Also called “B/C Paper,” “near-prime,” or “second chance” lending, is a general term that refers to the practice of making loans to borrowers who do not qualify for market interest rates because of problems with their credit history. A sub-prime loan is one that is offered at a rate higher than A-paper loans due to the increased risk. Sub-prime lending encompasses a variety of credit instruments, including sub-prime mortgages, sub-prime car loans, and sub-prime credit cards, among others.

Sub-prime lending is typically defined by the status of borrowers. A sub-prime loan is a loan made to someone who could not qualify for a more favorable rate. Sub-prime borrowers typically have low credit scores and histories of payment delinquencies, charge-offs or bankruptcies. Because sub-prime borrowers are considered at higher risk to default, sub-prime loans typically have less favorable terms than their traditional counterparts. These terms may include higher interest rates, regular fees or an up-front charge.

Proponents of the sub-prime lending in the United States have championed the role it plays in extending credit to consumers who would otherwise not have access to the credit market.  But opponents have criticized the sub-prime lending industry for predatory practices such as targeting borrowers who did not have the resources to meet the terms of their loans over the long term. These criticisms have increased since 2006 in response to the growing crisis in the U.S. sub-prime mortgage industry, wherein hundreds of thousands of borrowers have been forced to default, and several major sub-prime lenders have filed for bankruptcy.

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This weblog is sponsored by Ovation Law.

If your financial problems stem from too much debt or your inability to repay your debts, a credit counseling agency may recommend that you enroll in a debt management plan (DMP). A DMP alone is not credit counseling, and DMPs are not for everyone. You should sign up for one of these plans only after a certified credit counselor has spent time thoroughly reviewing your financial situation, and has offered you customized advice on managing your money. Even if a DMP is appropriate for you, a reputable credit counseling organization still can help you create a budget and teach you money management skills.
In a DMP, you deposit money each month with the credit counseling organization, which uses your deposits to pay your unsecured debts, like your credit card bills, student loans, and medical bills, according to a payment schedule the counselor develops with you and your creditors. Your creditors may agree to lower your interest rates or waive certain fees, but check with all your creditors to be sure they offer the concessions that a credit counseling organization describes to you. A successful DMP requires you to make regular, timely payments, and could take 48 months or more to complete. Ask the credit counselor to estimate how long it will take for you to complete the plan. You may have to agree not to apply for – or use – any additional credit while you're participating in the plan.
Debt Consolidation
You may be able to lower your cost of credit by consolidating your debt through a second mortgage or a home equity line of credit. Remember that these loans require you to put up your home as collateral, so if you can't make the payments – or if your payments are late – you could lose your home.
Also, the costs of consolidation loans usually include added expenses on the ‘back end’ of the loan. In addition to interest on the loans, you may have to pay "points," with one point equal to one percent of the amount you borrow. Still, these loans may provide certain tax advantages that are not available with other kinds of credit.
Debt Negotiation Programs
Debt negotiation differs greatly from credit counseling and DMPs. It can be very risky, and have a long term negative impact on your credit report and, in turn, your ability to get credit. That's why many states have laws regulating debt negotiation companies and the services they offer. Contact your state Attorney General for more information.
The Claims   
Debt negotiation firms may claim they're nonprofit. They also may claim that they can arrange for your unsecured debt — typically credit card debt — to be paid off for anywhere from 10 to 50 percent of the balance owed. For example, if you owe $10,000 on a credit card, a debt negotiation firm may claim it can arrange for you to pay it off with a lesser amount, say $4,000.
The firms often pitch their services as an alternative to bankruptcy. They may claim that using their services will have little or no negative impact on your ability to get credit in the future, or that any negative information can be removed from your credit report when you complete their debt negotiation program. The firms usually tell you to stop making payments to your creditors, and instead, send payments to the debt negotiation company. The firm may promise to hold your funds in a special account and pay your creditors on your behalf.
The Truth 
Just because a debt negotiation company describes itself as a "nonprofit" organization, there's no guarantee that the services they offer are legitimate. There also is no guarantee that a creditor will accept partial payment of a legitimate debt. In fact, if you stop making payments on a credit card, late fees and interest usually are added to the debt each month. If you exceed your credit limit, additional fees and charges also can be added. This can cause your original debt to double or triple. What's more, most debt negotiation companies charge consumers substantial fees for their services, including a fee to establish the account with the debt negotiator, a monthly service fee, and a final fee of a percentage of the money you've supposedly saved.
While creditors have no obligation to agree to negotiate the amount a consumer owes, they have a legal obligation to provide accurate information to the credit reporting agencies, including your failure to make monthly payments. That can result in a negative entry on your credit report. And in certain situations, creditors may have the right to sue you to recover the money you owe. In some instances, when creditors win a lawsuit, they have the right to garnish your wages or put a lien on your home. Finally, the Internal Revenue Service may consider any amount of forgiven debt to be taxable income.
Damage Control
Turning to a business that offers help in solving debt problems may seem like a reasonable solution when your bills become unmanageable. But before you do business with any company, check it out with your state Attorney General, local consumer protection agency, and the Better Business Bureau. They can tell you if any consumer complaints are on file about the firm you're considering doing business with. Ask your state Attorney General if the company is required to be licensed to work in your state and, if so, whether it is.
Some businesses that offer to help you with your debt problems may charge high fees and fail to follow through on the services they sell. Others may misrepresent the terms of a debt consolidation loan, failing to explain certain costs or mention that you're signing over your home as collateral. Businesses advertising voluntary debt reorganization plans may not explain that the plan is a Chapter 13 bankruptcy, tell you everything that's involved, or help you through what can be a long and complex legal process.
In addition, some companies guarantee you a loan if you pay a fee in advance. The fee may range from $100 to several hundred dollars. Resist the temptation to follow up on these advance-fee loan guarantees. They may be illegal. It is true that many legitimate creditors offer extensions of credit through telemarketing and require an application or appraisal fee in advance. But legitimate creditors never guarantee that the consumer will get the loan — or even represent that a loan is likely. Under the federal Telemarketing Sales Rule, a seller or tele-marketer who guarantees or represents a high likelihood of your getting a loan or some other extension of credit may not ask for or accept payment until you've received the loan.

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This weblog is sponsored by Ovation Law.

The federal Fair Debt Collection Practices Act or FDCPA prohibits certain debt collectors from engaging in abusive behavior. It covers debt collectors who work for collection agencies. It does not cover debt collectors that are employed by the original creditor (the business or person who first extended you credit or loaned you money). If a debt collector that works for a collection agency breaks the law, you can take steps to make sure it doesn't happen again.

What Bills Collectors Can't Do

Bills collectors from collection agencies cannot do any of the following:

• Call you repeatedly or contact you at an unreasonable time (the law presumes that before 8 a.m. or after 9 p.m. is unreasonable).
• Place telephone calls to you without identifying themselves as bill collectors.
• Contact you at work if your employer prohibits it.
• Use obscene or profane language.
• Use or threaten to use violence.
• Claim you owe more than you do.
• Claim to be attorneys if they're not.
• Claim that you'll be imprisoned or your property will be seized.
• Send you a paper that resembles a legal document.
• Add unauthorized interest, fees, or charges.
• Contact third parties, other than your attorney, a credit reporting bureau, or the original creditor, except for the limited purpose of finding information about your whereabouts (collectors can also contact your spouse, your parents if you are a minor and your co-debtors unless you have asked them in writing to stop contacting you).

Here's what you can do if a debt collector engages in illegal activity:

1. Tell Them to Stop
Under the FDCPA, you have the right to tell a collection agency employee to stop contacting you. Simply send a letter stating that you want the collection agency to cease all communications with you. All agency employees are then prohibited from contacting you, except to tell you that collection efforts have ended or that the collection agency or original creditor may sue you.

You can do this even if the collector is not breaking the law, but many debt counselors feel that, unless you're judgment proof (that is, broke) or truly plan to file for bankruptcy, the best overall advice is not to ignore the debt or try and hide from the debt collector. Usually, the longer you put off resolving the issue, the worse the situation and the consequences will become. Whether you negotiate directly with the collector or obtain a lawyer's assistance, many counselors feel the best strategy almost always is to speak to the collector.

2. Document Illegal Behavior
If a debt collector breaks the law, document the violation as soon as it happens. Start a log -- and write down what happened, when it happened, and who witnessed it. Then, try to have another person present (or on the phone) during all future communications with the collector. In some states, you can record phone conversations without the debt collector's knowledge. In others, this tactic is illegal. Check with your state consumer protection agency to find out what is permitted where you live.

3. File a Complaint
File an official complaint with the Federal Trade Commission (FTC), the federal agency that oversees collection agencies. Ask the FTC to send you a complaint form, or just write a letter. Contact the Federal Trade Commission at 6th and Pennsylvania Ave. NW, Washington, DC 20580, www.ftc.gov/ftc/complaint.htm. Include the collection agency's name and address, the name of the collector, the dates and times of the conversations, and the names of any witnesses. Attach copies of all offending materials you received and a copy of any tape you made.

Also, send a copy of your complaint to the state agency that regulates collection agencies for the state where the agency is located. To find the agency, call information in that state's capitol city or check your state's website.

Finally, send a copy to the original creditor and the collection agency. The original creditor may be concerned about its own liability and offer to cancel the debt.

Once your complaint is filed, don't expect immediate results. The FTC may take steps to sanction the agency if it has other complaints on record. The state agency may move more quickly to sue the collection agency or shut it down for egregious violations. Your best hope is that the creditor will offer to cancel the debt.

4. Sue the Debt Collector
If you've been subject to repeated abusive behavior and can document it, consider suing the collection agency. But if the illegal behavior was annoying but nothing more, don't bother. For example, if the collector called three times in one day but never again, you probably don't have a case.

To sue the debt collector, you can represent yourself in small claims court or hire a lawyer and go to regular court. (The other side may have to pay your attorneys' fees and court costs if you win.) You're entitled to recover the amount of any actual financial losses -- for example, your pain and suffering or the amount you paid to switch to an unlisted number to avoid harassment -- and an additional amount (unrelated to actual losses) up to $1,000 for any violation of the FDCPA.

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This weblog is sponsored by Ovation Law.

Bankruptcy is a federal court process designed to help consumers and businesses eliminate their debts or repay them under the protection of the bankruptcy court. Bankruptcies can generally be described as "liquidations" or "reorganizations."

Chapter 7 bankruptcy is the liquidation variety -- property is sold (liquidated) to pay off as much of your debt as possible, while leaving you with enough property to make a fresh start. Chapter 13 is the most common type of "reorganization" bankruptcy for consumers -- you repay your debts over three to five years.

Both kinds of bankruptcy have numerous rules -- and exceptions to those rules -- about what kinds of debts are covered, who can file, and what property you can and cannot keep.  Bankruptcies, of any kind, stay on your credit report for 10 years.  All decisions regarding bankruptcy should be considered very carefully and not taken lightly.

Liquidation (Chapter 7)

Liquidation bankruptcy is called Chapter 7, and it can be filed by individuals (a "consumer" Chapter 7 bankruptcy) or businesses (a "business" Chapter 7 bankruptcy). A Chapter 7 bankruptcy typically lasts three to six months.

In a liquidation bankruptcy, some of your property may be sold to pay down your debt. In return, most or all of your unsecured debts (that is, debts for which collateral has not been pledged) will be erased. You get to keep any property that is classified as "exempt" under the state or federal laws available to you (such as your clothes, car, and household furnishings). If you don't own much, chances are that all of your property is exempt and you have what is known as a "no asset" case.

If you owe money on a secured debt (for example, a car loan, where the car is pledged as a guarantee of payment), you have a choice of allowing the creditor to repossess the property; continuing your payments on the property under the contract (if the lender agrees); or paying the creditor a lump sum amount equal to the current replacement value of the property. Some types of secured debts can be eliminated in Chapter 7 bankruptcy.

Not everyone can file for Chapter 7 bankruptcy. For example, if your disposable income is sufficient, after subtracting certain allowed expenses and monthly payments for certain debts (including child support and debts that secure property), to fund a Chapter 13 repayment plan, you won't be allowed to use Chapter 7.

Bankruptcy doesn't work on some kinds of debts. Though bankruptcy can eliminate many kinds of debts, such as credit card debt, medical bills, and unsecured loans, there are many types of debts, including child support and spousal support obligations and most tax debts that cannot be wiped out in bankruptcy.

Reorganization (Chapter 13)

Chapter 13 bankruptcy is also known as "wage earner" bankruptcy because, in order to file for Chapter 13, you must have a reliable source of income that you can use to repay some portion of your debt. And to qualify for Chapter 13, your secured debts must be less than $922,975 and your unsecured debts less than $307,675.

When you file for Chapter 13 bankruptcy you propose a repayment plan that details how you are going to pay back your debts over the next three to five years. The minimum amount you'll have to repay depends on how much you earn, how much you owe, and how much your unsecured creditors would have received if you'd filed for Chapter 7.

If you have secured debts, Chapter 13 gives you an option to make up missed payments to avoid repossession or foreclosure. You can include these past due amounts in your repayment plan and make them up over time.

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This weblog is sponsored by Ovation Law.

Six out of ten Americans suffer from a "bad credit rating." Bad credit starts with imprudent choices, maxed-out credit cards, exhausted savings, overdue bills ... then a letter from a collection agency.

This is followed by more letters and phone calls every day. Now each time you submit an application for credit or even a job, you will be troubled and humiliated by the specter of late payments on your credit rating.

Credit grantors tend to view any kind of collection account, whether paid or not, as negative. These negative entries can stay on your report for seven years and in the case of bankruptcy, ten years.

Here are some scenarios that can put black marks on your credit:
• You go through a divorce and your spouse maxes out your joint credit cards
• An unpaid bill from your college years comes back to haunt you
• A creditor fraudulently places a black mark on your report
• A contractor you employed places a black mark on your credit report because you refused to pay him for incomplete or substandard work
• You were late with your credit card payment.

Things happen in life: layoffs, poor health, unplanned crises that can have consequences on your credit report.

Divorce and separation can also cause bad credit. This does not mean you have to give up on dreams that you may have, such as owning a home. If the bank turns down your mortgage application, many brokers and lenders may consider you an "A" buyer.
Several companies offer mortgage loans to people with less-than-perfect credit ratings, because homes are very secure collateral. The rates and fees might be outrageous, but even people in bankruptcy and foreclosures can apply.

Automotive credit also plays a part in re-establishing your good credit standing because an automobile is an asset that can be repossessed if things go wrong.

There are two ways you can have bad credit: one is where you can't buy anything on credit, and the other is where you have a bad credit report, but you may still be able to buy on credit. There are also varying degrees of bad credit. Much depends on what you are purchasing and who the creditor is.

If you've reached the end of your tether, filing bankruptcy instead of trying to pay your bills in dibs and drabs can also decrease your ability to purchase on credit.

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This weblog is sponsored by Ovation Law.

On March 14, 2006 the nation’s three main credit bureaus sent out a press release announcing that they have adopted a new credit scoring system.  This new scoring system is not a whole lot different then the old FICO scoring system, but there are differences.  The FICO scoring system had a different algorithm to compute the credit score for each bureau.  The FICO scoring system also had a different range of scores for each bureau. 

This was what the credit bureaus were looking to standardize with the new VantageScore system.  The VantageScore uses the exact same algorithm to compute the score for all three credit bureaus.  Also, the score scale is exactly the same for all three bureaus. 

Here is a brief explanation of the VantageScore system.  The VantageScore system will be on a scale ranging from 501-990 (the lower the score the higher the risk to potential lenders).  The VantageScore also has adopted the classical academic scale to make it easier for consumers and lenders alike to understand where they rank with their score.  This academic scale is grouped by the following:

A- 901-990
B- 801-900
C- 701-800
D- 601-700
E- 501-600

The VantageScore just like the FICO score will be based off the information that is reported on the credit report.  It will reflect how often a consumer borrows money, how responsible borrowers are at paying back their debt on time, as well as other file content.  Unfortunately the credit bureaus did not divulge how these factors would be weighted in the new VantageScore.  The new VantageScore will also be more accurate when rating a consumer who has a limited credit history.  This is one area in which the FICO scoring system was not very accurate.

The FICO scoring system will not be done away with; in fact it will still be used by many borrowers to evaluate those who are looking to get a line of credit.    It will be up to the credit industry and the individual enders to decide which score they use.  In fact the rate of adoption of this new score will be set primarily by lenders themselves.  As new information is presented about the new VantageScore system, we will make sure to keep you updated.  If you have any questions regarding this or any other credit matter, please contact us at 1-866-639-3426 or you can email us at questions@ovationlaw.com. 

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This weblog is sponsored by Ovation Law.

It's easy to think that bad credit is no problem from the advertisements in the media. However, have you ever examined the fine print on those "easy credit" ads? You'll discover that people with bad credit and bankruptcies are paying twice, three times, even four times the amount of interest that a person with good credit pays.

By getting the lowest possible interest rates, you save a substantial amount of money.
It is estimated that consumers with compromised credit pay billions in additional costs per annum. Credit grantors, fueled by credit reporting, advance strong competitive advertising campaigns for the most desirable borrowers.

Lower interest rates, reduced annual fees, toll-free customer service centers, customer recognition programs and purchase protection plans are some of the benefits of this rivalry.

Buying a home is the biggest single investment most people will ever make. Your credit history is one of the several important factors used in determining whether you can get a mortgage or not.

One of the details that lenders evaluate when you submit an application for a mortgage is your payment record on things such as credit cards, car loans, rent and related commitments.

If you intend to start a business, credit review and scoring is important as a means for your financers to evaluate your capability to handle the related risk and the possible losses resulting from charge backs and fraud. You will make the decisions for your business and have control of the credit card processing, and your good credit is an indication of your financial responsibility.

Blemishes on your credit record can have an effect on not only your ability to get a job, but also to lease an apartment or purchase a car.

Making numerous requests for credit, paying credit card bills late, and having a great deal of debt could lower your credit score.

Learn to keep track of how much you spend and on what. Try to find any area that's way out of line - it may be something as noticeable as eating out or as surprising as dry cleaning bills - where you can curtail spending and save some cash.

Make a budget - it is the first step to your financial freedom. Before you can devote yourself to increasing your money, you need to know where it goes.

In addition, you can be eligible for all kinds of 0% interest, low interest, cash back and rewards credit cards if you have a good credit record. You can in fact make money off the credit card companies with a first-rate credit rating.

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This weblog is sponsored by Ovation Law.