Credit Card/Installment Debts

Many credit problems can be handled in Small Claims or without an attorney, although an attorney should be consulted if a problem exceeds the minimum jurisdictional limits of the Small Claims Court, or if you are being sued by a creditor, [whether the suit has any merit or not] in any court other than Small Claims.

One of the basic rules concerning credit card charges is to understand that you, as the cardholder, are responsible for the use of the card and for all terms set forth in the credit agreement of the credit card company. While it makes sense to read the agreement, it is doubtful that you can make many changes to terms in the agreement with which you may not agree. However, it never hurts to try, if you find a provision in their standard form agreement that you would like to omit or rephrase.

More commonly, if you find a provision that you cannot become comfortable with, then try another credit card company. Terms of agreements vary widely, as do the interest rates.

Remember, that if you loan your credit card to any person, you are responsible to pay for whatever that person charges on your card. Do not make irresponsible loans of your credit cards. If you must, be sure to get the terms of loaning your credit card to a person in writing, so that you only give limited approval, as to amounts, goods and stores. This will not free you from responsibility to pay the credit card company, but it will help you prove your case against the person making the unauthorized purchases if you were forced to sue them. If that person does not pay you, you still must pay the credit card bill.

If a card is lost or stolen, then you may not be responsible for the charges, provided you follow the credit card company's procedures. Above all, notify the company immediately of a lost or stolen credit card, so that your liability will be limited. Usually if you follow the credit card company's instructions, you will be limited to a maximum charge of $50 or a similar amount. If a person whom you know takes your credit card without your permission, this may be considered a stolen card, or lost if you do not know where the card is. But once it is reported, the police may become involved with the person using the credit card and file criminal charges. Before you tell the credit card company your card was stolen or lost, be sure to understand the person using the card may be arrested or prosecuted.

If someone to whom you have lent your card refuses to give the card back, then it may be considered beyond your agreement or authorization. You may not be responsible for any charges, but you will have to report the card as lost or stolen. If, in fact, it is not really lost or stolen, then both you and the user could end up on the wrong side of the law. Of course, if a person exceeds your authority to use the card the best thing to do is to notify the person to stop using the card and to notify the company to cancel the card. While this may not limit your liability for items purchased, it will at least keep future items from being charged.

If you and your spouse have a joint credit card and your spouse uses it to charge a number of expensive items what can you do? This is an area of diversity in state laws. But most state laws make a spouse responsible for the debts of the other spouse, if they were incurred during the marriage. There are a number of qualifications to this rule and the property ownership must be traced to the date of acquisition. If you are getting a divorce or are considering one, consult with your Plan Attorney about your particular situation. If you just want to know if you are responsible for your spouse's debts, the answer is you probably are unless you put your credit card company on notice that you will not be responsible if your spouse incurs charges on your account. Naturally, this must be in writing, and may affect the company's desire to allow charges on the card.

If your spouse incurred debts on a credit card before you were married, are you liable? Many times you are not liable provided you do the following: Keep all of your assets separate and do not maintain any joint holdings with your spouse, and do not undertake to guarantee any financial obligations of your spouse. In short, as long as you keep everything of yours separate from his/hers, you may not be forced to pay the premarital debts. Again, if a substantial amount of money is involved, you may want to consult with your Plan Attorney to discuss the proper handling of your assets to make certain they cannot be used to pay your spouse's debts. Also, expect a collection agency to pressure you to pay and to ignore the fact that the debt may be a premarital debt. You should review the section regarding collection agencies for assistance.

If an item is purchased on a credit card and once delivered is obviously wrong, or defective, or not what the store represented it to be, you may be able to return the item without incurring the charges. You should contact your credit card company immediately and inform them in writing of your dispute with the store [even if it has not reached the level of a dispute yet.] Then you should send the store a letter indicating the problem with the goods. Most stores will make provisions for returns.

These are things you should do after receiving goods which are defective or not what was represented: Notify the store in writing, make arrangements for return shipping, and notify the credit card company. These are things you should not do: ignore the problem, refuse to put your disagreement with the store in writing, and forget to notify the credit card company. Also, you must pay all of the outstanding credit card balance other than that disputed.

What if the goods which I charged to my credit card are essentially what the store represented, and they are not defective, but I realize that I cannot really afford the goods. Here, under most state laws, you are not permitted to return the goods, or to refuse to pay for the goods. You must be certain that you can afford anything you buy, before you purchase it, whether by credit card or cash. You normally cannot return goods after you have agreed to buy these. [Note: some states allow for a three day period of unconditional cancellation on a very limited number of items, usually where high pressure is involved. One example: door to door sales of certain goods.]

Is my telephone card the same as a credit card? Yes, so long as you authorize the use of the card, you must pay the charges. However, without any authorization of the charges on your bill, the local telephone company must normally credit your account, since the telephone card was used without your permission. This may not be true regarding your home phone or an actual credit card issued by a telephone company.

Other Installments and Debts

Especially today, debt problems are among the most common problems facing middle income Americans. Several areas of concern are relevant to this area. Certain rights accrue to all debtors and certain rights are set forth by state credit and consumer laws. Again, this area has several general rules but these may be complicated by certain state laws. Always check for any rules particular to your state or your situation. In this next discussion, we will assume there is no dispute as to the existence of the debt.

What if your debt becomes unmanageable? The urge to simply stop making payments and ignore the problem is often the easiest. It is likely the easiest way to cause long-term credit problems for yourself as well. Often lawsuits over debts can take several months or even years and during this time a temporary reprieve from the payments is afforded to the debtor. But many states allow for pre-judgment interest at legal rates [commonly now 10%] as well as full reimbursement for attorneys' fees and payment of the underlying debt as well. Thus, the creditor has plenty of incentives to pursue this matter for years if necessary. Often, the interest on your debt may be accruing which gives the creditor no immediate need to collect his/her money.

Generally, ignoring a debt will not work to your advantage. Of course, there are cases in which a creditor may simply "write the debt off," and in these cases debts which were ignored may never have to be paid. Also, every debt has a Statute of Limitations, that is a time period by which the creditor must file an action against the debtor or lose his/her rights to sue. If you can predict the actions of your creditor, you may make certain actions. But if you are unsure of the actions your creditor may take you should probably assume the worst and follow your legal rights.

One course of action would be to call the creditor and propose a compromise of some type. It is unbelievable how many times this actually works. Often, you can settle the debt by agreeing to pay a lump sum amount which may be discounted from the original debt plus interest. Additionally, you should do this before the creditor refers your case to a collection agency. See the section on collection agency rights.

The reason to settle with the creditor and not a collection agency is that the creditor often already knows if he/she has to refer the case to a collections agency, the collection agency will either have to be paid, or typically will take a percentage of the total amount collected from you. Often collection agencies may collect as much as 50% of the amount as their fee.

If the creditor says you owe $1,000 and you tell him/her that you cannot pay, he knows that he may get only $500, if he sends it to a collection agency. Offering to pay him a lump sum of $750 may work to the advantage of both parties. Also, if your agreement is settled in this manner, be sure to ascertain whether your debt was correctly reported to the credit agency, and be sure it is reported as satisfied before you actually pay. It is doubtful that you will get much cooperation from this creditor once he/she receives their money.

Of course, you may be able to agree to make payments on the reduced amount. Today, however, very few creditors will allow you to compromise a debt as we did in our example and then pay $25 per month towards the $750. You can try any arrangement you want, however.

Also, you should know that you might request relief from further interest as part of any settlement or even if you are just having trouble paying the debt.

Points to Remember

  • You are responsible for the use of your credit cards.
  • If your card is lost or stolen, you may not be responsible for the charges, provided you follow the credit card company's procedures.
  • You are probably responsible for your spouse's credit card debts unless you notify the credit card company.
  • Notify the credit card company if goods you ordered are obviously wrong, defective, or not what the store represented.
  • Do not ignore or stop paying credit card debts. Contact the company and arrange for payments.

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