Written By Mathew Bruns

Without a surety bond, certain companies cannot legally operate in their industry. These bonds work as risk-mitigation tools that act more like credit than insurance. Often, surety bonds are three-party agreements involving a customer, a business and a surety agency. In the instance that the business fails to complete its assigned or contracted duties, the customer is protected from financial loss.

Auto dealers, mortgage brokers and collection agencies need to purchase surety bonds to obtain a license to operate. In the case of bonded collection agencies, the bond curbs the likelihood that an agency will mishandle money accrued while it seeks outstanding debts.  If a collection agency mismanages the funds, the company with outstanding debt can file a claim against the surety bond. A valid claim releases the bond and requires the collection agency to pay the company.

For example, an IT training-business hires a Detroit collection agency with a Michigan surety bond to pursue debts owed to the IT company. Instead of living up to its duty, the collection agency bails on the job. Thanks to the surety bond, the IT company is protected against financial harm. The company then files a claim against the bond, and the surety agency deems it a valid claim. As a result, the collection agency must repay the IT company. In case the agency cannot afford to compensate the IT company, the surety will repay the debts.

An un-bonded collector could take money and run. Hiring businesses would have to deal with litigation—which takes time and money—to be repaid by the agency if the ruling goes their way. However, bonded companies get more business because the bond eliminates legal, financial and time-consuming problems.
But in some fields where surety bonds aren’t required, advertising your business as “Licensed and Bonded” attracts customers. They’re given the peace of mind that they will not get cheated out of money. Also, governments look for bonded companies for contract jobs. When a government contracts a bonded company, the government knows taxpayers’ money cannot be misused.

Nevertheless, some business attempt to operate without buying a bond, even if it is required to get an operating license. In order to protect yourself, always search for collection agencies that are bonded.

It is a fact that Americans haunted with outstanding debts and delinquent accounts will typically suffer through a number of punishments for their past mistakes. Threatening collection letters, frequent phone calls, negative credit marks, and even the possibility of getting sued are examples of punishments for not paying up. One only needs to type "debt collector" into Google to find a whole slew of angry, defensive blogs that are anti-debt collector. After all, personal finance, is well, personal, and it becomes a sensitive issue when someone is asking you why you don't have money.

However, a new trend is signaling a power shift- more and more debtors seem to be suing debt collectors first! The Fair Debt Collection Practices Act is a stiff and lofty piece of legislation enacted in 1978 specifically governing what third party debt collectors can and cannot do. Any type of violation of the FDCPA can be reason alone to take a collector to court. The FDCPA states that third party debt collectors can ONLY call between certain hours of the day. With the number of frivolous lawsuits on the increase, I would not be surprised if a third party debt collector got dragged into court for calling someone five minutes before or after the restricted hours.

Do not get me wrong. I think that the FDCPA is totally necessary. When it comes to personal finance, people need to be protected. People also deserve to be treated with respect, and live lives free of harassment and belittlement. But there were 8,347 consumer lawsuits filed against collection companies in 2009. That's a 55 percent increase over 2008, and double THAT number filed in 2007. As the recession persists and people become unable to repay debt, it makes sense that debt collectors may be more aggressive and persistent. But there is an unmistakable trend here: suing debt collectors has become the new thing.

Some of the debtors are plaintiffs suing for the first time. A good amount of these people have substantiated claims of harassment or abuse. In all fairness though, it is a definite possibility that many debtors have simply become more aware of the FDCPA, have come across a surly collections agent and are suing on a technicality. But there is a rarer, stranger breed of debtors who compulsively sue debt collectors. Generally, these people have debts worth tens of hundreds of thousands of dollars, and many have claimed to sue debt collectors as a job in the news. First of all, how does someone even rack up that much debt? These people will purposely bait debt collectors over the phone, and when the exasperated debt collector violates the FDCPA in response, they will immediately be taken to court.

I have seen interviews with these characters, and it's their hope that favorable judgments against collection companies might place them on a "collections blacklist." If he has successfully sued enough debt collectors, other agencies will catch on and want nothing to do with him. This is just puzzling to me. I have always been good with finance and it simply blows my mind that someone could owe ten thousand dollars or more in debt. And it seems like the effort put into suing these debt collectors might be more productively channeled and more fulfilling if put towards obtaining an honest job.

Again, I stress that many debtors who find themselves in court with collection agencies have good reason to sue. But the fact that the number of lawsuits against debt collectors has increased by pretty much one hundred percent in two years seems to prove that suing debt collectors appears to be "the new thing." To be perfectly honest, I work in the field for a legitimate agency, and all of the collection agents I know value their jobs greatly. They know the FDCPA like the back of their hand, and would never lose their temper and jeopardize their jobs. Just like debtors, they also have bills to pay and families to feed.

I think that both people on both sides of the phone need to remember that they are talking to a fellow human being. I have heard anecdotal stories on both ends, about collection agents who threatened to throw debtors into jail (which is completely illegal) to collection agents who are able to offer financial advice and help debtors out of sticky financial situations. So, as someone who is not a debt collector, but spends a lot of time observing the situation, I implore everyone: "Can't we all just get along?"

If you are facing a hard time in repaying your mortgage loan and as a result it is badly affecting your credit score, you can opt for loan modification and save your home from foreclosure.  

What is loan modification? 

If you cannot afford to make monthly payments toward your mortgage, you need to negotiate with your creditors to make some changes into your existing mortgage terms and conditions, by loan modification, so that you can repay the loan, according to your affordability. Your lender may lower your interest rate, decrease your outstanding loan amount, or may even waive off penalties towards late payments. You can negotiate with your creditors on your own or can take help of some third-party professionals.    

What are the eligibility criteria? 

To get approved for a loan modification, you need to fulfill some eligibility criteria mentioned below:  

• Your loan should be insured by Fannie Mae or Freddie Mac
• You are not eligible to qualify for a refinance
• You must be the primary resident of your house
• You are in a state of being delinquent and going into foreclosure
• You are self employed and passing through a hard financial phase
• Your mortgage payments has exceed 31% of your gross monthly income
• You have an adjustable rate mortgage on your current loan
• You do not have any equity on your home

 

What documents are needed for loan modification? 

Along with your application, you need to furnish the following documents:  

• Your salary stubs for last 3 months
• Your current driver’s license
• Tax returns of last 2 years
• Property tax statement
• Statement of your bank account
• Mortgage payment statements
• Details of payments towards other loan
• Monthly payment details towards credit cards

What are the pros and cons of loan modification? 

The pros of loan modification are:

• It helps you to avoid short sale and foreclosure of your home
• Your interest rates gets reduced by a considerable percentage
• Your monthly payments will get lowered
• You can get out of your current ARM and opt for a fixed rate
• You will have peace of mind
• No hoarding will be displayed outside your home, unlike foreclosure

 

The cons of loan modification are:  

• You need to provide proof of your financial disability to the lender
• Your credit sore will be reduced

 

You need to keep in mind that if you opt for a modification program exceeding your affordability, it will ultimately lead to foreclosure. If you take help of a third-party professional, you also need to be aware of scam companies and choose a reliable and authentic one, which will help you to get the best deal. 

If you are being inundated with phone calls from debt collectors demanding money, and advertisements that blare "get out of debt now," debt consolidation and debt settlement businesses may be looking very good to you at this current moment. With debt settlement and consolidation centers, you combine your debts and pay a portion of the total. However, many of these businesses may be just too good to be true.

Any debt consolidation place that seeks to satisfy your debt for "cents on the dollar" should be considered dubious. After all, it is difficult, near to impossible to make and keep a promise like that without being aware of the details of how long you have owed the money, how much money you owe, and to which creditors. These debt consolidation companies aren't aware of your past payment history. They don't know what creditors you owe. Also, each person has different assets that can be used to satisfy their own debts. You can never make a blanket statement.

Debt settlement centers that guarantee that you will be debt free in three months should also be taken with a grain of salt. Again, the business is unaware of how much you owe, or who you owe it to. Additionally, some obligations, such as student loans, child support and back taxes cannot be covered in a debt settlement plan.

Companies that claim that you can not obtain help without paying an upfront fee or deposit may be less than reputable. While some debt consolidation businesses may accept an upfront fee of as little as fifty dollars, generally, the person in debt pays the debt settlement company a percentage of the debt owed, often fifteen percent, for negotiating the deal.

Generally, the firm will negotiate a payment between you and the businesses and people you know and will accumulate enough money to make that payment. The debt settlement company will hold on to the money until you reach the settlement amount.

In the meantime, your creditors are not being paid. Unfortunately, while you are accumulating that payment, you are not paying your bills and you may be delving further and further into more debt. Instead of taking this gamble check out a not for profit credit counseling firm that might charge you only twenty dollars, if anything. Instead of billing the debtor, these non profit counselors will generally get what is called a fair share percentage payment from your creditors after your debts have been paid.

Finally, and most important, do NOT automatically trust in the debt settlement counselor who let's you know that "We will handle everything. You should stop communicating with your creditors." Despite the thought that the idea of not speaking to creditors and ignoring their mail sounds like it could be a real load off of your back, ultimately, it is your debt, your money owed and your credit score at hand. Never send in a change of address form directing all creditor mail to a debt settlement company.

It is important to bear in mind that the creditor is the one with whom you signed your contractual agreement. When all of your statements are being sent to the debt settlement company, you relinquish that control. You do not know how much in interest and late fees are being tacked on. You also won't know if your debt has been moved into collection.

A few final words of wisdom. If you believe that you need debt settlement, try debt management first. Call up your creditors and request suspended payment, reduced interest or any other payment terms that may suit your financial situation in a more favorable light. Even though it might seem like a long shot, or a pain, it is always very important if you are about to miss a payment to call your creditor and say "Listen, I can't make this month's payment. I'd like to work something out with you."

Divorce, coupled with bankruptcy can pose serious problems for those involved. When a married couple who no longer wishes to remain together have debts piling up and are heading for divorce, bankruptcy might be one way to sort out the financial issues. Bankruptcy has the capacity to be filed by just one spouse, or jointly. The effects of bankruptcy on divorce proceedings? Abrupt at best. An automatic stay will put an end to all activities on divorce proceedings.

Although one lawyer may seem trying in a time of stress, two lawyers may be necessary to sort the matters out, a bankruptcy attorney and a divorce lawyer to hash things out between the unhappy couple. Some good advice to take would be to immediately seek out a bankruptcy lawyer to guide you through your finance, in addition to the attorney who is assisting you through your divorce. The expert guidance with alimony, child support, property settlements, and other financial issues is key when you are suffering from the stress of bankruptcy and divorce simultaneously.

If the couple shares a large amount of debt, filing for bankruptcy jointly is a good option. This can even simplify the divorce settlement, and filing bankruptcy jointly is more cost efficient. If you are a spiteful ex, filing individually for bankruptcy is a good way to send the creditors after your spouse.

Then there is the issue of property that you have accrued during marriage. That’s marital or community property. If you are filing jointly for bankruptcy, and your former spouse has marked some of your separate property as marital property, you should take these actions. First, you should prove what is yours is not community property. The bankruptcy court will release the exempt property, and the remaining property that you share will be part of the bankruptcy estate and therefore will be utilized for paying off debts.

After the bankruptcy court has figured out which property is exempt from bankruptcy, the divorce court can split the property between the spouses equally. The non exempt property will be sold by bankruptcy trustees (representatives) to pay off debts.

A different way to steer clear of financial loss on account of your former spouse’s debt is to attach a property of your spouse as a security lien. This lean will permit you to take hold of the property and utilize it to pay off your spouse’s loan if he or she is thinking of ditching and letting you pay. The property with a lien may get you less than the market price, but this is still a good way to protect yourself.

Finally, you can work an indemnity clause into your divorce decree. This will help guard you from creditors who are coming after you to pay for your ex spouse’s debts after the divorce. If your husband or wife files for bankruptcy, don’t worry. The judge will enforce it to protect you.

 Despite the dismal circumstance of the recession, one good piece of news is that Americans as consumers are expected to be more conscientious and savvy. What this means is that as consumers, we will only borrow what we can find the money for, save cash, and pay off credit card debt at the end of each month. This exciting new trend could also mean that as consumers, our credit scores will flourish, reaching what they industry refers to as super prime, the top score that is achievable.

The following are some tips to help you improve your credit situation.

STUDENT LOANS. As most former college grads struggle with exorbitant student loan payments, it is possible to reduce your monthly bill and with time, have the federal Income Based Repayment Program extend you their forgiveness on your debt.

But don’t get too excited yet. The all powerful credit scores do not just reflect our ability to pay bills on time, they dictate how we will go about our lives. If there is an unscrupulous mark on our credit reports, like a thirty day late payment, all of the years you spent paying your bills on time can fly out the window.

Credit scores have been the star of the show during the recession, as consumers and debtors attempt to pay up their mortgage payments and revolve debt. Many people- even those who have had long time high credit ratings, have grumbled that their scores have plummeted as credit card companies cut limits and close inactive cards.

Regardless of these facts, experts allege that consumers should not focus on their scores, they should hone in on the information that is contained in the report. According to one analyst, “the score is merely a reflection of what is in the report.”

Of all of the information contained in your credit report is the history of your bills. Have they been paid? Everyone tells you this, but it is worth reiterating. Pay your bills on time every month! Did you know that thirty five  percent of your FICO credit score is tied to that payment history?

An additional thirty percent of your score is founded on your outstanding debt. Obviously, lenders have an expectation of you to use your credit cards, but they clearly want you to do so with caution. If you have three credit cards with a sum amount of $30,000 in available credit, they will examine how much of that money you are utilizing. Unoriginally, this is called your utilization rate. Don’t max those cards out! In fact, don’t even think about coming close to it!

It’s pretty simple to determine your utilization rate. Just add up all of your outstanding balances and divide that by your total credit limit. This should produce a number less than one. If it hits one, you are maxed out and out of luck.

Ready for some secret insider information? Most credit analysts (credit bureaus included) will suggest that you keep your credit utilization under thirty percent of the total limit. But here’s a trick. Be sure that you do this for each card. If you go over that threshold on one card, let’s just say for argument’s sake you max out one card, use only ten percent on another card and nothing on a third card, you are safely under thirty percent of the total limit, but you will still be slammed for utilizing so much of the limit on the first card.  

How much of your limit you use any month can also turn things around on your card. If you max out a card every month but pay it in full, it is still possible that you will be hit for reaching your limit. Credit card companies do not report if you have paid off your card, only how much you have spent.

Additionally, about fifteen percent of your score is based on your credit history, which doesn’t work out well for college grads just hopping on for the ride. But, if you’ve been managing your credit well for a couple of decades, your numbers are likely to be pretty cushy.

But don’t forget this key information. The higher you climb, the faster and further you will fall. If you have been doing an immaculate job of looking over your credit for two or three decades and one month you miss a payment, you automatically will get put into a much riskier credit category than your friend who pays a little late on her monthly payments.

Exactly who is trying to get me to pay up? The Fair Debt Collection Practices Act was created in the 1970s and provided a good amount of protections for consumers. There are strict rules and regulations that a debt collector must abide by, and if any of these regulations are violated, there's a good chance that you could sue that agency.

The point is that the Fair Debt Collection Practices Act applies to debt collectors, and only debt collectors. Take a look at Morency v. Evanston Northwestern Healthcare Corp, a district court case in Illinois from 1999. Attempting to collect money, a hospital issued and mailed out pre-collection notices, which is a no-no for third party collectors. However, the court ruled that the hospital was merely a creditor, not a collection agency, so the FDCPA did not apply to it.

Courts take a lot of factors into consideration to determine whether the creditor should be considered the actual third party collections agent. A collection agency's participation in the actual debt collection would have to be miniscule. Is the collection agency only a mailing service? Do the letters say if the debtor doesn't pay the debt will be referred for collection? Is the collection agency paid only for sending letters, rather than commission?

If the collection agency does not receive any payments or forward any payments to the creditor, that is suspicious. If a debtor fails to respond to the letter and the collection agency has no further contact with the debtor, or if it does not get the files of the debtors, they probably aren't going to be considered debt collection agencies.

The lesson you should walk away with is that it is important that you know who you are paying your money to. It's always wise to be vigilant when it comes to your finances.

Older people are feeling the stress of the recession just as much as younger people. Many are unable to work due to physical and mental fragility, but still live in homes with mortgages. Some may have maxed out credit cards, but with no employment and minimal help from Medicare, social security checks, and retirement funds there seems to be no recourse.

There are a number of options for these people to consider. One option is to decrease the interest from credit cards. Diminishing the interest rate to 10 percent from 30 percent result in an extra 200 dollars a month. To lower the rate, you should call the credit card issuer and make a request. If a bill has been paid on time and there are extenuating financial circumstances, there is a good chance that the creditor will lower the rate. It is a good idea to have a payment in mind when you call. It's always better to bring a lower payment plan to the playing field.

Outside mediation can be an enormous help. Credit counseling agencies or attorneys are able to negotiate a lower interest rate on your behalf.

If you do not already have one, look for a lawyer. One with experience in bankruptcy would be best. This way you can take a good look at all of your options. Bankruptcy will take away much of your debt, but it also affects your credit rating for ten years, leaving you virtually unable to obtain a car, place of residence or even a job in some cases.

Finally, it is not ever a good idea to just walk away from credit card debt. Ignoring the situation would mean collections actions, or even lawsuits.. In today's economy it is key that you protect yourself and your assets. When collectors call, it is always wise to handle business.

 It is key that collections agents respect your privacy. According to the Fair Debt Collection Practice Act, bill collectors cannot exchange information about people that are in debt. They can't send out a list of debtors to its creditor subscribers. They cannot advertise debt for sale, or make a list of debtors to its creditor subscribers.

They can't advertise a debt for sale, or make up a list of debtors for sale to others. They can't leave messages with third parties asking the person in debt to call them. The outside of envelopes sent by collections agents can't indicate the purpose of the letter in any way. Postcards are strictly prohibited.

A collector is allowed to send mail in care of another person only if you reside at that address or if you receive your mail at that address. If you share your address with others the mail should be labeled private, or "personal." Basically. the letter can't give any appearance alluding to the fact that it is a collections bill.

A debt collector that knows your name and phone number and thus can contact you yourself is not permitted to contact your neighbors or family members. If they cannot locate you and they do call your family members or neighbors, the collector must identify themselves by name but not tell the third party that they are a debt collector.

They cannot let others know you owe a debt or speak to them about account details. They can't contact the person more than once, can't leave information about money owed on a third party's voicemail and they have to tell the name of the collection agency but only if asked.

If you are being contacted by a collector seeking your old roommate, relative or neighbor, the Fair Debt Collection Practice Act states a debt collector can only get in touch with you to determine the location of the person who owes the money. Only if the collector believes you have new information can they contact you again. If a collector contacts you repeatedly about a third party that can be considered harassment and you can file a complaint.

In today's recession, collection companies are suffering like everyone else. Data shows that they started to suffer from declining liquidation, increased placements and staffing cuts.

Starting January 2009, the U.S. savings rate shot up and continued to spike. By May 2009 the rate was the highest level of savings by consumers in the past sixteen years.

Typically, an increase in the U.S. savings rate would mean that those in debt will be more fiscally responsible and try to pay off debts that they may owe in case of an unexpected adverse event. Sadly, the first half of 2009 has illustrated that this is not what is going to happen and the collections industry should not expect it to.

As if this wasn't bad enough, sustaining savings growth is very uncertain because part of the increase was the result of the Obama stimulus package, which sent disbursements to consumers on a one time basis. Also, in today's recession, any type of consumer savings may be considered a means to keep heads afloat as opposed to future planning. And although savings boost personal income, they slow down consumer spending.

For the first time, collections agencies need to change their focus greatly. Its not that debtors won't pay, it's that they can NOT pay. So basically, the future success of collection companies is depending on U.S. economic recovery.

Keeping this in mind, educated conclusions may be drawn about the future growth in the collections industry. Better employment opportunities could be an invaluable gain for the collection industry. If debtors are employed, they are more likely to resolve their issues. Renewed consumer confidence and spending would be a tremendous boost.

There is an looming tide of pro-consumer adjustments that the collection industry can do little about. How it can truly affect change would be the quality of responses they offer, and that they are carefully considered and level-headed. Finally, increased access to credit is an absolute necessity for the collections industry.