What Not to Do When Struggling with Debt in Naperville
In life, we often wish we could have done things differently. At Lynch Law LLC, we try to help our clients avoid costly mistakes. As bankruptcy attorneys, clients often come to us after trying different ways to get caught up on debt. We wish they had come to us first.
People who try to avoid bankruptcy by using other methods often find themselves filing for bankruptcy anyway. Had they come to us sooner, we may have been able to help them preserve some of their most valuable assets.
There are several things you should not do to avoid bankruptcy:
- Foreclosure "rescue" specialists
- Payday loans
- Rent-to-own stores
- Home equity loan scams
- Tax refund anticipation loans
- Work-from-home scams
- Credit repair
Foreclosure Rescue SpecialistsSo-called foreclosure rescue firms use a variety of ways to find homeowners in distress: through public foreclosure notices in newspapers, the internet, or public court files. Once they have found vulnerable homeowners, they send letters and postcards, or come knocking at their door. Others advertise through ads on the internet, television, newspaper, posters on telephone poles, etc.
Once these companies have your attention, they use a variety of tactics to get your money:
Phony Counseling or Phantom HelpThe scam artist tells you that he can negotiate a deal with your lender to save your house if you pay a fee first. You may be told not to contact your lender, lawyer, or credit counselor and to let the scam artist handle all the details. Once you pay the fee, the scam artist takes off with your money.
Sometimes, the scam artist insists that you make all mortgage payments directly to him while he negotiates with the lender. In this instance, the scammer may collect a few months of payments before disappearing.
Bait-&-SwitchYou think you're signing documents for a new loan to make your existing mortgage current. This is a trick: you've signed documents that surrender the title of your house to the scam artist in exchange for a "rescue" loan.
Rent-to-Buy SchemeYou're told to surrender the title as part of a deal that allows you to remain in your home as a renter, and to buy it back during the next few years. You may be told that surrendering the title will permit a borrower with a better credit rating to secure new financing and prevent the loss of the home. But the terms of these deals usually are so burdensome that buying back your home becomes impossible. You lose the home, and the scam artist walks off with all or most of your home's equity. Worse yet, when the new borrower defaults on the loan, you're evicted.
In a variation, the scam artist raises the rent over time to the point that the former homeowner can't afford it. After missing several rent payments, the renter - the former homeowner - is evicted, leaving the "rescuer" free to sell the house.
In a similar equity-skimming situation, the scam artist offers to find a buyer for your home, but only if you sign over the deed and move out. The scam artist promises to pay you a portion of the profit when the home sells. Once you transfer the deed, the scam artist simply rents out the home and pockets the proceeds while your lender proceeds with the foreclosure. In the end, you lose your home - and you're still responsible for the unpaid mortgage. That's because transferring the deed does nothing to transfer your mortgage obligation.
Fraudulent foreclosure "rescue" professionals use half-truths and outright lies to sell services that promise relief and then fail to deliver. Our foreclosure attorneys can help with these situations.
Home Equity Loan Scams
Do you own your home? If so, it's likely to be your greatest single asset. Unfortunately, if you agree to a loan that's based on the equity you have in your home, you may be putting your most valuable asset at risk.
We urge you to be aware of fraudulent loan practices to avoid losing your home. There are other options that can provide you with greater protection at fraction of the cost.
Equity StrippingYou need money. You don't have much income coming in each month. You have built up equity in your home. A lender tells you that you could get a loan, even though you know your income is just not enough to keep up with the monthly payments. The lender encourages you to "pad" your income on your application form to help get the loan approved.
This lender may be out to steal the equity you have built up in your home. The lender doesn't care if you can't keep up with the monthly payments. As soon as you don't, the lender will foreclose, taking your home and stripping you of the equity you have spent years building. If you take out a loan but don't have enough income to make the monthly payments, you are being set up. You probably will lose your home.
Hidden Loan Terms: The Balloon PaymentYou've fallen behind on your mortgage payments and may face foreclosure. Another lender offers to save you from foreclosure by refinancing your mortgage and lowering your monthly payments. Look carefully at the loan terms. The payments may be lower because the lender is offering a loan on which you repay only the interest each month. At the end of the loan term, the principal - that is, the entire amount that you borrowed - is due in one lump sum called a balloon payment. If you can't make the balloon payment or refinance, you face foreclosure and the loss of your home.
Loan FlippingSuppose you've had your mortgage for years. The interest rate is low and the monthly payments fit nicely into your budget, but you could use some extra money. A lender calls to talk about refinancing and claims it's time the equity in your home started "working" for you. You agree to refinance your loan. After you've made a few payments on the loan, the lender calls to offer you a bigger loan for, say, a vacation. If you accept the offer, the lender refinances your original loan and then lends you additional money. In this practice - often called "flipping" - the lender charges you high points and fees each time you refinance and may increase your interest rate as well. If the loan has a prepayment penalty, you will have to pay that penalty each time you take out a new loan.
With each refinancing, you've increased your debt and probably are paying a very high price for some extra cash. After a while, if you get in over your head and can't pay, you could lose your home.
The "Home Improvement" LoanA contractor calls or knocks on your door and offers to install a new roof or remodel your kitchen at a price that sounds reasonable. You tell him you're interested but can't afford it. He tells you it's no problem, he can arrange financing through a lender he knows. You agree to the project, and the contractor begins work. At some point after the contractor begins, you are asked to sign a lot of papers. The papers may be blank or the lender may rush you to sign before you have time to read what you've been given. The contractor threatens to leave the work on your house unfinished if you don't sign. You sign the papers. Later, you realize that the papers you signed are a home equity loan. The interest rate, points, and fees seem very high. To make matters worse, the work on your home isn't done right or hasn't been completed, and the contractor, who may have been paid by the lender, has little interest in completing the work to your satisfaction
Credit Insurance PackingYou've just agreed to a mortgage on terms you think you can afford. At closing, the lender gives you papers to sign that include charges for credit insurance or other "benefits" that you did not ask for and do not want. The lender hopes you don't notice this and that you just sign the loan papers where you are asked to sign. The lender doesn't explain exactly how much extra money this will cost you each month on your loan. If you do notice, you're afraid that if you ask questions or object, you might not get the loan. The lender may tell you that this insurance comes with the loan, making you think that it comes at no additional cost. Or, if you object, the lender may even tell you that if you want the loan without the insurance, the loan papers will have to be rewritten, that it could take several days, and that the manager may reconsider the loan altogether. If you agree to buy the insurance, you really are paying extra for the loan by buying a product you may not want or need.
Signing Over Your DeedIf you are having trouble paying your mortgage and the lender has threatened to foreclose and take your home, you may feel desperate. Another "lender" may contact you with an offer to help you find new financing. Before he can help you, he asks you to deed your property to him, claiming that it's a temporary measure to prevent foreclosure. The promised refinancing that would let you save your home never comes through.
Once the lender has the deed to your property, he starts to treat it as his own. He may borrow against it (for his benefit, not yours) or even sell it to someone else. Because you don't own the home any more, you won't get any money when the property is sold. The lender will treat you as a tenant and your mortgage payments as rent. If your "rent" payments are late, you can be evicted from your home.
A payday loan - a cash advance secured by a personal check or paid by electronic transfer - is very expensive credit. How expensive? Say you need to borrow $100 for two weeks. You write a personal check for $115, with $15 as the fee to borrow the money. The check casher or payday lender agrees to hold your check until your next payday. When that day comes around, either the lender deposits the check and you redeem it by paying the $115 in cash, or you roll-over the loan and are charged $15 more to extend the financing for 14 more days.
If you agree to electronic payments instead of a check, here's what would happen on your next payday: The company would debit the full amount of the loan from your checking account electronically or extend the loan for an additional $15. The cost of the initial $100 loan is a $15 finance charge and an annual percentage rate of 391%. If you roll-over the loan three times, the finance charge would climb to $60 to borrow the $100.
Alternatives to Payday LoansRather than taking out a payday loan, ask your employer for an advance or consider a small loan from your credit union or a small loan company. Some banks may offer short-term loans for small amounts at competitive rates. A local community-based organization may make small business loans to people. A cash advance on a credit card also may be possible, but it may have a higher interest rate than other sources of funds. In any case, shop first and compare all available offers.
The rent-to-own industry (also known as the rental-purchase industry) consists of dealers that rent furniture, appliances, home electronics, and jewelry to consumers. Rent-to-own transactions provide immediate access to household goods for a relatively low weekly or monthly payment, typically without any down payment or credit check.
Consumer advocates have raised several concerns about the rent-to-own industry, including:
- The prices charged by the industry (which can be two to three times retail prices or more)
- The treatment of customers during the collection of overdue rental payments
- The repossession of merchandise after customers have paid substantial amounts toward ownership
- The adequacy of information provided to customers about the terms and conditions of the rental agreement and purchase option
- The disclosure of whether merchandise is new or used
Instead of purchasing at a rent-to-own store, we recommend that you:
- Wait and buy the item when you have saved enough money to pay cash
- Try to buy the item through installments or layaway at a department or appliance store
- Get a short-term consumer loan from a credit union or bank
- Buy the used item from a garage sale, classified ad, or secondhand store
Tax Refund Anticipation Loans
A refund anticipation loan (RAL) is a loan borrowed against the amount of your anticipated income tax refund and often includes extremely high interest rates and fees.
Tax return preparers sometimes advertise what they refer to as "rapid refund," "fast cash refund," "express money" or "instant refund." These tempting offers get you your anticipated refund immediately or within a day or two. What many people don't realize is that there is a high price to pay and that what is being offered is actually a high-cost loan. If you don't receive your refund or if it is smaller than anticipated, you will have to repay the full loan.
One of the most controversial aspects of RALs is that they are often targeted to low-income workers who qualify for the Earned Income Tax Credit, a federal and often state-supported tax policy to benefit low-income working families.
Don't Pay to Borrow Your Own MoneyYour tax refund is money that you worked hard to earn. Don't give it away. Most taxpayers don't realize that they can have their refund in two weeks or less - even without receiving a costly RAL.
To avoid the temptation of getting an RAL and to save money at tax time:
- Ask creditors for more time until the tax refund check comes from the IRS if you have an urgent bill to pay. Don't take on a new expensive debt to pay an old bill.
- File your tax return electronically and have your refund deposited directly into your bank account. This will speed up your refund. Some refunds will be deposited in as few as 10 days.
Ads for enticing work-from-home opportunities are everywhere. The jobs might be different, but the message is the same - start earning a great living today working from home, even in your spare time.
When money's tight, work-at-home opportunities can sound like just the thing to make ends meet. Some even promise a refund if you don't succeed. But the reality is many of these jobs are scams. The con artists peddling them may get you to pay for starter kits or certifications that are useless and may even charge your credit card without permission.
Others just don't deliver on their promises. The ads don't tell you that you may have to work a lot of hours without pay, or they don't disclose all the costs you might incur. People tricked by these ads have lost thousands of dollars, not to mention time and energy.
Legitimate work-at-home program sponsors should tell you - in writing - what's involved in the program they're selling. Here are some questions to ask:
- What tasks will I have to perform? (Ask the program sponsor to list every step of the job.)
- Will I be paid a salary or will I be paid on commission?
- What is the basis for your claims about my likely earnings? Do you survey everyone who purchased the program? What documents can you show me to prove your claims are true before I give you any money?
- Who will pay me?
- When will I get my first paycheck?
- What is the total cost of this work-at-home program, including supplies, equipment, and membership fees? What will I get for my money?
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