fighting back by demanding that debt collectors prove the validity of the debt owed.

A part of the settlement agreement, LVNV will no longer attempt to collect the debts of the 3,500 Marylanders in the class action lawsuit and is prohibited from selling those debt accounts to other debt collection companies. Furthermore, LVNV must attempt to correct the damage it did to each of the debtors’ credit ratings by deleting harmful information it gave to the major credit reporting bureaus.

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The Colorado Attorney General announced a lawsuit last week against a Florida debt relief company for allegedly offering debt management services without a license.

Attorney General John Suthers sued Orlando-based Consumer and Business Debt Counseling Services for providing debt management services in Colorado without registering with the state as required by the Colorado Debt-Management Services Act. The company allegedly enrolled Coloradans in its debt help program between Jan. 1, 2008 and Aug. 12, 2009. The lawsuit also alleges that Consumer and Business Debt Counseling Services failed to comply with state law after Suthers’ office notified the company of its misconduct in March.

Consumer and Business Debt Counseling Services allegedly provided back end debt management services for Johnson Law Group, also based in Orlando. The Johnson Law Group is also the subject of a lawsuit by Suther’s office filed in April. A second company that also allegedly provided back end debt management services for Johnson Law Group, Florida-based Enhanced Servicing Solutions, agreed to pay a $594,000 judgment reached in a settlement agreement with Suther’s office in August (“Fla. Company Sued Over Debt Management Services,” Legal Newsline, Aug. 31, 2011).

According to Suther’s April lawsuit against Johnson Law Group, the company allegedly contracted with 665 Colradans for debt management services between Jan. 2008 and Nov. 2009. During those months, the company was not licensed with the state. The company agreed to halt its business operations in Colorado after receiving a cease and desist order from Suther’s office on July 29, 2009. However, the lawsuit alleges that Johnson Law Group continued to illegally enroll consumers in its debt settlement program despite the order.

Further Reading

“Attorney General Announces Lawsuit Against Florida Company Engaged in Unregistered Debt Management Services,” Office of the Attorney General of Colorado press release, Aug. 31, 2011.

Complaint: State of Colorado v. Consumer and Business Debt Counseling Services, Inc. Filed August 17, 2011.

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If you’ve stopped making your credit card payments because you’re out of work or for other reasons, the last thing you probably want to deal with is a letter from a debt collection company threatening to sue you over an unpaid credit card debt. However, you should take debt collection letters seriously. If you don’t, you could be setting yourself up for disaster.

When the economy crashed in 2008, millions of Americans lost their jobs and stopped making payments on their credit cards. Many who eventually received debt collection notices ignored them, including those who thought they were safe because they had enrolled in a fraudulent debt relief program that falsely promised to settle their debts for a fraction of what was owed. For those who ignored debt collection letters, the letters were often eventually replaced with notices from debt collection companies threatening to sue.

And that’s when the real problems can start, especially if you continue to ignore the letters, Texas attorney Michael Weston told Houston’s KTRK-TV.

According to Weston, 90 percent of consumer who receive notices of debt collection lawsuits ignore them completely. The problem with ignoring debt collection lawsuit notifications, Weston explained, is that debt collectors can show up in court and, if you’re not present, get a default judgment against you. “With a judgment, creditors in Texas [and some other states] can actually garnish your bank account,” Weston said. “They can clean out your bank account” (“Letters From Debt Collection Agencies Need to Be Taken Seriously by Customers,” KTRK-TV, Sept. 6, 2011).

Weston advised consumers who get letters from debt collection companies that threaten lawsuits to pay attention to the letters and take action. Weston said that consumers should first verify the debt. Many debt collection letters are being illegally filed by companies that claim to review the debt history but in reality are signing hundreds of affidavits a day without doing any research. The practice, called robo-signing, can result in debts that are inaccurate or credited to the wrong person and is the subject of lawsuits by attorneys general in Texas and other states.

Consumers should also find out how old the debt is. If the debt is older than permitted by law, consumers might be able to get the debt thrown out.

Weston warned if a lawsuit is ignored and the incident goes to court, a judge will likely rule in favor of the debt collection company.

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