Many clients ask me about trying to settle their debt through one of the many ads they see or hear online, on the radio or on TV. As the front page of the 2-11-24 NY Times Sunday Business Section states: The business offered a lifeline to struggling consumers. But regulators say it preyed on clients. My experience, from clients, is that debt settlement may work if there are few creditors (5 or so) and the total debt is $10,000 or less. Above these limits, the system, as described in the Times, simply does not work for the majority. Of all the negatives of these attempts to settle, I was shocked that the Times does not even mention the income tax consequences even when the "debt settlement" is successful.
One can enter one of these programs, pay monthly into an account for years, and find their credit score tanked and be sued anyway.
Or, one can contemplate bankruptcy, get rid of the debt immediately and, from experience, see increased credit scores, and actual credit within one (1) year of that bankruptcy filing.

The vast majority of people in financial distress got there due to unexpected life events, not at all or not entirely due to any improper acts on their part. Bankruptcy, mentioned in the U.S. Constitution, is there to give honest people a fresh economic start in these circumstances, and when the creditors are unable or unwilling to acknowledge financial difficulties. .

President Biden on Friday announced new actions to offer student loan borrowers some forgiveness, reintroducing his forgiveness plan grounded in the Higher Education Act (HEA), The Hill reported. Under the HEA, it allows the education secretary to "compromise, waive or release" student loans. This path will require a public comment and notice period before it could go into effect. Mr. Biden says Education Secretary Miguel Cardona has taken steps to initiate the rulemaking process.

Success or failure can have ripple effects on the overall economy. A bright spot this year has been continued consumer spending. With student loan payments set to kick back in October 1, these payments will likely cause consumers to spend less elsewhere.

Takeaways from below:

• Be on top of your expenses. You most likely have expenses that can be reduced or eliminated.
• Retirement Savings are for that. They should be considered untouchable, unless there is true desperation about food and shelter.
• Try to put something into savings, in any amount.

Fewer than half of working-age Americans have any retirement savings, according to Census data for 2020, The Hill reported. Savings rates rise with age, but only to a point. In the 55- to –64-year-old boomer age group, 58 percent of Americans own retirement accounts. A newly minted retiree of 65 can now expect to live 20 more years, on average, according to Social Security projections. Without a retirement account, most retirees count on Social Security. The average monthly Social Security check to a retired worker is around $1,800. The average household run by an over-65 American spends more than $4,000 a month. The average retirement account held just over $100,000 at the close of 2022, according to a Fidelity analysis. The median baby-boom household isn’t doing much better, with $134,000 in retirement savings in 2019, the most recent federal data. The share of retirees without any savings jumped from 30 percent to 37 percent.

In March 2023, the Consumer Financial Protection Bureau (CFPB) issued a report focused on "junk fees" uncovered in supervisory examinations of mortgage servicing companies.

The Bureau highlighted Unfair or Deceptive Acts or Practices related to junk fees in mortgage servicing. What you should be aware of:
Late Fees
Mortgages contain late fee amounts. But, servicers charged the maximum allowable late fees under the relevant state laws; and sent statements including late payment fees, exceeding the amounts permitted by the loan agreements. Certain servicers charged a late fee even though the monthly periodic statement reflected a late fee in the amount of $0.00. Examiners found this practice to be deceptive.

Property Inspections
Banks inspect properties in default. The Bureau highlighted property inspection charges unnecessary because it involved the wrong property. Even when the inspector reported back to the servicer that an address was incorrect the loan servicer would hire the vendor to again inspect the wrong property address and pass those charges along to the borrower.

PMI
Borrowers pay PMI until loan is 80% or less than property value. According to the Bureau, sending a monthly periodic statement that included charges for private mortgage insurance (PMI) when the borrower did not owe such a charge constitutes a deceptive act or practice. Servicers continued to charge for PMI even though the loan-to-value ratio outlined in the Homeowners Protection Act (HPA) had been met, which should have resulted in the automatic termination of PMI.

YOU should know your home value and ask Lender to terminate PMI
Charging Borrowers Fees that Should Have Been Waived.
Under The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), servicers were directed not to charge fees or penalties during the time period borrowers were in a forbearance agreement. The CFPB's examinations found that some servicers failed to waive such fees and charges on FHA-insured loans.

TAKEAWAY: Have copies of your loan agreements and do not blindly accept all fees charged

Information courtesy of National Consumer Law Center
Do Not Let Collectors Pressure You
Do not let debt collection harassment force you into wrong decisions. Make your own choices about which debts to pay first based on what is best for you.
You are not a deadbeat-circumstances outside your control prevent you from paying all your debts. The most common reasons most people cannot pay their bills are job loss, illness, divorce, or other unexpected events. Creditors and collectors know this. The debt collector's job is to try to convince you to pay their debt first. Your job, however, is to make the right choices for you and your family.
One possible choice is a filing under the United States Bankruptcy Code. There are two main choices for consumers, each with distinctive benefits and tailored to different situations.
Under either, major assets, such as homes and cars, and future wages, can be protected.
See explanations on this website or give me a call or email to discuss your details.

• Servicer call centers are currently overwhelmed; borrowers should try applying online through the servicer's account portal.

· • When making a request by phone or by letter, borrowers with a financial hardship due to the COVID-19 emergency should state that clearly.

· • Find out how long the forbearance will last. If borrowers' financial problems have not been resolved before the end of the forbearance, request an extension before the forbearance ends (borrowers are entitled to a total forbearance period of up to 360 days under the CARES Act).

· • Find out how the borrower will be required to make up the payments at the end. Making a lump sum payment will be impossible for most borrowers; be prepared to request other arrangements.

· • If the borrower has an escrow account, ask how escrowed items will be paid during the forbearance. The servicer should continue to pay them if the borrower has an escrow account. But otherwise, if the borrower cannot continue those payments, the borrower should contact each payee.

· • Borrowers who do not have an escrow account should continue to pay their property taxes, insurance, HOA fees, and other home-related items, if possible.

· • Borrowers who believe they have been improperly denied a forbearance or have other problems with their servicer should submit a complaint to the Consumer Financial Protection Bureau using its complaint portal.

Fannie Mae and Freddie Mac's regulator said yesterday that borrowers benefiting from programs that let them skip mortgage payments due to the coronavirus pandemic won't have to make lump-sum repayments when the crisis passes, Bloomberg News reported. The Federal Housing Finance Agency's announcement is meant to "combat ongoing misinformation" about the forbearance plans homeowners are entitled to seek under the $2 trillion economic stimulus package enacted last month, Director Mark Calabria said in a statement. "During this national health emergency, no one should be worried about losing their home," Calabria said. "While today's statement only covers Fannie Mae and Freddie Mac mortgages, I encourage all mortgage lenders to adopt a similar approach." There has been growing confusion among borrowers and lenders about how consumers would make up for the payments missed during the forbearances, which could last for as long as a year. The stimulus legislation didn't outline what happens when the forbearance period ends, prompting some lenders to tell borrowers they might have to make lump-sum payments or meet other onerous terms. The Federal Housing Administration, part of the Department of Housing and Urban Development, as well as FHFA, have since issued guidance to lenders about what terms they should be offering. Still, many companies that service mortgages have been unsure about what the repayment terms should be and in some cases, have been dissuading consumers from taking advantage of the program.

NH:

Many mortgage lenders are offering payment suspensions, one for 6 months. I have been advising clients, in bankruptcy or not, about the suspension of mortgage payments and what happens when the banks decide the crisis is over and the missed payments must be made. According to Bloomberg News, Fannie Mae and Freddie Mac's regulator said yesterday that borrowers benefiting from programs that let them skip mortgage payments due to the coronavirus pandemic won't have to make lump-sum repayments when the crisis passes. The Federal Housing Administration, part of the Department of Housing and Urban Development, as well as FHFA, have since issued guidance to lenders about what terms they should be offering. My recommendation has been to pay something if at all possible, at least the escrow portion of the loan, if that is how you pay taxes and insurance. If you do not have an escrow payment, pay the interest portion of the loan payment. If not possible, set whatever you can aside for when repayment is requested.

Stretch Your Dollars

If you cannot pay all your debts, try to reduce your monthly payments. Even if you must pay the full amount eventually, delay can help, particularly if your financial problem is caused by unusual expenses or a short-term drop in income.

Low priority debts (medical, credit card, private student loan) can wait if payment endangers higher priority debts.

Mortgage payments. You may be able to skip a few months through programs offered by most banks. If your taxes and insurance (escrow) are included in payment, pay at least that amount, followed by the interest portion and the principal portion last.

Federal student loans. Call your servicer about special programs and for income based

repayment.

Utility Call the company for payment options.

Car loans. Call Lender for payment suspension options

Mortgage Payments Deferred

New York State has ordered state-regulated mortgage lenders to provide a 90-day penalty-free grace period for people facing financial difficulties due to the pandemic such as losing their job. However, not all mortgage lenders are state-regulated, including many who provide mortgages for single-family homes backed by Fannie Mae and/or Freddie Mac or the Federal Housing Administration (FHA). The federal government has announced these government-sponsored financial institutions will allow deferral of mortgage payments for up to one year for those households that can demonstrate hardship due to the coronavirus pandemic. If for whatever reason, you have not been making mortgage payments and are facing foreclosure, there is help. New York State supports the Homeowner Protection Program (HOPP) which helps homeowners avoid foreclosure by connecting them to free, qualified foreclosure relief services. If you are contacted by a foreclosure assistance firm, make sure they are members of HOPP. For more information click here: HomeownerHelpNY

Health, Life and Property Insurance Payments Deferred for Consumers and Small Businesses Experiencing Financial Hardship

Due to COVID-19, consumers and small businesses may defer paying health insurance premiums through June 1, 2020. Under terms of the Governor's Executive Order, health insurance payments may be deferred, and companies are barred from reporting the late payments to credit reporting agencies. Health insurance plans will still be required to pay claims for the individual and small group plans through June 1. New Yorkers experiencing financial hardship may also defer for 60 days the payment of premiums and fees under auto, homeowners and renters insurance. Small businesses are also covered. Payments for life insurance policies and annuities may be deferred for 90 days. For more information from the New York State Department of Financial Services go this web address: https://www.dfs.ny.gov/press_releases/pr202003301