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Debt Tagging – The Newest Craze

I Am Being Garnished For What? Recently, someone sent me a story in the Orange County Register about California State Senator Lou Correa who received a phone call from his payroll department at the state informing him that they received a wage garnishment as a result of a judgment against him.   He thought it was a joke but soon found out that it was very real.  The debt was actually owed by someone with an almost similar name.  Sen. Correa even previously told the debt collector that the debt wasn’t his but that didn’t seem to matter or stop the debt collector from issuing the wage garnishment against the Senator’s wages.  For their troubles, the debt collector’s action caused the Senator to plan to convene a hearing on debt collectors and the practice of “debt tagging”.  Debt tagging is the practice of collecting a another person‘s debt from you.  For those interested in the story, it can be found here, http://taxdollars.ocregister.com/2011/06/03/debt-collector-erroneously-garnishes-oc-lawmakers-wages/84371/.

Another case of debt tagging was also just reported where the wrongfully garnished debtor sued the judgment creditor and its law firm for twice attempting to garnish the plaintiff’s wages, including a successful second attempt that resulted in a wage garnishment even though the creditor’s law firm failed to attend a required hearing.  This is an even more egregious case because the law firm collecting on the debt was informed by their own client that the law firm was going after the wrong person. The jury awarded the plaintiff $1.26 million for being subjected to this harassment.  The link to this story is supplied here, http://www.collectionscreditrisk.com/news/woman-awarded-in-collection-wage-garnishment-case-3007259-1.html

I know that it sounds unimaginable that you could have your wages garnished for a debt that is not yours but sadly, this is happening to people around the country on an all-too-frequent basis.  Debt collectors will take action against someone with the same or similar sounding name hoping that the person who bank account they levy or whose wages they garnish, will not fight the garnishment or levy.  This conduct is illegal and has gotten at least two creditors in the news.

While I encourage the California State Legislature and all other legislative bodies to make these recalcitrant creditors responsible for their actions, it is clear that the only way to change the practice is by bringing an action against these collection firms and make them pay for their conduct.   The more that the court system sees that this illegal conduct happens with regularity, the more opportunities juries will have to make the creditors pay for their actions.

If you are the victim of debt tagging or other creditor abuses, please call my office for a free consultation.

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Who Do You Owe?

When you get into debt, it can be confusing.  You will get calls and letters from the original creditor but over time your debt may be sent to a collection agency, then sometimes another collection agency, and then potentially even sold to another party, who either contacts you or who send it to another collection agency.  All of this transferring of the debt can give you a headache and can give you concern as to who you really owe the debt to.

The biggest key to dealing with third party collectors is to respond to the initial communication that you receive for the debt collector.  The first communication from the debt collector should state several key pieces of information including who the original creditor is, how much you owe and a warning that you have 30 days to have the debt collector verify the debt.   Debt verification is a powerful tool for debtors when dealing with debt collectors.  It is also important that the debt verification process be handled correctly.

The debt collector may or may not provide you with sufficient substantiation of the debt.  There are debt collectors that will send computer printouts or other documents that they claim support the debt.  While this may meet their statutory burden (depending on who you ask), if you genuinely do not believe that you owe the debt or have some other valid defense to these claims, then it is important that you take other steps to protect your rights.

There are many steps that you can take at this point but determining which the proper one depends on what your defense to the debt is.   No matter what your defense is, you want to make sure that you have all of the documentation necessary to support your position. In some cases, you can require the debt collector to provide the documentation to prove your case or prove that they don’t have the documentation necessary to prove their case.

This can be very helpful when dealing with companies that bought the debt from the original creditor.  There are a lot of misconceptions about debt buyers.  I often hear people tell me “well they paid pennies on the dollar so they will be happy to get anything”.   That is far from the truth.   Debt buyers tend to be highly sophisticated businessmen that engage in large scale transactions with major financial institutions. They also have complex business models that project how they will get the best return on their investment, including determining how much they will collect if they sue or don’t sue on the debt.  Given the great increase in the number of debt buyers entering the market, they also are paying more for the debts that they buy.  As a result, it can be quite tricky when dealing with debt buyers.  However, no matter how sophisticated the debt buyer or how much they paid for the debt, since they are not the original creditor, they are bound by the Federal Fair Debt Collection Practices Act and its mandates, as stated above.  Making them prove the debt can be successful in dealing with them.  Get as much documentation as you can and find out what your rights are.

Unfiled Tax Returns

Once a person doesn’t file a tax return for any reason, it is common for that person not to file subsequent years.   As a result, it is easy to find yourself having not filed numerous years of taxes and being paralyzed by the fear of not knowing what to do or even where to start to get the missing returns filed.  One this panic sets in, the delinquent taxes usually don’t get addressed until after the IRS either garnishes wages or levies a bank account to collect the delinquent taxes.

It is important to understand the process that happens when you don’t file a tax return.   At some point in time, the IRS will discover that there are 1099s, W-2s, or other tax documents that they have received but that have not been matched up to a filed tax return.  It is these documents that will provide the IRS with the information that they need to file a return for you.  The IRS will file a Substitute For Return (SFR) on your behalf.  It is important to realize that when the IRS files a SFR, they are not looking out for your best interests nor are they trying to maximize your deductions.  The IRS simply adds up all of the income that they are aware of, via the 1099s and w-2s, and use the standard deduction to calculate the tax that they believe is owed.   You are given credit for any estimated tax deposits or payroll tax deductions you have made then they add the late filing penalties, interest, and any other applicable penalty.   Clearly, this is not the way anyone wants their tax return filed for them.

Recently, we had two cases where the client had a substantial number of unfiled returns and in both cases, we were able to provide substantial relief to the client.

In the first instance, the client had not filed tax returns in 10 years and had no record of his W-2’s and other sources of income. Not having the required information made the tax return preparation difficult, however, we requested that the IRS provide all of information it had and then we worked with the client to get his returns prepared.

In the second case, the client also had unfiled tax returns for 10 years. And as a result, the IRS made tax assessments based on reported sources of income and prepared a SFR. The client was under the impression that the balance owed was over $165,000 based on these SFRs and did not know how to resolve this overwhelming problem. Here, too, the client could, only, provide limited documents and records. We contacted the IRS to obtain records of sources of income. We then prepared accurate tax returns for each year in question amending the SFRs resulting in a new outstanding tax balance of approximately $19,000. We were successful in getting the tax liabilities reduced by merely preparing corrected tax returns.

These are great examples of cases where it seems like the client was in a hopeless situation but with a little hard work, great results were achieved.  So don’t be afraid to call my office and get the help you need to get your tax problems resolved.

Case Study – IRS Wage Garnishment

When a person finds themselves owing the IRS or a state taxing authority, it can be the most terrifying experience of their life.  Owing the government can be quite stressful.   The government has the ability to seize your bank accounts, garnish your wages, or even visit your home or workplace unexpectedly.   There is nothing scarier than an unexpected visit from the IRS. You feel alone and helpless and don’t know where to turn.

While it is always best to address tax problems before they get out of hand, it is important to remember that no matter what stage of collection you are in, the key issue is to go get competent help.  Recently, we have had clients who were in, what appeared to be, a hopeless position.   They had just received a wage garnishment and were in a position to be left with a very minimal amount of money to live on.    Within two days of the client calling my office, we had established contact with the IRS, secured a release of the wage garnishment, and entered into an agreement with the IRS regarding an installment agreement.   The client was able to resume life and continues to make payments pursuant to the installment agreement.

Ideally, the client wouldn’t have waited so long to contact my firm but we had to deal with the hand that the client dealt us.  We acted in a way that every client should expect to be treated.  We didn’t judge them.   We didn’t run from them.  We got all of the necessary information and took action immediately on their behalf.

I think that this example best exemplifies the philosophy of my law firm; we take the clients that we believe we can help and we provide them with the service they deserve. In this case, we acted immediately.  The clients provided us with the information that we needed to get the results they needed.

Remember that it is never too late to get help with your tax problem and that you should always find the right person who can get you the results you need.

Debt Settlement – Is it an option for me?

When people are experiencing financial difficulties, they will turn to various sources for help.   Unfortunately, there is an overabundance of information available with no  real way to determine which information is true and which is not.  This is the main reason that seeing an experienced legal professional with an understanding of debt settlement, as well as bankruptcy is your best option.

Debt settlement is an option that is probably the most misunderstood option by most both bankruptcy professionals and by the general public.   Sadly, there are, as with any industry, debt settlement professionals who, frankly, should not be in the business.  They do more harm than good and get all the press for their actions.   This bad players should not be the way that debt settlement is perceived.   There are many people who have obtained tremendous results from debt settlement options and have been spared from filing for bankruptcy.

Debt settlement is not an option for everyone. It takes a person who is willing to reorganize their budget so that they can get out of debt in as short a time period as possible.   Frequently, I have seen clients who, at first blush, seem to have a negative budget, meaning that they spend more than they make and would seem to poor candidates for debt settlement.   This is far from the truth.  It is that eye opening experience of seeing their budget on paper that helps them get their finances under control.   They make all of their deposits and get out of debt.  They understand that they didn’t get into debt overnight and won’t get out of it overnight.  It takes time, patience, and dedication.  They also don’t worry about how much is saved on each debt but focus on the overall picture.

It is important to remember that your current balance on your credit card statement may not be the most accurate picture of what you truly owe.   Unless you have the  ability to pay the balance off in full, the debt will cost you more, often significantly more, than what the current balance is.   On your credit card statement, there should be a calculation of how long it will take you to pay off the debt at the currently monthly minimum payment.   You will see that often this time period is listed in years, sometimes as high as 22 years and even to meet that prediction, you would need to stop using the credit card altogether and make every payment on time, without fail, for the expected time period.   When you calculate the true cost of paying off your debt, by paying just the minimum monthly payment, you can see that it the current balance is nowhere near the true amount of debt you have.  So being able to pay off the debt, even at a balance that is close to your current balance, provides a true benefit and savings.

The main reasons for choosing debt settlement over other options are wishing to avoid bankruptcy, feeling the moral obligation to resolve the debt through a repayment program, and lacking the financial resources to pay your debt in full or as they come due.  Remember that debt settlement is not for everyone.  It is a hardship program.   There are also risks involved including the potential for getting sued by your creditors and forced collection activity including wage garnishment and bank levy.  However, if you are dedicated to resolving your debt, have experienced a true financial hardship, and wish to avoid bankruptcy, debt settlement may be the right option for you.

Getting out of debt, no matter what avenue you choose,  is not quick nor easy and without its costs but knowing that there are options out there is priceless.

How Do You Choose A Lawyer?

Last week during consultations with two different potential clients, the issue of how to choose an attorney was raised.  In each case, the clients had a different reason for asking the question but both shared the same concern:   How do I choose the attorney that is best for me?

In the first case, the potential client simply asked the question as to why he should retain me as his attorney.  He was struggling with his finances and had a slightly complicated case.  He wanted to save his house yet was struggling with the financial impact of an impending divorce. He had precious resources and wanted to make sure that he was using them effectively.  I re-explained the intricacies of his case and the potential for error that could be made with respect to his case.   After providing additional perspective on the pitfalls of using a less experienced bankruptcy counsel or by representing himself in the bankruptcy proceedings, the client understood that he needed an experienced attorney.

In the second case, the potential client was telling me two stories about attorneys that she consulted.  The first attorney, after giving her the consultation, asked her out on a date.   The second attorney, who she initially retained, would not return any of her phone calls.  As a result of numerous calls going unanswered, she was forced to find a new attorney to handle her bankruptcy.  When she met with me, she told me that while she was nervous about finding another attorney, after her prior bad experiences, she couldn’t have been happier with her choice to see and retain my firm.   She was very impressed how, even before she retained the firm, everyone in my firm was knowledgeable and available to speak with her when she called.   She was especially excited that she was able to meet with me for her consultation.  She wished she had called the firm initially and knew that we were the right firm for her bankruptcy representation.   She left the office thanking me for all that we did and we going to do for her knowing that she was in good hands.

No matter what your reasons are, you should make sure that every time you retain an attorney, you should make sure, that there is no doubt that you will get the results you need, have the experience that you require, and provide the client servicing that you demand.  To accept anything less could have serious repercussions in the outcome of your case.