Thursday, September 25, 2014

Yes A Debt Collector Can Take Money Out Your Bank Account


Can a creditor or debt collector seize money from your bank account if you can’t pay your debt? It’s a terrifying scenario to someone who is just getting by and needs every penny to put food on the table, gas in the tank, and to pay their essential bills. Several of our readers have expressed this fear, or experienced it, firsthand:
  • Joan wrote that she was unemployed and was worried about a creditor taking money out of her bank account.
  • “Non” said a creditor wiped out her savings account.
  • Another reader said their bank account was seized to satisfy a court judgment they thought was taken care of when they were taxed for the “canceled” debt.
The short answer is, yes. Funds in your bank account could potentially be at risk if you don’t pay your debts. But there are important limitations that apply.
Here, bankruptcy attorney Eugene Melchionne explains how it works in Connecticut, the state where he practices. The rules and procedures may be different in your state.

Sue Me

The first line of protection you have is the courts. Typically creditors can’t just dip into your bank account; they first have to get a court order to do so. Often that means they must successfully sue you and then get a judgment. Melchionne explains:

“In Connecticut (and in most states and in most situations), a creditor can only seize a bank account on a debt with a court order. This is usually after a judgment enters and other conditions exist (such as failing to pay the judgment). In Connecticut, this is called an ‘Execution of Judgment on a Bank Account’.” He notes that “sounds ominous,” and for someone facing that, it probably is.
In rare circumstances, he points out, there may be procedures that allow a creditor or collector to seize funds before judgment has been entered. But it’s not typical for most consumer debts.
However, there’s one very important exception: When you owe money to the same financial institution that holds your account, your money may be fair game.

Your Money Is Our Money

I have a car loan through the same credit union where I have a savings account. When I opened that account, the paperwork I signed clearly indicated that the balance in my account could be used to pay a debt owed to the credit union.

This is known as the “Common Law Right of Setoff,” says Melchionne. “This is where the state follows the old English Common Law and the bank account is held in the same bank to whom the money is owed. In those cases, the bank (or credit union) has the right to invade the bank account and take the money to satisfy the debt.” This action does not require a lawsuit or judgment first.
And even in states that don’t recognize this common law, Melchionne says that financial institutions typically make this part of the contract. “This is why I always advise my clients to move their bank accounts if they also owe money to that institution,” he adds.

But I Can’t Afford It

Chances are, if you have unpaid delinquent debt, it’s because you can’t afford to pay it. Having all or part of your bank account seized would likely create a hardship when it comes to paying other bills. Missing payments on other debts may, in turn, hurt your credit scores and compound your problems. Again, there may be some consumer protections in your state, but only if you know how to exercise them.
“Usually there are some safeguards such as a minimal amount that can be exempt from seizure in the account (in Conn., it is $1,000) and a procedure for claiming that exemption,” says Melchionne. “However, if you do not follow the procedure (for exercising your consumer protections), you could lose the entire bank account to the creditor, not to mention the bank fees for administering the court papers. (It seems they have a fee for everything.)”

Joint Account Danger

If you share a joint savings or checking account with someone who is delinquent on their bills, you run the risk that the account could be seized — including your funds in the account. “If it is truly a ‘joint’ account, then both parties to the account (or three or four) are all considered 100% owners of the account at all times,” he notes. “So a judgment against one of the owners is as good as a judgment against all of the owners of the account, which is to say an execution filed against any one owner can result in loss of the entire account.”

In fact, Melchionne recommends elderly clients give their adult children Power of Attorney on their parents’ account if they need to write checks or manage bills, rather than adding them onto the account as joint account holders – “especially if the child has bad debt.” Of course, he notes, there’s always the risk that the person with Power of Attorney could steal from the account.

Exception to the Rules

Of course, like any area of law, there are exceptions to the rules. “There are whole books written on this subject,” says Melchionne. But a few key exceptions are worth pointing out. If the only funds in your account come from sources like Social Security income, those funds may be protected under a regulation titled “Garnishment of Accounts Containing Federal Benefit Payments.” In addition, custodial or trust accounts get different treatment, says Melchionne, and “some states recognize ‘Tenancy by the Entirety’ or ‘Community Property’ which gives a spouse special rights in marital property or property acquired during the marriage.” Talking with a consumer law attorney in your state is one of the best ways to find out what laws apply to your situation.

How to Protect Yourself

First, be very careful about allowing a friend, relative or significant other to share your checking or savings account. It’s particularly risky if they can’t get their own account because they have credit problems. Your funds could literally be at risk if a creditor comes after them.

If you have unpaid debts, it’s essential that you get your free annual credit reports to find out whether there are any judgments listed. Then take advantage of free credit monitoring tools to watch for changes in your credit scores (which you can check for free on Credit.com) that could indicate a new collection account or a new judgment. Surprisingly, a significant number of consumers don’t realize that they were sued for a debt and that the creditor or collector obtained a judgment — often because they didn’t show up.

If you discover there is a judgment against you, or if you are being sued for a debt, talk with a consumer bankruptcy attorney. (You can find one through the National Association of Consumer Bankruptcy Attorneys.) Even if you don’t want to file bankruptcy, the attorney can explain what the creditor may be able to do to collect from you — including whether they may be able to seize money from your checking or savings accounts. If it’s unlikely you’ll be able to pay the debt soon, bankruptcy may be your best option for protecting the money in your accounts and putting the debt behind you.

Saturday, September 6, 2014

Credit Score Differences[Community Resources]


There are few numbers in life that matter as much to your financial outlook and well-being as your credit score. However, confusion is the norm for consumers when it comes to this important financial gauge.

The History of Credit Scores

Prior to the creation of standardized credit scores, lenders and loan officers would often develop their own "score card" to assess the risk of lending to a particular borrower. This score card was based solely on one's credit report and could vary drastically from one lender to the next. The major issue with this original method was that it was based on a loan officer's ability to judge risk, rather than a common set of rules and specific calculations.
So, in the 1970's, the Fair Isaac Company set up the first credit scoring system in order to help remove the inherent inconsistencies that arose from having each lender perform their own credit diagnostics. It has since become known as the FICO score and the algorithm has been widely adopted by America's largest credit reporting agencies.

Why Would My Score Differ Between Credit Agencies?

The three major credit bureaus are Equifax, Experian and TransUnion. Simply put, the reason that the scores you receive may differ is that each score is dependent on the credit report that each receives and the scoring model they use.
In other words, Equifax might have not exactly the same information on you as Experian and vice versa. One credit bureau may be missing an account that either helps or hinders your score and will therefore report a different credit score than another credit bureau. If the system was perfect, this wouldn't happen. But since it isn't, you want to make sure that they all have the proper information by checking your free TransUnion credit report on Credit Karma and the others on www.AnnualCreditReport.com.

Why Would My Score Differ Between the Same Credit Agency?

Credit bureaus use many different scoring models, even within the same credit bureau. Each bureau can use dozens of different credit score models based on the requirements of different lenders.
Each credit score model has a slightly different formula that takes into account over 200 different factors of your credit report; like a thumbprint, no credit score model is exactly the same. In addition, credit scores can change anytime so you have to make sure you are comparing credit scores from the same day.
As an example, a mortgage company will get a different score than a company providing auto loans, since they are looking for different types of credit history and credit factors.

Other Available Scores

While FICO is the most famous, there are several other versions and providers of credit scores, such as VantageScore, NextGen, BEACON and EMPIRICA. Some scores are directly developed by credit bureaus, while others are developed by outside companies.

Is there a "Best Score?"

In a word, no. In order to protect revenues, credit reporting agencies will often position their scores as the best or the most predictive. In reality, all scores must adhere to similar guidelines to be truly predictive, regardless of the final output number. All credit scores are built from the same base set of data and statistical procedures.
Like many products and services in the marketplace, there are a plethora of different options for you (and the businesses that serve you) to choose from, simply because every buyer is different. Based on cost and effectiveness in each buying situation, there are credit scores for sale to satisfy each customer.

Score Ranges

Just as a point of reference, it may be important for you to know what the score rangers are for each of the major reporting agencies. While each agency uses internal predictors of certain events (e.g. how likely you are to file bankruptcy), the final credit score is not meant as a probability-meter for any specific event. In any case, the higher your score the better, as it is a general gauge of your overall credit worthiness in the eyes of lenders.
  • FICO: traditionally between 300 and 850
  • Experian: 330 - 830
  • Equifax: 300 - 850
  • TransUnion: 300 - 850
  • VantageScore: 501 - 990 (often assigned a letter grade, A - F)