Being in debt is nothing to be ashamed of. The current economy has hit a lot of businesses hard. If you have always prided yourself on being debt free, or good with money, you might be tempted to simply pull the covers of your head and ignore your current situation. Instead, I suggest you do what you can to educate yourself about your options. Here are 9 terms you may have heard of, but need to know more about.
1. FDCPA (Fair Debt Collection Practices Act)
The Fair Debt Collection Practices Act (FDCPA) is a federal law that restricts the behavior of collection agencies when they are attempting to collect money from individuals. The law does not apply to collecting from businesses. The law also does not apply to collections performed by the business that issued the bill you have not paid. You can learn more about FDCPA in our advice to consumer debtors.
2. Default Provisions
In a contract, a default clause is a provision that states what will happen if either party defaults, or fails to hold up, their end of the contract. You can learn more about default provisions, and why you should create them in your contracts in our Terms and Conditions Handbook.
3. Interest and Collection Costs
One of the clauses in a contract might be about interest and collection costs. These provisions mean that you may owe interest on unpaid debts. You may also be responsible for paying the costs of the creditor hiring a collection agency or legal costs.
4. Acceleration Clause
An acceleration clause is especially common in contracts where there are monthly or quarterly billing. If you default on a payment, this clause allows the company to collect the full amount due under the entire term of the contract, not just the one payment that became delinquent.
5. Credit Counselor
A credit counselor is certified and trained in consumer credit, money and debt management, and budgeting. Counselors can discuss your entire financial situation with you, and help you develop a plan to solve your money problems. It is important to make sure you only see a licensed and reputable counselor. The National Foundation for Credit Counseling® (NFCC®) is the country’s largest nonprofit dedicated to improving people’s financial well-being. They can refer you to counselors in your area that provide financial reviews and help you determine a plan for dealing with your debt. The United States Trustee Program also keeps a list of credit counseling agencies approved to provide pre-bankruptcy counseling.
6. Debt Settlement Services
Debt settlement companies, also sometimes called “debt relief” or “debt adjusting,” are companies that claim to renegotiate, settle, or in some way change the terms of your debt to a creditor or debt collector. These companies can be very risky and using them can have a negative impact on your credit score. They typically charge a high fee for negotiating discounts. In our opinion, credit counselors generally do a much better job for both clients and their creditors.
A judgment is the official result of a lawsuit in court. In debt collection lawsuits, the judge may award the creditor a judgment against you. If you don’t respond to a legal complaint, you will lose your chance to defend yourself and you may find that a judgment is entered against you by default. You can learn more about involving the courts in debt collection here.
Garnishment is when a creditor takes part of your paycheck or money from your bank account to collect money you owe on a judgment. Garnishments generally require a court order. However, certain debts owed to the government may also result in garnishment, even without a judgment.
9. Statute of Limitations
A statute of limitations is the limited period of time creditors or debt collectors have to file a lawsuit or collect money from you. The statutes of limitations varies from state to state and depending on the type of debt you owe. If you are contacted about an old debt, you should check the statute of limitations before paying on it. Anytime you make a payment, you restart the clock. You can learn more about Statutes of Limitations here.
At The Kaplan Group, we work with companies who are owed money. But we know that in a difficult economy being owed money can lead directly to owing money yourself. We are always happy to help our clients understand more about their situation.