The Fair Debt Collection Practices Act (FDCPA) was originally designed to protect debtors against abusive actions taken by collection agencies when they are pursuing a debt. There are numerous violations that may cause penalties against the debt collector to be paid to the borrowers or applied to the balance of the account. Two of the most important are prohibitions regarding communications with third parties and harassment of debtors.

Throughout the history of the FDCPA, court cases have been defining what is and is not a violation of the Act. Collection agencies and collection lawyers are the types of business that receive the most complaints by consumers though the Federal Trade Commission. The two most common complaints the FTC receives regarding collectors involve claims of harassment and collection agencies pursuing more than is really due.

A number of recent decisions in court cases have helped flesh out some of the issues regarding harassment and collectors contacting third parties (such as a borrower's brother or coworker). In many cases, debtors that just defend against such actions can uncover numerous violations of the law by collection agencies. The borrowers may owe the money, but if the collector can not prove it owns the debt or has broken the law, its claims to recover may suffer severely.

In terms of communications with third parties in the collection of an account, debt collectors are not allowed to leave messages with family members of the debtor and request that they be conveyed through the third party to the borrowers. Failing to leave required notices may also be considered a violation of the Fair Debt Collection Practices Act.

Debt collection companies and lawyers must also protect borrower information when sending letters in the mail. One court found that a collector violated the FDCPA when it sent a letter to debtors with a window envelope where anyone could see information about the debt being referred to, including the creditor and the account number.

As well, debt collectors are not allowed to discuss or sell borrower information to nonaffiliated third parties. Collection agencies may not be allowed to make even more money from taking the personal information of debtors and selling them to marketing partners, poor credit card partners, transfer credit card partners, and others. This would be a clear action of communicating with third parties while collecting a debt.

Harassment is also a huge complaint of borrowers against collection agencies, as mentioned above. Collectors may call at all hours of the day, at work, home, on cell phones, and to family members of the debtor. While they are required to cease such communications if informed by the borrowers, collection agencies have been known to keep pursuing debts in violation of such laws. Repeated rude, threatening phone calls have been found to be a violation of the FDCPA.

For example, one collection agency actually had its agents visit a borrower's home to deliver lawsuit papers and shout outside in a loud voice. They repeatedly yelled the debtor's name and shouted things like "you need to get your ass out here and open your gate now," and "you need to come out and get these legal papers now." One court has found this behavior to be a violation of the prohibition against harassment.

Debtors should also watch out for collection agencies attempting to get them to admit things both the borrowers and debt collector know to be untrue. Even though the collector's own records showed that a payment had been made, it attempted, though the court discovery process, to get the borrowers to admit it had not been made. The court found this behavior to be abusive, unfair, and an unconscionable practice which violated the FDCPA.

Collection agencies use a lot of devious tactics to pursue debts that they do not even really own. They seem to rely on harassment, deception, and embarrassing borrowers to extract money to keep them quiet. But once they come across a borrower willing to pursue the issue and challenge the debt and the collection practices in court, debt collectors are often found to be in violation of federal lending laws. If the debts they are collecting are legitimate, why is it so difficult for these companies and lawyers to follow a few simple laws?

One tool of the credit card companies has always been to force consumers into unfair arbitration proceedings, where very little is done to help strapped borrowers get back on top of debts. While most people who were involved in such negotiations had a feeling they horribly biased against the consumers, the full extent of the corruption of the process has finally come out in a recent court settlement.

The attorney general for the state of Minnesota recently sued the National Arbitration Forum (NAF), alleging deception and bias in their treatment of credit consumers. Amazingly, the NAF agreed to cease all consumer arbitrations nationwide beginning July 24, 2009, which will effect huge numbers of credit card companies and borrowers. Millions of credit agreements name NAF as the company to handle any arbitration.

The reason for the National Arbitration Forum ceasing operations is that it was found to have been biased in its business dealings, and had failed to disclose these biases. Corporations controlled by a hedge fund ended up owning part of NAF and a national collection agency that used NAF in lawsuits against borrowers. NAF and the debt collector, Mann Bracken, failed to disclose this relationship to consumers.

The Minnesota attorney general's complaint alleges that the collectors had filed 125,000 collection attempts with the National Arbitration Forum in 2006, while neither party ever disclosed the relationship between the two companies. And this is after NAF had represented itself, according to the attorney general's complaint, as "independent, operates like an impartial court system, and is not affiliated with any party."

Obviously, NAF and Mann Bracken were closely affiliated, owned by the same corporations through the hedge fund, and using their business relationship to sue consumers and then throw the cases into arbitration proceedings. In fact, the complaint further alleges that NAF worked with credit card companies to persuade them to include mandatory arbitration clauses in cardholder agreements. In many cases, NAF was appointed the arbitrator in these contracts.

Now that the National Arbitration Forum has ceased administering consumer arbitration proceedings, all of these former contracts are now invalid as written. A further development is that, due to the NAF complaint, the American Arbitration Association has also decided to cease handling collection actions against borrowers. This will be their decision until appropriate standards are developed.

For the present time, it seems that mandatory arbitration clauses in credit card agreements may be worthless. While it is no surprise to consumers that have been forced into the system that it is totally biased in favor of debt collectors, the Minnesota attorney general's investigation has proved that companies can work together to gain interests in arbitrators and collection agencies and hide these affiliations from consumers.

How many credit card borrowers were pressured to agree to unfair repayment plans or were forced into bankruptcy due to the corrupt practices of the National Arbitration Forum and its affiliated credit card and collection companies? Out of 125,000 complaints that Mann Bracken filed with NAF, how many ended up fairly? It may be safe to assume, based on the claims raised in the AG lawsuit, that none of the arbitrations ended up fairly for borrowers.

Identity theft is everywhere these days. No company or individual who has ever used a credit card online is safe from criminal hackers and social engineering thieves. And although large corporations may have the most information that identity thieves can target, smaller companies can still yield hundreds or thousands of credit card numbers.

One of the tactics these criminals use is to steal a huge list of credit card numbers and then begin making numerous small charges on each of them. Many consumers may not even recognize a series of charges for between $2 and $6 on their bank statement. But $30 worth of charges over a thousand credit cards is highly lucrative for thieves.

There is also almost zero risk in stealing credit cards from online merchants and using them. While much of this type of theft goes unreported, even the cases that are reported to the police end up going nowhere. A consumer in Ohio may purchase something from a website in California that is hacked by an individual in Tennessee who uses a credit card to initiate a fraudulent charge in New Jersey. Where do local authorities even begin to address this?

Federal and state regulatory agencies are also ill-equipped to deal with such instances of credit card fraud. For $30 in disputed charges per account, the federal government can not spend hundreds of dollars per case. While there may be a good chance of catching the thieves, much of the money may be gone, making tracking down small-time identity thieves a losing financial proposition for the government.

As well, disputing a whole list of charges to get them removed from a bank or credit card account is positively a waste of time for consumers. The companies that took the fraudulent charges will not answer phones, not return voice mails, or refuse to refund the charge without a police report or other evidence of fraud. This is a lot of work to get back $4.95, and many consumers will just not bother to pursue it.

While banks may accept disputes and refund money to consumers who are targets of these criminals, the banks most often recover nothing from the thieves. Instead, money is set aside in a reserve account to cover these losses. But the funds for the reserve show up in higher interest rates and fees for all banking customers, as the costs of identity theft are passed along to the consumers anyway.

Unfortunately, it seems that it is easier to make money through the drug trade, identity theft, and other black market endeavors. It is also just as risky as holding a normal job in these tough economic times. Being caught and facing monetary judgments or community service is not really all that worse than being laid off, foreclosed, and homeless. And while the costs of identity theft are passed along to consumers, the costs of foreclosure and job loss usually affect only local families and communities.

Some homeowners, when they originally purchase their home or refinance, are pushed into an expensive "credit insurance" policy. Despite how they are sold to the borrowers, though, these schemes can often just be one more way that lenders enrich themselves by taking advantage of the financial ignorance of most borrowers. Abusive credit insurance can also be used as a defense against a foreclosure lawsuit.

But what is credit insurance? There are two common types of it -- a credit life policy and a credit disability or accident and health policy. Both can be abused by lenders when they force expensive policies on borrowers who may receive little or no benefit from them. Although some policies may be advisable in some cases, expensive policies that have limited or no benefit for the borrowers are a sign of abuse.

Credit life policies will pay off the existing mortgage in the event the covered person dies. Credit disability coverage is designed to be used by borrowers to pay their monthly mortgage expenses in the event of a disability or other interruption in income due to health reasons. Both can be quite helpful for homeowners in certain situations, but these types of insurance are also offered cheaper through other sources.

One reason that other insurance providers may offer such policies cheaper is that the lender, when it pushes homeowners into a credit insurance policy, is often compensated directly by the insurer. The insurance company pays the mortgage origination company for placing the insurance, which gives lenders incentives to recommend the highest-cost policy available.

The potential abuse of such policies comes from the way that the creditors (the mortgage lenders) benefits from the sale of the insurance. Lenders receive a commission, in most cases, determined by a percentage of the total premium the borrowers have to pay. The higher and more expensive the coverage, the more then bank gets paid by the insurer. Of course, this means that the highest cost coverage is offered.

Also, borrowers who purchase a credit insurance policy voluntarily may have the premiums added to the balance of their loan amount. This means that the bank will be able to charge interest on the insurance policy premiums, thereby increasing the cost even more over the life of the loan. This raises the effective interest rate of the loan and increases the profit of the loan to the bank.

While most homeowners may just not be aware of how these policies work and the lenders' incentive in offering them, the practices described above may not be outright abuses. However, some borrowers have been pressured into paying for insurance policies where they are ineligible to receive any benefits under the terms of the policy. This is an obvious abuse and mortgage companies can be held responsible for it.

However, the most important point for homeowners to remember is that they have a choice with these policies. If the lender is forcing them into one, they can always go with a different bank or lower coverage amount. A future article will look at how the insurers inappropriately deny benefits even for borrowers who have adequate coverage, as well as legal claims against the lenders and insurers.

The number of potential violations of law, court procedures, and common human decency that the owners, managers, and employees of collection agencies have been caught engaging in is almost endless. Homeowners facing foreclosure, consumers considering bankruptcy, and even families attempting to pay back loans but who have fallen on hard times should be aware of these tactics in order to recognize them as the violations they are.

A previous article discussed some of these shady practices, including violations of the federal collection laws, seizing bank accounts holding exempt Social Security payments, obtaining judgments fraudulently by failing to serve borrowers with lawsuit paperwork, and others. In general, if a collection agency is involved in pursuing a debt, the main objective will be embarrassing borrowers, not making sure the debt is paid.

Even in the cases of identity theft, collection agencies will keep pursuing a debt once it has been established that the debt is exempt. Instead of giving up on such collection attempts, the account is usually just sold to another debt collector who begin the process all over again. If the borrower sends documentation that the debt is noncollectable due to identity theft, it is just sold to the next agency.

Debt collectors will also take advantage of the fact that most debtors do not know that they can request no more phone calls be made to their work, home, or other phone numbers. Instead, the agency will threaten to keep calling until the borrower is thoroughly embarrassed or has lost his or her job due to the harassment. Although this is against the law, collection agencies know that most borrowers are not aware of their rights.

Collection agencies know two things: they often can not validate a debt, and borrowers do not know how to defend themselves in court. Thus, when a collector is sent request for validation, it often responds by filing a lawsuit against borrowers. However, this is against the law, as a collection agency that can not validate a debt is no longer allowed to pursue any collection attempts until it has the information to validate properly.

The worst action that borrowers may take is agreeing to pay back a debt, in some instances. Collection agencies, once authorized to debit a bank account for periodic payment, will attempt to withdraw as much money as possible from the debtor's account over a very short period of time. This can result in NSF fees, overdrawn account fees, and the closure of the bank account in the end.

In some states, debt collectors are able to dictate to the banks what to do with borrowers' money even without a judgment, court order, or lawsuit. So-called "pocket service" laws state that a bank can be served with a garnishment summons and the bank account must be frozen for the payment of the debt. Again, exempt Social Security payments may be in the account, but borrowers must fight to get those funds back.

It should be noted repeatedly by homeowners and consumers that collection agencies file a large number of lawsuits, regardless of the statute of limitations, identity theft, or being able to find and serve the debtor properly. In almost all of these cases, the collectors use lawyers to file frivolous, fraudulent lawsuits and obtain default judgments, even for debts that are otherwise noncollectable.

Veterans are not protected, either, from the deceptions of collection agencies. A report by the National Consumer Law Center has this (PDF) to say:

My client, a soldier in Iraq, gives [Debt Collector] permission to debit his account for $300 on 5/1. They proceed to clean out his account. He called [his bank] and asked that [Debt Collector] be blocked from any further access to the account. [The Bank] tells him that is not enough; that [Debt Collector] is well known to them, and they will simply take further monies under a different name--they do this to soldiers all the time.

Debt collectors usually are not picky about which groups they harass -- everyone is an equal opportunity victim. But obviously, some companies decide to enter niche markets, like taking advantage of veterans based overseas who find it more difficult to defend against such actions.

Thus, every homeowner should be on guard against the fraudulent practices of debt collection companies attempting to embarrass debtors more than have debts repaid. Many of these parasites masquerade as law firms, using their political connections to sue borrowers even when all of the actions they must perform to get a judgment are based on lies and against the law.

Of course, this is not to say that every borrower is being preyed upon or every debt collector is a predator. However, a surprising number of collection agencies have established a pattern of behaving in a manner designed to humiliate borrowers instead of give them opportunities to repay defaulted debts. By gaining an awareness of such practices, hopefully more debtors will be able to avoid being taken advantage of by fraudulent companies and lawyers.

It should come as no surprise that the vast majority of people who fall behind on debt payments do so for financial hardship reasons -- not because they are simply deadbeats. Despite, this, however debt collection agencies often take steps to inflict the maximum amount of anxiety, fear, and embarrassment on borrowers who fall behind on loans, going so far as harassment and engaging in other illegal acts.

This article will describe some of the harassing actions that collection agencies take when pursuing debts. Although these companies have the right to purchase defaulted accounts and attempt to collect on them, they often engage in activities that serve little other purpose than humiliating borrowers; the collection of the debt seems to become a secondary objective to creating embarrassment and humiliation.

The first practice that debt collectors routinely engage in is pursuing debts that they know they can not validate properly, according to the Fair Debt Collection Practices Act (FDCPA). Despite not having the proper documentation, the companies keep trying to collect and go so far as to initiate lawsuits against borrowers for debts that the agency knows it can not prove it has a right to collect.

This is one reason so many collection agencies are law firms -- they can throw the entire issue into court, relying on the incomprehensibility of the legal system to the average person. The debt collectors take refuge in the confusing language of the law and the protection and violence of the state in order to pursue borrowers. This way, they can threaten judgments, wage garnishments, and even jail time.

Another shady practice that collection agencies engage in is having courts seize bank accounts that are used as direct deposit accounts for Social Security payments. Social Security payments are meant to be exempt from collection attempts, but the small issue of obeying the law does not stop debt collectors from going after such accounts. The law and the courts, it should be remembered, are only meant to protect lawyers.

Debt collectors will also routinely deny ever having received a payment from someone who is trying to make a payment on an overdue account. Acknowledging receipt of the payment would cause the collection agency to stop the fun of humiliating and embarrassing borrowers, which is, after all, the main purpose in the first place. Unfortunately, even sending proof that the payment was received and cashed can do little good.

The ways that collection agencies take advantage of the court system are nearly endless. The easiest way to get a fraudulent judgment against a debtor, of course, is to send the lawsuit paperwork to the wrong address. If the borrowers never receive the documents, they can not make a defense, and the collection agency gets a default judgment, which may be difficult to overturn later on.

Some collection agencies are aware of debtors' rights under the FDCPA, but routinely ignore them, instead moving further and further down the road of harassment and threats of lawsuits. If a company can not validate a debt, it must cease collection. However, few debt collectors follow this, instead refusing requests for validation and continuing with attempts to collect and then suing the borrowers.

All states have a statute of limitations during which a debt can be collected. Collection agencies are aware of these statutes, but are just as aware the borrowers do not know about them. They take advantage of this to pursue debts that may be years or decades old, and which can no longer be pursued. They engage in the same harassing practices to get people to pay debts that they do not even owe any longer.

It should be clear to any borrower that debt collectors, from mortgage lenders to collection agencies for personal loans and credit cards, routinely take advantage of widespread public ignorance of lending and collection laws. They do this in order to take advantage of hardworking people who ran into a financial hardship, while the collectors themselves provide almost no redeeming qualities to the productive society.

The worst part may be that all of the money that people borrow from banks is created by the lender out of thin air, based on little more than the signature of the debtors. The creditors provide absolutely no services, loan out devalued money, create only enough for the principal amount to be paid back but not the interest, and then pursue borrowers to or beyond the grave in order to collect.

In the end, all attempts to collect a debt represent attempts by parasites to attach themselves to a productive member of society who is simply unaware of the nature of the legal and financial system. With all of the fraud and deception in these systems, is it really any wonder that many more borrowers are beginning to reduce their reliance on debt and starting to save money again?

Hopefully, with all of the negative press about banks, lenders, and credit card companies who gave out loans to borrowers who could not pay them back, raised fees without notice, and then came to the government for bailouts, consumers have begun to wise up to the credit trap. But for those who still have a desire for credit after bankruptcy, or foreclosure, some guidelines should be followed for wise credit use.

Borrowers should start with their personal bankruptcy lawyer when attempting to get their financial lives back on track. Many of these attorneys have witnessed the destruction creditors can create in consumers' lives through complicated contracts, interest rate changes, and fraudulent expenses added to a loan balance. But there are also numerous other tips for using credit wisely if it must be used at all.

First, consumers who have experienced a dramatic hit to their credit scores due to bankruptcy or foreclosure may want to wait before applying for any new loans. There is really no rush to get another credit card or car loan, especially if filing bankruptcy only eliminated the large debt load but did not address the financial situation or hardship that led to default in the first place. In this case, waiting may be the best option.

Second, just because a borrower may qualify for a high limit credit card, personal loan, or mortgage does not mean that it is a good idea to take out as much money as they can. Homeowners who did this over the past decade are now likely to be underwater, owing more on their home and other loans than their assets will ever be worth. And they have little to show for all this debt load.

Instead, borrowers should come up with a reasonable financial plan and view taking out a loan as temporary financial slavery, rather than winning the lottery. Many consumers saw a $10,000 credit card limit as the path to success, but are now realizing that they have indebted themselves at high rates of interest possibly for decades to come. A high credit limit is more a trap than it is a benefit.

Third, if there is not really any reason to borrow again after bankruptcy or foreclosure, then there is also no reason to apply for credit lines "just to have them" or "in case of emergency." Consumers who rely on borrowed money in the event of an emergency just make it more likely they will have to take on more debt the next time a situation comes up requiring quick cash.

In fact, once homeowners have resolved their foreclosure or a bankruptcy case has been dismissed, the next step after financial recovery should be setting up an emergency fund. Rather than borrowing money at 29% interest, it would be a far better idea to tap into a savings fund, if one is available. And even if the savings does not cover the emergency completely, it can reduce the reliance on credit.

A final tip is for borrowers to read all of the contracts and disclosures they receive when applying for credit. If they do not understand the terms in the documents, they should take them to a contract or lending law attorney who can help explain them. If the attorney can not adequately explain them, then it may be best to stay away. Creditors with complicated payment and interest clauses can easily take advantage of consumers.

The most important change consumers can make after surviving foreclosure or bankruptcy may be to begin viewing taking out loans as voluntary slavery to a creditor. Banks have advertised loans as free money with low interest rates, but this is not how they behave at the moment a payment is late. Then real money lender comes out, suing borrowers, refusing homeowners' calls, humiliating them, and stealing their money through bailouts.

The Fair Debt Collection Practices Act (FDCPA) is a federal law that is designed to protect consumers of credit from abuse actions of collection agencies which are pursuing a debt. It provides numerous protections for homeowners and puts restrictions and limitations on what actions collection agencies may take.

When a lender or law firm violates the Fair Debt Collection Practices Act, homeowners may use these violations in their foreclosure lawsuit defense. Although the Act may not apply in every situation, many mortgages have been sold to third parties, investors, other lenders, and servicing companies under the appropriate circumstances, and the law would come into play.

Disclosure notice requirements, dispute processes, and even halting collection calls on a debt are covered by the Act. The law also allows credit consumers to bring lawsuits directly against a collection agency in order to obtain monetary damages for violations of the FDCPA, and it can be remarkably easy for collectors to violate the Act.

When a loan goes into default, the current holder of the loan, however, will not count as a collection agency when it is collecting on its own debt. It must use its own corporate name and must not be primarily in the business of collecting debts. In the case of the mortgage lending business over the past decade, very many loans are sold once they go into default.

The FDCPA applies when a mortgage loan is sold or transferred and another company begins debt collection attempts in the case of default. It is important for homeowners to remember, though, that if the lender before the default keeps the loan, the FDCPA does not apply. But if the bank sells the loan somewhere else, the law will apply to the new owner.

Once the lender or servicing company changes after default, though, the new company which purchases the debt counts as a collection agency and falls under the Fair Debt Collection Practices Act. Any law office that the lender hires to pursue the debt or bring the foreclosure lawsuit into court must also comply with the FDCPA and may face liability for violations.

Homeowners have a number of rights under this law. If they inform the collection agency (or lender or law firm) in writing of their desire not to be contacted regarding the debt, any further communication is a violation of the Act. As well, attorney fees that are charged to an account that are not specifically authorized in the mortgage documents is a violation of the Act.

The FDCPA also describes violations due to harassment, abuse, misleading representations, and debt validation, among other provisions. Other rights protected under the Act can be found by reading the law or consulting with an attorney familiar with the law in detail. There are also many websites that go into further detail about this particular federal law.

Each violation of the Act may cause liability on the part of the collection agency for any actual damage suffered by the borrowers, $1,000 per offense, and costs of any action to defend the foreclosure lawsuit, initiate a foreclosure lawsuit, and attorneys fees. In effect, there are numerous ways to violate the law, and many collection agencies do not know enough about it to follow it exactly.

When defending against a foreclosure lawsuit, homeowners may wish to use violations of the FDCPA (and they may be surprisingly easy to discover) to offset the judgment the bank is seeking. Violations may be included as counterclaims in answering a complaint. The law firm representing the lender also counts as a collection agency and may be brought into the lawsuit for its own violations of the Act.

Mortgage lenders often have a difficult time adhering to the requirements of the federal law known as the Fair Credit Reporting Act, which may create liability for them when attempting to bring a foreclosure lawsuit or pursue a nonjudicial foreclosure. The Fair Credit Reporting Act creates requirements that creditors must adhere to when reporting consumer information to the credit bureaus.

Inaccurate reporting of information may cause damages to borrowers and create liability on the part of mortgage lenders for a wide array of violations. The FCRA governs the reporting of all information to credit agencies, whether it be inaccurate or not. Whether or not the borrowers have defaulted on payments is irrelevant to application of the FCRA on information reported.

There are a number of specific rules that mortgage companies and all creditors must comply with when offering credit to a prospective borrower and in the ongoing operation and servicing of the loan. Creditors often have a very difficult time following all of these guidelines while also attempting to comply with all of the other federal and state lending laws and routinely misreport information about consumers' accounts to the credit rating agencies.

If a lender denies credit or even a loan modification on the basis of information received from a credit agency, the consumers must be provided with a statement indicating that they can request a copy of their credit report from the reporting agency for free. The request must be sent to the company which provided the credit information within 60 days of the denial of credit by the lender.

Also, the creditor (or servicing company ) may not report information to credit agencies that it knows or has reason to believe is false or inaccurate. With the poor quality control most banks seem to have in place in their collections and foreclosure departments, mistakes are more common than many homeowners might believe. In the event any errors are discovered, the creditor is also required to correct the mistake on the borrowers' report.

There is a specific notice requirement for lenders when offering credit to borrowers. It is titled a "Notice to the Home Loan Applicant" and includes information for the borrowers' use. This notice contains information regarding disclosure of credit scores, an explanation of the credit scoring system, and instructions to contact the lender if the borrowers have questions about the terms of the loan.

The credit bureaus themselves also have to follow guidelines in the FCRA, including verifying any information that a consumer disputes. The verification must be done within thirty days of receipt of the dispute. If a record can not be verified, it must be removed from the credit report.

Willful violations of the Fair Credit Reporting Act allow homeowners to recover damages in three ways. The first is actual damages between $100 and $1,000 for each violation of the Act. The second is any punitive damages that the courts may award to the foreclosure victims. And finally, homeowners are entitled to attorneys fees and the costs of any legal action they bring against the lender for violations of the FCRA.

In practical terms, violations of the FCRA may be used to offset liability in a foreclosure action or lawsuit. When homeowners are preparing their answer to the foreclosure complaint, they may wish to add violations of the FCRA as counterclaims to sue the lender for damages. Depending on the amount and type of violations, along with any legal representation the homeowners utilize, such violations can create significant liability for the mortgage company.

Decades of making money cheap, easy to print, and similarly easy to loan out have resulted in a large number of Americans struggling under a huge debt burden. The banks which have lent out this money are now restricting credit to borrowers, despite their creditworthiness, and actually damaging peoples' credit histories for no rational reason.

Instead of saving money to purchase a car or home, for years it was easier just to borrow the money from a lender. Giant companies like General Motors and General Electric established finance divisions to sell losing assets at a gain through the availability of loans and interest payments. But these days are over and the so-called credit crisis is here.

In response to the larger than average number of homeowners and consumers defaulting on their debts, facing foreclosure, or not paying their credit cards, issuers of lines of credit are not cutting back on those lines. This action, though, is having the opposite effect that every other government and bank plan is purported to have: freeing up credit to consumers.

In fact, the banks are begging for and receiving hundreds of billions of dollars to unfreeze their consumer lending divisions, even as they are cutting back the amount of money being offered to consumers who already have loans. The effect is that people who were once creditworthy are being hit on their credit scores.

One small part of the subprime mortgage crisis and foreclosure crisis in general was that lenders, during the boom years, did not worry about credit scores or incomes. House prices were always rising, so anyone could be given a home loan, and even if they could not pay it back, they could just sell at a gain and pay back the mortgage company.

But that era ended when house values began to fall as a result of fewer loans being made to bad borrowers and more foreclosures as a result of bad loans. There are no more Alt-A Option Adjustable Rate Stated-or-No Documentation Pay-If-You-Want-Sell-If-You-Don't Mortgages available from hundreds of lenders.

Credit scores are beginning to mean something again for prospective borrowers and lenders, and a good credit score and an on-time payment history will be just as important as having a down payment to obtain a loan. But this is exactly what the banks are now sabotaging in their misguided efforts to reduce risk.

The banks are actually lowering credit limits for consumers based on risk-assessment algorithms, which are supposed to predict which borrowers are at a higher risk of default. This is despite the fact that some of these borrowers may have already-high credit scores and no late payments on these lines of credit.

One impact of this will be lowered credit ratings for borrowers who are paying off their loans on time every month. Despite their wise use of credit, if they spend a little too much like an at-risk consumer, they may find that the lender has lowered the amount they can borrow and given them a hit on their credit report.

Increased credit limits will invariably raise a credit score, all else being equal. On the flip side, lowering credit limits decreases consumers' credit scores. If these people ever do face a financial hardship, even their on-time payment histories may prevent them qualifying for a foreclosure refinance or other program.

The bottom line: banks are destroying consumers' credit scores by lowering their credit limits, despite their on-time payment history. If these borrowers ever experience a financial hardship, they will be unable to qualify for a refinance (despite being creditworthy) from their bank (which destroyed their credit) or any other (which relies on their destroyed credit rating).

But -- the government and the banks are working together to take trillions of dollars and unfreeze the consumer credit markets?

In some rare cases, although they are becoming more common as the financial sector continues melting down, a credit card company may not sell a defaulted debt to a collection agency. Instead, it may initiate a lawsuit against a borrower directly and attempt to get a default judgment and begin garnishing wages, attaching liens to property, or collecting on the debt in any other ways that the law allows.

Previously, this was an unheard of tactic for credit card companies to use against debtors. After all, the debt was unsecured and usually only for a few thousand dollars -- less than a drop in the bucket for many banks. Hiring local attorneys to sue borrowers would usually cost more than the company was ever going to collect on the debt, so credit card companies simply wrote off the loan on their taxes and sold it for pennies on the dollars to a collection agency to pursue.

In recent years, though, state legislatures have made it easier for borrowers to be sued, have their property stolen, and even be put in prison if they are unwilling to cooperate with the civil lawsuit. Debtors who miss a court date may have a "bench warrant" or a "writ of attachment" put out for their arrest. County sheriffs deputies are then able to invade the person's home or place of business and arrest them on site. They will either be held until the next court date or have to pay a cash bond of up to several thousand dollars.

Obviously, in many states, the banks' appointed officials have overpowered the peoples' elected officials. So, it is in the best interests of borrowers to defend against such tactics, legal and fascistic as they may be. Thankfully, this site and others can help prepare borrowers for what to do when they are served with a summons for a credit card lawsuit from an original creditor and how to answer the complaint. And even more promising is the fact that few lawsuits for unsecured debts are paid in full by borrowers, as long as they show up at the hearings.

Responding to the Summons

Responding to a complaint by a credit card company can be remarkable similar to responding to a foreclosure lawsuit. Debtors can immediately request more time by filing a Motion for Extension of Time, which will put the lawsuit on hold by an additional thirty days or so. This gives the borrowers more time to research the issues and prepare their answer.

But if the lender has violated certain laws or failed to follow the correct court procedures, debtors may be able to have the lawsuit dismissed without filing an answer. Especially depending on notice requirements for such a lawsuit and the bank's failure to attach the original contract to the complaint, it may be worth filing a Motion to Dismiss the case based on these procedural failures. Just as when homeowners in foreclosure request the bank to "produce the note," people being sued by credit card agencies can do the same.

Homeowners who have exhausted the possibilities on a Motion to Dismiss, though, will then have to file their answer to the summons and complaint. The best way to do this is to research the federal laws, beginning with the Fair Credit Reporting Act (FCRA). This act dictates how the bank can report negative information to the credit bureaus about accounts, and every violation of the Act can cost the bank $1,000. Borrowers have every incentive to research this law and pick out all of the relevant violations. Since these lending laws are almost impossible for creditors to follow, there will always be some violations.

Most of the time, simply by filing a Motion to Dismiss and then filing an answer to the complaint, borrowers can force the bank to accept kind of payment plan or settlement. Especially if there are enough violations of the FCRA or other laws that it would eliminate most of the lender's debt anyway, it is in their best interests to end the lawsuit and settle. It is especially costly for creditors to sue people in court for unsecured debts, because the longer the case goes on, the more it is costing in attorney fees and banks often collect very little from borrowers on such defaulted credit card debts. They can also be discharged in Chapter 7 bankruptcy quite easily.

Debtors can also request the courts offer some sort of negotiation or arbitration between them and the original creditors. A judge can order the parties try and work out a deal to avoid further legal battles, and if the terms are agreeable to both parties, the lawsuit will be put on hold. Borrowers will have an opportunity to pay back a portion of what they owe and creditors will not be able to continue pursuing the lawsuit in court.

Very few cases involving foreclosure, collection agencies, or credit card companies ever go all the way to trial. The banks and borrowers almost always work out an agreement for less than the total amount the bank is requesting in its lawsuit, and debtors are happy to pay off a little bit to get the lawsuit out of the way. But even if the case does go to trial, homeowners can be prepared to defend their side of the story by researching what laws and procedures the bank has violated that voids its claims against the borrowers or at least offsets them severely.

Did the Bank Even Lend Any Money

One defense to a lawsuit brought by the original credit card company is worth mentioning here. It involves the so-called Jerome Daly defense, which argues that, because the bank creates the money for every credit card transaction out of thin air, there is no valid contract. For a contract to be valid, each party much put up some sort of consideration. Banks creating money out of nothing to make borrowers incur a debt does not count. Including this argument in the answer to the complaint may not work, depending on the judge, but it can always be included in a Motion to Dismiss the case.

The credit industry is largely a fraud based on the willingness of the average person to believe propaganda. Banks do not actually lend out money, people are not defined by their credit ratings, and there is little a collection agency can do besides pester a family long after the point of prudence and reasonable behavior. But for those families who are being pestered and threatened with lawsuits, jail time, repossessions, or other horrible events, the following tips may help them deal with an old debt.

Frequently, when an account goes into default, the credit card or other unsecured loan will be sold off by the original lender to a collection agency. Numerous laws then become applicable to the new owner of the debt and any subsequent collection agencies. These laws include the Fair Debt Collection Practices Act (FDCPA), state licensing laws of debt collectors, and any other state laws that dicate how individuals or organizations must act when pursuing a debt.

The first step that most collection agencies will take is to send out a letter to the borrowers informing them that the agency is now the owner of a particular debt. The debtors will also be given thirty days to dispute the account or it will be assumed to be valid. There may also be a settlement offer or a proposed payment plan, although this is not required and some collection agencies will just include threats and scary language, instead of trying to solve the problem. These companies would rather force the borrowers into paying back every cent possible, instead of offering a settlement right away.

But when borrowers get this type of letter, they can take either of two actions. The first is simply to do nothing and not respond to the communication from the collection agency. In most cases, the company will sell the account to another debt collector within six months or a year and the debtors will receive another letter from another company with similar settlement offers and language threatening lawsuits and repossessions. But nothing ever really happens with many debts -- the original lender already wrote it off and the collection agencies buy the debts for so little that they can just pursue the easiest, least informed borrowers.

The second action that debtors may take is to request that the collection agency validate the debt. Federal laws provide that collection agencies must prove that they own a debt before they are able to collect on it. When borrowers do not request validation, the complany collecting the debt will assume that it is valid. Fortunately for borrowers, though, most original creditors do not keep very accurate records and it is very difficult for future owners of these accounts to validate them properly.

What is required to validate a debt? For starters, borrowers should request proof that the collection agency has been assigned or purchased the debt (although it can not do both at once). Also, debtors have a right to request a complete payment history in order to find out how the debt has been calculated from the beginning. This includes requesting a copy of every account statement through the original creditor. And finally, without a copy of the original signed loan agreement or credit card application, the debt may not be validated.

In fact, when a company is unable to validate a debt, it can not continue to collect on it. It must cease all collection attempts until it is able to provide the borrowers with the applicable information. Even if the collection agency is a law firm, it still counts as a debt collector under the federal laws and must comply with debt validation requirements. This means that companies may not keep calling borrowers or initiate a lawsuit in court unless it has properly validated the debt. If it takes any of these actions despite not validating the debt, the borrowers may be able to sue under the FDCPA.

If you have an uncollected judgment against you from a previous foreclosure, credit card, car loan, personal loan, or similar situation, then whichever collection agency owns the debt can try to collect. Determining that they own the debt and have the right to collect it from you is quite a bit more difficult than it would appear. But of course, this problem does little to prevent collection agencies from calling all day.

The best you can try and do is tell them not to call you anymore. They will have to abide by your demand not to be called, as that is a federal law. The Fair Debt Collection Practices Act states that any communication with a debtor made after the collection agency has been told not to send further communication will be a violation of the Act.

You can also try and have the judgment vacated (or reversed, voided) through the original court. If you were never served with the lawsuit paperwork, then you may have a defense. If the plaintiff violated laws to get the judgment against you, you may have another defense. If the collection agency keeps contacting you after you tell them not to, you may have even another defense.

Of course, depending on the court, the judge, and the collection agency's attorneys, this may go nowhere and you will just be shot down and the motion to vacate denied. But it costs almost nothing to file the motion and you might get lucky and have the judgment voided immediately. Tactics such as these will also show the collection agency that you are serious about defending the debt and it may cost them more to pursue you than they can ever hope to collect.

If you have a judgment against you or just a lot of debts in collections, you should start by researching your options to settle debt, validate debt, and have the judgment vacated. Applicable federal laws are the Fair Debt Collection Practices Act (FDCPA) and the Fair Credit Reporting Act (FCRA). Look them up, read some plain-English explanations for them, and see what your options are. These laws may also be used as defenses in an effort to stop foreclosure, depending on the circumstances of the case.

But to begin with you can tell the collection agency right away that you do not want to receive calls from them all day anymore. The company will have to stop calling you, or run the risk of being sued themselves. And they would not want you filing complaints with the state attorney general and the Federal Trade Commission (FTC) for harassment, would they?

Contrary to popular opinion, you do not have to take a foreclosure, credit card judgment, medical bills, other collection attempts, harassing phone calls, and an illegitimate debt lying down. Defend them, make the creditor prove that it owns that debt and is owed that debt, and make it as huge a problem for them to deal with you as you are having dealing with them. When collection agencies know that it will cost them more to go after you than they can hope to receive, they may be willing to settle with you or give up.

Credit rating agencies compile consumer information that they receive from lenders and other related companies and assign borrowers a score based on their short and long term uses of credit. They exact methods used to assign one score or another are not nearly as important, though, as how much weight lenders place on credit reports when determining whether someone deserves a home or not.

During the housing boom, virtually the entire loan application process depended on the borrowers' credit scores. If a home buyer had displayed responsible use of credit, a prime loan was almost guaranteed, while debtors with lower credit scores were often given subprime mortgages to purchase or refinance a house. In any event, other qualifications like down payment and stable income history became far less important than having a high credit score.

One of the maxims of stock market investing has always been that "past performance is no indication of future results." However, this is exactly what mortgage lenders were counting on by giving huge sums of money to people who had good credit histories but little money or other resources to meet a financial hardship. Wall Street was willing to give mortgages to people and then hoped that they would pay reasonably on time, since they may have done so somewhat consistently in the past.

With the right subprime lender, even previous foreclosure victims and those who had filed bankruptcy numerous times in the past could obtain a loan to purchase a new house. Some banks specialized in such difficult to place mortgages, knowing it would be easy to increase fees and the interest rate of the loan because of the poor credit history. This meant more income for banks, investment firms, and investors, until the homeowners inevitable defaulted on their mortgage again.

The ratings agencies did not substantially alter their methods of scoring loan applicants or borrowers in general during the run-up in housing prices from the late 1990s to the middle of this decade. It was mortgage lenders that ignored other previously important loan qualification criteria and placed too much faith in simply having a good credit score. And having a somewhat poor credit history just meant more fee and interest income for the banks, so even that was no barrier against obtaining a mortgage.

While home prices were rising every year, this strategy made some sense for the banks, who could just loan money to everyone, collect the payments, and then foreclose on the house later on if necessary, selling it for a profit on the open market. But when home values began falling, investors realized they had been stuck with toxic loans going delinquent by the hour, and no one was buying the foreclosed properties at all anymore, let alone at a profit. Many lenders went out of business, while others began to tighten up lending guidelines.

It was at this point that the credit rating agencies began to take a more traditional role in the lending process. A good credit score more important than having any credit score at all, and mortgage companies began to focus on other factors like down payments and having a job that produced enough income to pay the mortgage. This is a more reasonable role for credit agencies, as a guide to assist mortgage companies in viewing a complete picture of a borrower's ability to pay a loan, instead of as the sole determinant of fee and interest income for every loan applicant.

Simply having a foreclosure on one's credit report will not decrease the score to the point where it is impossible to get any other loans. However, the entire foreclosure process often has many more negative aspects to it than just the actual legal procedures in the county courts and charge-off of the loan after a county auction.

As soon as homeowners begin missing mortgage payments, their credit score will begin to drop immediately. Having one or two missed payments over years of steady payments, though, does not impact their loan history as much as when they experience a hardship and start stringing together 30-, 60-, or 90-day periods where they are late.

Once borrowers do fall behind by more than a month or two, though, their ability to take out any new large loans based on their credit rating will effectively disappear, as potential lenders will be aware that there is a current financial crisis and any new loans have little chance of being repaid. This is, of course, one of the main reasons homeowners should try and stop foreclosure as soon as there is a chance of financial hardship, even before they have missed their first payment.

But in terms of the credit score, even having several late mortgage payments may not drag it down as far as possible. The credit reporting agencies base their scoring system around the total picture of the borrower's payment and credit situation, meaning that the more debts the homeowners can keep up payments on, the higher they will keep their score.

Also, if homeowners have numerous credit cards, car loans, student loans, and other bills and have kept on time with all of them, they may be able to retain a good score (although probably not an excellent one). The real risk to the credit report comes when payments are late on numerous debts at once, as may happen during a real economic hardship.

Even borrowers with a near perfect credit score above 750 (out of 800 total) can experience a drop into the low 600s just by missing mortgage payments for consecutive months and going into foreclosure. Combine that with numerous other late payments or collection accounts, and the score can drop into the middle or high 400s, which make it virtually impossible to obtain even a high-interest credit card with a very low limit and predatory terms.

The important thing to remember is that simply having a foreclosure is not that significant an event to destroy homeowners' credit scores all on its own. But for owners who are defaulting on other debts at the same time as facing foreclosure, it may take years of recovery to regain even a good credit rating. For homeowners who are in danger of foreclosure, though, it will be dependent on their circumstances whether to preserve their home at all costs or keep their credit score as high as possible.

One objective that many homeowners have after facing foreclosure is to improve their credit score and make sure that they can qualify for a new mortgage or a better refinance as soon as possible. Even if they are able to save their homes, the terms of their workout program or foreclosure refinance may not be very competitive, which gives property owners a real incentive to begin working on credit repair as soon as the mortgage is taken care of.

Unfortunately, most homeowners are not even aware of what actions and conditions affect their credit score the most. While simply paying credit cards on time every month and not defaulting on loans are obvious examples of good credit habits, there are numerous other ways to raise or lower a score that many people are not even aware of.

This condition of general unawareness of how the credit report works is somewhat of a tragedy, as a credit score is often the most important piece of information lenders use in judging the future payment history of a potential borrower. As well, other industries, such as employers, insurance companies, and utility companies, are now using credit scores to determine what rates and terms to offer clients. Having a polished credit report, then, is vitally important to many homeowners.

As should be somewhat apparent, the borrower's consistent payment history is the most important factor on the credit report. Owing a lot of money on numerous accounts or simply having stable or good income is not enough to impact the score significantly -- but making payments on time every month shows responsibility and good borrowing habits. This is why paying debt on time every month is the most important part of a high credit score.

Stability is also important in the number of credit lines a particular borrower has open and how many more they have attempted to open. Applying for more loans when a borrower already has numerous open lines will drag down a credit score. However, many banks have determined that having at least three lines open is the minimum for accurately predicting a borrower's ability to repay a large loan, like auto financing or a mortgage.

Homeowners who have recently faced a financial hardship should also consider ordering their free credit report soon after becoming stable again. If they fell behind on numerous payments (not just the mortgage) or have had charge-offs, there may be many new inquiries or other inaccurate information listed on the report. These are some of the first areas that can be worked on, to eliminate old negative data and have unauthorized inquiries deleted.

The road to complete financial recovery after foreclosure is often rough and longer than homeowners expect. Even with a substantial effort in credit repair, it may take over a year or two in order to be able to qualify for decent terms for a new mortgage. Knowing this, however, gives homeowners a completely fresh start along with a perfect opportunity to begin working on paying off their other debts and improving their credit score in general.

The best time to begin planning a solution to foreclosure is when the homeowners become aware that they will be unable to make the monthly payment, but have not yet missed the due date. Once they have fallen behind by even a few weeks, negative consequences will begin to emerge, many of which will build one upon the other to eliminate any chance of saving the home the longer the owners wait.

Being late by just a few weeks, however, is not long enough for the bank to begin reporting borrowers to the credit reporting agencies as late on the mortgage payment. It is typically once the homeowners are 30 days late that the bank will begin to report the missed payments, which will immediately begin to drag down the credit scores of the homeowners if they are unable to get back on track very quickly.

This 30-day period is the same length of time that most other types of creditors will use to begin reporting debtors as late on a monthly installment payment. For example, credit cards, car loans, personal loans, and mortgages all usually do not report the account as late until it is past 30 days. Although this grace period may be helpful for the credit scores of borrowers, missing any payment due date will have negative effects even if the account is paid to current within a month or two of falling behind.

These negative consequences are a result of the fact that almost every creditor will begin adding interest on to the missed payment as soon as it is missed, and late payment fees will also be added. If the extra fees and interest trigger other fees (over the limit and so on), it may cost even more for the homeowners to correct the situation. So it may cost the borrowers more money than just the regular payment to make sure their account is current after falling behind for even just a few weeks.

Typically, there is very little to worry about if the mortgage is only behind by less than a month, besides the interest and late fee charges. The extra interest, though, will usually amount to very little if the account is brought back to a current status the next month, and the late charge may not be added until after the a specified grace period has expired. But even then, it may be very simple for homeowners to get back in good standing this early.

Homeowners should always find out how much it will cost them to reinstate the mortgage payments once they have fallen behind a month. If they make the regular monthly payment, the bank may accept this, but will continue adding interest on the interest that was not paid on time, as well as interest on any late charges. Thus, borrowers may find out even later that, while they technically made all of the agreed payments, they are falling further and further behind per month. It is far wiser to make absolutely sure of any extra fees to be paid off before assuming that the mortgage loan is completely on time once again.

In some cases, homeowners who know they can not save their home from foreclosure wish to preserve their credit scores as much as possible. Although raising a score or keeping it at a high level is probably not likely, homeowners should be quite capable of making sure that they do not face the worst of the consequences of foreclosure, just by following a few tips and understanding the ramifications of some of their decisions when dealing with a foreclosure.

The best way to get out of a foreclosure with the least impact to a credit score is for homeowners to keep up on all their other bills and installment payments and just let the mortgage fall behind. Having late mortgage payments and a foreclosure will drag down the score by quite a bit, but keeping the rest of the debt payments on time or paying off credit lines completely will help insulate the credit score as much as possible. It is when homeowners fall behind on all of their debts that they can experience scores under 500, which makes it virtually impossible to get any new loans.

Of course, the property owners should also consider some other options to stop foreclosure before the bank's lawsuit has gone all the through the local court system. If they can get the house of the the process before it has been auctioned off and the sheriff has been given the eviction order, then the homeowners will have fewer late payments on their credit history and may be able to show something else on the record besides a full foreclosure.

This is the time to consider using either a short sale or a deed in lieu of foreclosure before the owners run out of time for any solution. In either of these cases, they can end the foreclosure a little sooner than it would have it it went all the way to a sheriff sale and eviction by selling the house or giving the deed back to the bank. The most positive aspect of these options is that it keeps a couple of late mortgage payments off of the credit history and prevents the score from dropping even further.

Also, it would be a mistake for the homeowners to close out any credit lines right now that they might want to utilize in the future. If they can pay off excessive debt and get rid of the highest-interest credit cards, that would help their score and long-term financial condition. However, if they close out and pay off all of their credit lines, obtaining new borrowing after foreclosure will be extremely difficult and expensive. Unless the owners have decided to make due with a life not based on credit, it might be wise to keep at least one or two lines open in case of emergency and to begin the process of improving their credit score over time.

If the homeowners want to purchase a new home now before the foreclosure, then they need to make sure they buy an affordable house and do it as quickly as possible. It is important that they keep up on the current mortgage payment for as long as they can until the new purchase closes, as well, since a bank will not loan them more money for a new mortgage if they are already falling behind on their current housing payment.

Depending on the state foreclosure law where the property is located, the original lender may be able to come after the homeowners for a deficiency judgment after foreclosure and put a lien on the new home. However, this is somewhat rare, as most banks know that people in foreclosure have little assets or means to pay off another lawsuit or judgment after foreclosure. It would simply not be worth the bank's time or resources to begin another lawsuit when they have not had much success collecting on their previous foreclosure lawsuit.

Unfortunately, homeowners who lose a home to foreclosure will have to deal with a lower credit score for at least several years following the experience. Most of the techniques listed here are more for damage control and preventing a total collapse of their borrowing ability, rather than actually boosting the score or keeping it at the pre-foreclosure level. However, even if they are going to lose a house, it is possible to maintain some creditworthiness, which can assist former homeowners in beginning the process of financial recovery after foreclosure.

One unambiguous result of the subprime mortgage meltdown has been a realization that credit scoring and bond rating systems are easily manipulatable and almost entirely worthless once they have been manipulated. But the consumer credit scoring system has been relied upon for years to estimate the reliability of borrowers to pay back a loan based on their previous payment history.

A result of the credit crisis may be that this system is de-emphasized or even replaced by lenders, who are facing the consequences of defaults in the subprime and prime mortgage markets.

In the short term, this will obviously not happen due to the uncertainty in the housing market and falling property values. Credit is drying up for nearly every type of borrower for every type of credit, not just the ones with bad credit. Loans are even more difficult to get for small and large businesses, with the money markets being tighter now than a year ago.

But in the long run, lenders may have to put new systems in place to prevent a collapse of the credit markets as is being experienced now. Banks may not just hand out money to people with bad credit to buy whatever home they want, which was one reason so many subprime borrowers and real estate flippers took out loans they never intended to pay back unless they could make an immediate profit.

Credit scores, though, may become less of a deciding factor in purchasing a house in the future. Obviously, credit scores determined whether borrowers would get a lower or higher interest rate, but neither subprime nor prime borrowers are having an easy time keeping up with ARM payments. And no matter how much they make and how good their credit is, people do not like the feeling of paying more for a house than it is worth.

Since one consequence of the fallout in the housing market will be lowered credit scores for large numbers of people, lenders may begin focusing on the borrowers' financial positions, instead of just pulling a meaningless credit score. That means down payments, stable income and job history, and some extra cash in the bank may be more important in the next few years than having a great credit score.

A lot of people will not have great credit scores to show, due to experiencing any kind of financial hardship, and having a foreclosure or bankruptcy in the previous few years is not going to help at all. But if prospective borrowers have saved up some money and can make a substantial equity investment in their next home purchase, banks may be willing to overlook the credit situation.

So the credit markets may have no choice but to move from a broad credit scoring system that groups potential borrowers to a more case-by-case basis of looking carefully at individual financial positions instead. With so many homeowners currently facing foreclosure, repossession, bankruptcy, or charged-off credit cards, a more adaptable system seems to be needed. The current one has obviously been abused to the detriment of homeowners across the country.

Obviously, for homeowners now attempting to stop foreclosure, this can only mean good news in the future. If they are able to save a home now and can begin the process of financial recovery, they may be able to qualify for a lower interest rate down the line. And for those who lose their houses and simply need a fresh start, lowering their expenses, saving up a new down payment, and establishing a savings plan may allow them to purchase a new home at a decent rate even a few years after foreclosure.

This post is not going to be about foreclosure, per se, but as many homeowners also fall behind on other bills during a financial hardship, collections and foreclosure seem to go hand in hand. While taking care of the housing situation should come as the first priority, homeowners can be hounded by collection agency debt for years after the fact.

Most states, however, require collection agencies to be licensed [Word Document] in every state in which they attempt to collect debts. As this would cost potentially tens of thousands of dollars a year in renewal fees and bond postings, many collection agencies conveniently fail to become licensed in more than a few states. Some agencies may also believe that they only need to be licensed in their state to be able to collect everywhere else -- this is not true!

Debts and collection agencies are licensed just like real estate and agents/brokers: on a state-by-state basis. Just because a real estate agent is licensed in Wyoming to buy and sell properties in Wyoming does not mean that he is able to to buy and sell in New Hampshire. The agent may be able to become licensed in New Hampshire, but a Wyoming license is not sufficient to practice real estate in any other state.

Thus, collection agencies need to be licensed in every state in which they attempt to pursue debtors. For homeowners, this means that it is in their best interests to find out if any collection agency is licensed to contact them about the debt. Many times, it will be the Secretary of State in the individual state that oversees this type of licensing. People who have accounts in collections are often very surprised to find out that the company calling them and sending threatening letters is acting in a criminal, illegal manner.

What is even more surprising is that so many of these collection agencies are able to sue people in court and are awarded default judgments against debtors without the judge blinking an eye. The corruption is enormously widespread, with not one collection agency I have ever come across being legally licensed to collect in any state besides the one their business is registered in. But out of state lawyers will take illegal cases and judges will rule on them, just to get their legal fees and filing fees.

Homeowners in foreclosure have enough to worry about during a financial hardship to have to deal with unlicensed collection agencies attempting to hound them at work and home. There is no protection in the courts since they make enormous profits from some of these collection agencies, and corrupt judges would rather not be informed of such matters as a prime customer breaking the law hundreds of times a year to pursue debts illegally.

For this reason, people dealing with collection attempts should find out if their state requires licensing, and request the agencies' license numbers. If the collection agency is unlicensed in the state in which they are trying to pursue a debt, their victims should get in touch with the appropriate regulatory agency as quickly as possible. There is no telling how many people they have criminally targeted with illegal collection attempts in various states, but it is up to all of us to reveal these criminals for what they are and not take their attempts to steal money lightly.

One of the main causes of the current foreclosure crisis and economic recession is the insidious power of debt in all its forms. Homeowners took on mortgages for houses they could never afford, while auto loans facilitated people's own inflated perceptions of themselves and credit card and consumer goods advertisements worked hand in hand to persuade people to buy now and think about how they would pay later.

Now, with the number of foreclosures and bankruptcies rising to record levels, the greatest fear many people have is that their credit scores will drop and they will not be able to borrow as much in the future. Thinking of this sort, though, is still giving in to the false perception that homeowners or consumers should be judged by how much banks will lend to them and how many Chinese-made plastic pumpkins they can purchase compared to their neighbors.

In other words, judging oneself by one's borrowing capacity results in nothing more then empty human beings who feel they need struggle to buy more just to keep up with other people who are struggling to buy more. When the facade collapses, due to an inevitable job loss, medical crisis, or other financial emergency, far too many people believe that maintaining their credit rating will allow them to solve problems that resulted from their over-reliance on borrowing their way through life.

Even worse, though, is that the credit trap has so ensnared some people that it is almost impossible to get off the track leading them to financial disaster. Making too little money and having too many expenses to begin with, in addition to servicing a large debt burden, is a situation where families are almost guaranteed to end up in bankruptcy or worse. The people who have little choice but to take their borrowing habit to its logical conclusion are relatively smaller than the ones who have a choice, however.

Even the homeowners who have a choice of what purchases to make and how to pay for them, though, are severely disadvantaged. From an early age, every American is exposed to constant advertising and subtle messages that self-worth is dependent on the amount of things they have and size of those items. The pursuit of happiness is defined as the pursuit of machines which are slightly bigger than the machines owned by the neighbors.

In fact, it is the multinational corporations that market these machines that drive people into the willing arms of the multinational banks, which will help people finance their machine purchases. Both institutions work together to chain Americans to perpetual debt servicing payments, or embarrass them financially for nearly a decade through low credit scores or banking blacklists.

With the current recession affecting so many average Americans, hopefully many of them will begin to wake up to this system of credit traps and lifelong debt enslavement. Many homeowners will face foreclosure and families will have to file bankruptcy to escape debt payments they can not meet, but this may only have negative consequences for the banks who create money out of thin air and expect people to pay back interest that never existed in the first place.

People unable to stop foreclosure or avoid discharging their debts through bankruptcy will be given a chance to start their financial lives over and either repair their credit rating or begin to avoid the whole system of debt. With some experience of how destructive this system has been in their own lives, more people may make the right decision and live within their means and only purchase items that they can pay for without becoming the slave of a bank or other creditor.

A few weeks ago, I wrote an article about large mortgage companies cutting back on the credit limits of home equity lines of credit (HELOCs). Homeowners who owe more on their various mortgages than the home is worth will not be able to borrow as much from their HELOCs, and some are being cut off completely from borrowing any more money using the equity in their homes. Unfortunately, it seems like this will only be the beginning of the drying up of credit for the average person.

Homeowners who may be edging towards foreclosure could have used these lines as a last resort, while others who were financing businesses or college educations will now face foreclosure in increasing numbers. The banks, though, get to avoid a greater loss now and start the process of taking back these properties, hoping to make more money on them in the long run through sales on the open market.

Apparently, the next target for the restriction of credit may be credit cards, and consumers in increasing numbers will be receiving notice that their limits have been severely reduced. Credit cards have been treated much the same as mortgages, in that they have been heavily securitized and sold off to hedge funds and other investors. Banks sell the right to third parties to collect the payments on the debt, which gives them more capital to show on their balance sheets, which allows them to make more loans with fewer questions, which they can in turn sell to investors.

Now that certain parts of the banking industry look as if they are failing, though, banks are attempting to limit their losses on consumer credit, like mortgages and credit card lines. They are already targeting the homeowners and general public to make profits through other methods since giving out more loans is likely to generate more defaults. Securitizing debt and selling it to pension funds and hedge funds is no longer as profitable, as these funds are becoming more nervous about the toxic debts they already own.

On the surface, the reason for cutting off HELOC and credit card lines is that the entire economy is experiencing a credit crunch. Banks are taking losses and writedowns on their mortgage debt, so they have less money to lend to consumers for smaller purchases. But this excuse is beginning to wear a little thin, as the Federal Reserve has been providing generous bailouts to the banks in the form of Treasury Securities, and allowing the banks to move their bad debts off the books and into the vaults of the Fed.

Banks are also able to create their own money out of thin air in the form of debt, including mortgages and credit card charges. Although there are some reserve requirements, most regulations are essentially worthless, and allow banks to create as much money in the form of credit as they wish. The money "loaned" for a credit card transaction does not even exist until the charge occurs; the bank simply creates the debt out of the consumer's promise to pay. So the excuse that consumers will be cut off from their credit card lines because the banks simply do not have enough money to pay is a specious argument and a fraudulent misrepresentation of how money works.

It should be no surprise that cutting off access to credit lines or reducing the amount of money available will cause many people to find themselves very quickly over the limit. Although they are over only the new, reduced limit, the banks will charge fees and increase interest rates on this debt. When simply creating loans and making money from collecting interest is no longer profitable, the banks have found that aggressively going after fees is a wonderful alternative.

Thus, the banks can increase the rates of current customers and generate more revenue through fee collection. Without having to make better lending decisions, or create any more money out of credit at all, the banks are attempting to increase profits at the expense of their customer base (which is, quite honestly, held captive by the process of creating money as credit out of nothing). Of course, the conditions that trigger these extra fees and push people further into debt servitude have been created by the lenders.

Consumers, especially homeowners already facing their own financial hardships, should do whatever possible to avoid falling into these kinds of traps. If they can pay off credit cards or reduce their limits to a manageable level, the tricks of their creditors may not be as devastating in the long run. But everyone should be aware that the banks, now that they are being burned slightly by the fallout in the mortgage market, will be coming after them more directly in the form of more fees, higher interest, and more aggressive attempts to bleed homeowners of any remaining assets.

It is unfortunate that so many homeowners and average people have been taken in to such a high degree by the debt machine. Now that the economy is slowing down and more jobs will be lost, defaults will increase due to financial constraints. Foreclosures will keep increasing, and more people will be persuaded to file bankruptcy, while others will feel they have no other choice than to steal money from friends or family, flee the state, or otherwise run from their financial problems.

Even the threat of lawsuits against individuals for credit cards and other unsecured debts has been growing. Being sued by a collection agency used to be almost unheard-of in the credit card industry. But with the rise of decadent living and overspending, these lawsuit-happy collection agencies are filling a desire in the market by the worst bottom-feeders to keep going after people years after a financial hardship.

Thankfully, most of these collection agencies are just as ignorant of the laws and consumers' rights as are the debtors themselves. The only advantage that the collections agencies have is that they can hire a lawyer to file a lawsuit in a local court. Lawyers are insulated from any consequences of representing a criminal collection agency, in most cases. After all, they are just the dutiful lawyer filing the required paperwork to grab as much money as possible from people facing financial hardship -- they can not be expected to make sure they are representing a law-abiding institution.

Collection agencies usually repeatedly and flagrantly violate federal and state laws that govern the collection of debts. Many states now have licensing laws which require collection agencies to register themselves and post a bond for several thousand dollars. In order to initiate any collection activities in a particular state, the agency must be licensed by that state -- not just the state in which the company is located. Yet many companies that try to collect debts do so nationwide with no respect for local laws.

They do this because they know that most people behind on their bill payments will not take the time to research licensing laws for collection agencies. The agencies can then hire a local attorney and begin suing the individuals in court, while the issue of licensure is never brought up. Judges assume that their lawyer friends are always right, until the debtors try and argue that the laws should be followed. In that case, the judge can usually come up with some excuse not to follow them, or simply ignore the individual altogether in order to benefit their fellow lawyer.

Collection agencies have also learned their lessons from suing homeowners and other debtors. Even if a person asks for the agency's licensing number for a particular state, they are more likely to have their request completely ignored, or met with more demands for payment. Especially collection agencies that masquerade as law offices have mastered this act of demanding money, pursuing baseless lawsuits, and refusing to become licensed. Being a friend of "The Law" often means not having to follow the laws that are designed to protect people.

Thus, collection agencies, regardless of whether or not they have bought a debt correctly (usually they have not), must be licensed in many states in order to pursue debts. Simply suing a debtor for a judgment is not sufficient, although it drags the matter before a highly biased judge who makes the money needed to feed his family from the filing fees paid by these collection agencies. Thus, people who have fallen behind on their debts are nominally protected from many of these vulture collection agencies, but it is best to keep the issue out of court where the lawyers will feed on any remaining assets the debtors possess.

As the housing bubble is in full collapse and the economy begins to contract, the personal debt load of the average American becomes even more difficult to carry. Mortgages on homes that are no longer worth what is owed on them and credit cards with "adjustable" rates from 9% to 31% if a payment is missed are pushing consumers in record numbers into foreclosure and bankruptcy. But it is even more difficult to file bankruptcy now since the 2005 law changes (written by MBNA bank), and they are simply contributing to the foreclosure problem as homeowners are unable to discharge some of their debt.

In this environment, watching the documentary Maxed Out, originally released in 2006 by James Scurlock, seems eerily prescient. Almost every homeowner addicted to housing debt also used credit cards to furnish their dream homes and keep up an unsustainable lifestyle of consumption. In the good times, this can mean borrowing the money to build a home that the bank appraises at current market value (using mark-to-market accounting, which was also used by Enron). Elevators, wine cellars, numerous laundry rooms, and enormous kitchens are all must-haves for the most decadent debtors of society who lived it up during the housing boom.

The documentary examines much more of the dark side of the credit story, though, from the collectors who "put people first" to those who have been so hounded and humiliated by creditors that they feel suicide is their only option out. These are, of course, the human interest stories of the work, and every homeowner currently trying to stop foreclosure or pay back their creditors to stay out of bankruptcy will be able to relate to some of the more frustrating and disheartening moments.

It should not be any surprise that borrowers who fail to repay their loans on time are the most profitable customers to the banks. These are the people who are charged obscene interest rates and huge late fees, whose payments, which never manage to pay down the principal, make up two-thirds of these bank's profits from credit card debt.

But even when the homeowners run into a financial hardship, and pawning personal items no longer works, the defaulted debt is sold off to vulture collection agencies to continue the harassment/humiliation process. While the collectors need to tell themselves that they are "putting people first" in order to get through their day, all they really do try their best to get people facing hardships to send them as much money as possible to pay back loans that the bank knew they would never collect on and should not have loaned in the first place. "Feeding off the productive of society" would be a more appropriate way to put these activities, rather than "putting people first."

But these benevolent pirates of the collection agencies liken themselves to having their targets "walk the plank" as far as possible before they are drawn back. Using these psychological techniques that put people first, like calling the debtors' neighbors, is supposedly to allow these people the chance to get back on their feet and pay back what they owe to the banks. Of course, the agents never admit that the consumers really owe the collection agency a penny, nor that the money used to make these loans was created out of thin air at the moment it was borrowed, making it not really a loan of money at all.

But the power that the concept of money has on the uninformed homeowner facing a financial hardship can be devastating. The documentary interviews the families of people (even college students) who lost a loved one to the humiliated suicide of a debtor far beyond his means. Also interviewed are borrowers who are currently in the downward spiral, facing lawsuits, judgments, liens, and foreclosure, and who speak openly about their own thoughts of suicide as the only escape from the debt.

The two classic responses to any stress-provoking situation are commonly referred to as "fight or flight," meaning one is prone to run away from a situation or stand one's ground to meet it. Standing up to multi-billion dollar international banks and fighting against the crushing burden of too much debt is not often done by consumers, though. Far more common is falling into a deep depression and hiding from the problem, even if it leads to the loss of a home to foreclosure, filing bankruptcy, or even giving up on life in general.

The banks, unfortunately, do not care at all, as this is exactly the environment where they make the most money. Offering perfunctory admissions of being aware of complaints about their practices, and having to pay hundreds of millions of dollars in settlements for abusive lending and collecting practices are just a few of the very small repercussions these politically powerful banks must face. But the entire banking system is possibly the most successful ever created in privatizing gains and socializing losses, paying out obscenely large bonuses when times are good and receiving federal bailout money when profits are down.

As homeowners face foreclosure and bankruptcy in record numbers, the lawsuits, judgments, wage garnishments, and property value decline will continue, possibly at ever greater rates. But what do homeowners have to show for it all? They now owe more on their homes than they will ever be worth again, and the massive money creation caused by borrowing just contributes to the rising cost of living. Banks made their money and cashed out long ago, leaving the average Americans to fund the bailouts covering up this massive theft of homeowners' and debtors' wealth.

It is really no secret that homeowners are often cajoled into agreeing to expensive payment plans or selling homes that they have worked their whole lives to purchase, simply to keep themselves out of foreclosure and pay the lender several thousand more dollars to keep their homes for a few more months. They are threatened with the impossibility of getting a loan after foreclosure or even being able to rent an apartment in many cases. But is it really a drawback for former homeowners not to be able to enslave themselves to a corrupt banking industry propped up by theft through government inflation?

Obviously, having a low credit score is entirely irrelevant to the person who relies only on himself to pay his way through life. Maintaining a great score in order to be able to increase limits on credit cards, buy homes with subprime adjustable-rate mortgages, and get a shiny new car every two years purchased with the money of others should not create a strong desire on the part of homeowners who have previously found themselves in the credit trap.

So, on the one hand, many homeowners will simply want to unplug from the system entirely, and live a voluntary life of sustaining themselves through their own efforts and productive work, while living within their means. Living independently without a credit score and credit history to worry about can be extremely fulfilling.

But on the other hand, there is also a privacy concern for many people, who do not want just anyone to be able to pull their credit, see that they have had a foreclosure, and send them unsolicited mail for more low-end credit. Thus, removing the foreclosure and as much negative information as possible may be a worthy goal for homeowners, to sanitize their credit report and move on without its use and without worrying about the past.

There are really only two ways to get a foreclosure off of a credit record. The first is relatively easy but takes a long time, whereas the second is quite difficult but can be result in the immediate removal of foreclosure from a credit report.

The first option every foreclosure victim has is to wait the 7-10 years (depending on all the circumstances, state, etc.) for the foreclosure to drop off of the credit report automatically. The credit agencies may keep reporting it after this period of time, but a few letters can have it removed after the time for its reporting has expired. In the meantime, the homeowner who does not wish to use credit any longer will simply have to wait it out. For those who do wish to keep themselves chained to the debt machine, even after foreclosure, the best thing to do may be to focus on building new, better credit records and put some time between themselves and the foreclosure. New lenders will give an old foreclosure less weight than 5 subsequent years of on-time payments, for instance.

The second way is to have the original lender remove the record from the credit report. Obviously, this is much more difficult than waiting nearly a decade, and lenders are not too willing to do this. However, it can be done the same way that consumers clean up their credit reports every day in other circumstances. Just dispute the debt, threaten the bank, sue the bank, sue the credit agencies, file complaints with regulatory agencies, and so on, until they realize that it is just easier to get rid of a crazy person by removing the foreclosure, rather than spend more time and money explaining its existence and accumulating complaints. Playing this role can often be very entertaining and enlightening for those cleaning up their credit reports, because they will experience first-hand how the bureaucrats and banks work together hand-in-hand against the average person.

Another tactic that homeowners may want to consider is emailing every single employee/officer of the bank whose email address they can locate and informing them that the complaints, letters, and negative press will continue until they remove the listing. Some lenders even publish company directories with email addresses of presidents, VPs, and directors. Again, there are no guarantees and this process is not easy, but the lender may eventually give in and remove the foreclosure or account altogether.

But it is completely up to the mortgage company as to what information is reported to the credit agencies. Especially if they have made some mistakes/violations, there is a good reason to start complaining and disputing. And all banks violate rules and laws all day, every day, because there are simply too many laws that contradict each other. It takes literally months for any of the disputes to be resolved, but this is significantly less time to worry about a foreclosure than waiting nearly a decade for it to drop off of the credit history automatically.

It is no secret that one of the key problems with many homeowners is their enormous debt load. In 2005, nearly one in sixty households in America filed for personal bankruptcy, and this was long before the current housing crisis. Expensive mortgages, dozens of credit cards, impulse buying, and living without a budget all contribute to consumers having no structure in their lives that will allow them to defend against the constant advertising and competition for new toys and machines.

Banks, on the other hand, have made it incredibly easy for the average American to obtain nearly any item without having to pay for it. Simply whip out a credit card, given to the consumer regardless of income or ability to pay back the amount borrowed, and the newest extravagance is magically paid for. And when the overspender inevitably starts to feel the weight of the debt, there is almost always another new credit card offer waiting in the mail. The consuming culture of debt has caused many of the current economic instabilities, and neither banks nor consumers are blameless. But, it will be those who have borrowed who will pay the ultimate price for poor financial decisions, as banks can count on bailout after bailout from central banks.

Thus, it makes sense for homeowners with large mortgages and other debts to plan for the stability of their family's economic future. Banks begin pushing credit cards on college students, ostensibly in an effort to "establish a relationship" with the consumer, whether the student has a job or can afford a credit card at all. The temptation for abuse is insurmountable, in many instances, and the new consumer begins the habit of spending more than what is earned. The banks know this is the likely outcome, but they are full aware that the parents will bail out their children.

Every person should take extreme care when deciding whether to borrow money for purchases. Besides a very large purchase, such as a house, credit is most likely unnecessary and will cause undue harm. Borrowing $10.00 for lunch, which will end up costing $35.00 or more in finance charges over time, is simply bad financial management. But consumers do this all the time, and they can produce credit card after credit card in order to keep spending.

Unfortunately, though, borrowed money is much different psychologically than earned money. Homeowners are much more likely to spend the money they save very carefully, guarding it against unwise or impulsive decisions. But money given to them from a bank through a credit card is often spent as quickly as possible with little regard for the consequences.

Families have to establish good spending and borrowing habits and pass those habits on to their children, if there will be any lasting avoidance of the credit trap. That means impulse buying and unnecessary extravagant purchases must be avoided, and a little bit of money from every paycheck (or every allowance for the kids) should be put aside in a separate account to be used only for savings. And savings should have a future goal attached to it, such as a new car purchase in the long term, or a family movie night once a month if the savings goal is met, for example.

Good spending habits and working together to get out of debt can foster a family relationship that does not suffer from the financial instability present in so many homes, a problem that can lead to divorce, bankruptcy, or foreclosure. And for consumers who are already deep in debt, cutting up the cards and selling off the ill-gotten gains of a lifetime of overspending can bring the family back together. Never having to worry about an unnecessary load of debt by paying off and destroying credit cards and going on a "selling binge" is one of the longest-lasting positive projects a family can take on. It is also one that will dramatically reduce the chance of facing a devastating financial hardship leading to repossession, a scarred credit rating, or the loss of a home to foreclosure.

For many homeowners in a financial hardship, when it rains, it pours. They fall behind not only on the mortgage, but also on many of their other debt payments, including credit cards and unsecured loans, among others. Obviously, saving the home should be the first priority, if it is a possibility, but by the time the hardship is over and they have worked through a plan to stop foreclosure, the homeowners may find out that their other debts have been charged off and sent to collection agencies. These companies will often begin to make threatening phone calls and intimidate the debtors with lawsuits, poor credit, or worse. And homeowners would like to get their credit back on track, but they may just not have the financial ability just after the foreclosure. In this case, they may be able to begin working on these other debts and eliminate them completely.

Fortunately for homeowners, most creditors, even large credit card companies and banks, fail to keep good records of the debts they own. They may not have original contracts, complete payment history, or any substantial information on the homeowners, and when they sell the debts to a collection agency, this new company may have even less information and be even worse at keeping it in good order. Of course, this does not discourage the debt collector from attempting to get as much money from the homeowners as possible, and proceed with a lawsuit anyway, but homeowners are protected by various laws to make sure that the collection agency has a valid right to pursue the debt. The most important of these laws is the Fair Debt Collection Practices Act, commonly abbreviated to FDCPA.

The FDCPA was designed to regulate these collection agencies when they attempt to pursue debtors, and defines what a debt collector is, and what their responsibilities are under the law. Many debt collectors may be law offices, but they are considered to fall under the regulations of the FDCPA. The act also outlines the rights of debtors to request validation of the debt, and what information needs to be provided to qualify as validation. If the collection agency can not verify the debt, they can not continue to try to collect it. However, the homeowners would need to request validation before they are sued by the collection agency, in most cases.

Debt validation is one of the most effective tools that homeowners may use after facing foreclosure, in order to begin repairing their credit. When their credit records are full of charged-off credit cards now being pursued by collection agencies, the technique can help them eliminate some of this debt and get it removed from their credit history. If the collection agency has not followed the law (and many of them violate it numerous ways! ), they can not try to sue the homeowners or go after their assets.

One of the more egregious ways that debt collectors fail to follow the rules is by failing to be licensed under state laws. Unless they are specifically licensed to operate as a collection agency in a particular state, they can not pursue a debt. Not every state has debt collector license laws, but many do, and debtors should check to make sure a company is following both federal and state laws. These laws are designed to protect debtors from aggressive or illegal tactics used by collection agencies, and to ensure proper procedures are followed.

If a homeowner finds that he has already been sued by the collection agency, and a default judgment has been granted, this does not mean the debt collector followed the laws. Most courts will simply assume they did comply with the law, if the debtors did not show up to defend their position, as many do not. The collection agency wins by default, and the debt is presumed to be valid. Then, they can begin the process of attempting to garnish wages, put a lien on a property, or other tactics allowed by law. The debtors at this point would have to go to court and try to have the default judgment vacated. Especially if they can show good reason why they did not respond to the complaint in the first place, and the debt collector has violated laws, the judgment may be dismissed entirely and the debt would have to be removed from the homeowners' credit report.

Even then, the debtors' work may not be done. If the collection agency is in violation of laws, the homeowners may wish to consider suing their creditors in small claims court. Each violation of the FDCPA (and this is only one law among others) may result in $1,000 being awarded to the debtor. This money, representing penalties to the debt collector for not following the law, could be used by the homeowners to pay off other debt or establish an emergency fund in case of another financial hardship.

Obviously, none of these techniques (validating a debt, vacating a judgment, or suing creditors) is a simple matter, and specifics vary from state to state and by county. But very few debtors are aware of the resources available to them that are specifically designed to provide them with aid and protection under the law. There is a vast amount of case law, opinion letters, and general advice online, and homeowners interested in getting out from under their collection agencies and repairing their credit are encouraged to begin researching on their own. The payoffs for a few hours or days worth of work can save them thousands of dollars in interest charges by repairing their credit, and allow them to qualify for a new home loan sooner after the foreclosure than if they simply allowed the debts to remain unchallenged.

Homeowners facing a financial hardship, even before they begin missing their mortgage payment, seriously worry about the consequences of foreclosure. Their most common concerns are being unexpectedly kicked out of their home by the county sheriff and having nowhere to go, how bad their credit will look with a foreclosure on their record, and the possibility of the bank suing them for a deficiency judgment after the sheriff sale. While all of these can be legitimate concerns for homeowners, they are all ones that the foreclosure victims can exercise a degree of control over. Although a foreclosure situation will have unique effects on the homeowners' lives, both personally and financially, their individual decisions regarding whether and how to stop foreclosure, and their financial habits before and after the foreclosure situation will largely determine the consequences after the process has been ended.

The first aspect of the foreclosure process that homeowners can influence is the bank's initial decision to foreclose on the property at all. While many homeowners will avoid the lender's collection calls and ignore mail sent by the bank, keeping in contact with them is often the best method for obtaining more time to save a home from foreclosure. The homeowners can often persuade the mortgage company to give them more time to recover from their hardship and find a solution and not begin the foreclosure process right away. The bank may decide to wait up to six months or longer after the first missed payment to put the house into foreclosure, as long as the homeowners are working on a seemingly viable solution to save the home. Thus, the more contact the family has with the bank, the more likely they will be given the extra time they need to avoid foreclosure entirely.

The same is true for the sheriff sale: the bank can and often will postpone the auction date if the homeowners are working towards a solution to their problem. If the homeowners are in the process of refinancing or selling the home, for example, the bank may allow them an extra few weeks or months to finalize the process. Especially if the bank knows they will lose a large sum of money on the foreclosure auction, they will be more willing to give the homeowners the benefit of the doubt and allow them extra time to work on a plan to stop foreclosure. All they want is the money that is owed on the loan, and if there is a strong possibility of gaining that, there is no reason for them rigidly to pursue the foreclosure and take the property straight to a sheriff sale that will result in a net loss to the lender.

The homeowners also have a degree of control over the credit consequences of missing numerous mortgage payments and having a foreclosure reflected on their credit report. Obviously, their score will start dropping as soon as they have missed a payment, and it will be at its lowest if the home is sold at the county sheriff sale. This is just one more reason for them to exercise their options in obtaining more time and postponing the foreclosure auction. But the effects of the missed payments on their credit will also depend on their other spending habits and payment history. If they are able to remain on top of credit cards, car loans, and student loans, their credit score will not drop as much as if they are behind on all of their debt payments. Credit scores in the high 400's are not uncommon for homeowners behind on everything, while homeowners who are just behind on the mortgage may be able to stay above 600.

This makes it important for homeowners to carefully consider how to spend their income during a foreclosure situation. It may be better to keep their credit score higher by paying all of their other bills and try refinancing with a new lender. However, this means their income can not be saved up to qualify for a repayment plan with the mortgage company. But if they save as much money as they can and fall behind on their other bills, they may be able to qualify for a workout solution with the lender but their credit will be severely damaged for years after the foreclosure. Doing neither and just saving the money to move on with their lives, putting all of their mortgages and debt behind them is another option, although rarely recommended for homeowners who have any intention on applying for new credit after losing their homes.

For homeowners who do end up losing their homes to the foreclosure process, they can take control of the process of financial recovery. The negative payment history and foreclosure status of the loan will appear as a negative mark on their credit for 7-10 years, but it is mainly the first two years after they lose the home that are most difficult. During this time, they will only receive new credit with high interest rates, low balances, and high fees, and may be turned down for larger amounts necessary to purchase a new car, for example. However, homeowners can use this time to begin aggressively working on their credit record, by paying off older debts, going through a credit repair program, and establishing a new on-time payment history. The further in time they get from the foreclosure, the less it will affect their scores and, combined with paid off loans and current accounts, they may be able to qualify for a mortgage within a couple years after facing foreclosure.

Also, the possibility of the homeowners being sued after foreclosure is frequently so remote as to be not worth worrying about. Lenders understand that homeowners face foreclosure due to a lack of funds, so it is not in the bank's interest to sue these foreclosure victims after they have just lost their homes. This does not mean the mortgage company is compassionate, but that it does not see the profit in spending time and money to pursue another lawsuit after the foreclosure and obtaining a deficiency judgment that it will be nearly impossible to collect on. It is also not good business practice for the lender, who does not want to be known as the only bank that aggressively sues its former clients and paying customers due to a financial hardship, just because they can. So homeowners who have lost their homes have little to worry about from the lender in terms of being sued a second time.

There are many concerns that homeowners should have when facing the possible loss of their homes due to foreclosure. Considerations need to made, such as how best to stop the process, who to trust for foreclosure help, and how much time they have to work out a solution. Homeowners, though, also worry to a large extent about aspects of the foreclosure process that they have some control over, such as how long it will take the bank to foreclose on them after missing the first payment, what effect missing mortgage payments will have on their credit, and the possibility of being sued for a deficiency judgment after foreclosure. However, these concerns can be turned into advantages and opportunities by foreclosure victims, who understand how the process works and what the real dangers are to being in foreclosure, instead of worrying about consequences they believe are out of their control but that they influence greatly. This is why homeowners need to seek out foreclosure advice on their own and understand as much as possible, so they do not feel as if the situation is beyond their power to control and they feel left in the dark to lose their homes.

This post is directed to those homeowners who know they are moving swiftly towards financial ruin and a possible foreclosure, but who still retain some borrowing ability. This may be in the form of an open line of credit on the home that is not behind, on-time credit cards, or any other credit line that will allow the homeowners to borrow money. Consumers facing financial hardships with an ability to borrow but knowing they will probably not be able to pay back the loan must make a unique choice: either to borrow the money and use it to prevent or stop foreclosure, or not take advantage of the bank's trust in them which they know will be betrayed.

The question here revolves around the loose credit that was made available to homeowners over the past five years, especially in the form of Home Equity Lines of Credit (HELOCs), and mortgages made on properties without sufficient income verification or inflated appraisals. It can be argued, though, that if the banks did not want their customers to spend the money as fast as possible, they should not have given a credit line for these large amounts. They gave clients an open credit line, which means they knew it could be used it to purchase anything the consumers wanted at any time.

In the case of the homeowners in a financial hardship but the open line is currently paid as agreed, they can still do whatever they want with the credit line, as long as they own the house. It can be used it to get caught up on the mortgage or other bills, thus averting financial disaster, buy a new car, or buy thousands of dollars worth of food and distribute it to homeless shelters -- if the lender wanted it spent on one thing, they would have given a car loan, home loan, student loan, etc., to be used for one purpose only. An open credit line is open.

For homeowners who are already behind on the mortgage and just about to go into foreclosure, their credit is already shot and they will not be able to borrow more money; they will have to use the credit they have remaining in the best possible way, as it may be the last they have an opportunity to use for a long time. It will be too late to change that now, but they can begin using credit more wisely in the future. If having a new car paid off with dirty open credit line money will help in that regard, then it is vital for the homeowners to make plans for the best possible future and go with them. They were given a specific borrowing ability by a lender that did not check to make sure they could pay back the loan, in most cases.

Homeowners facing a financially devastating crisis have a responsibility to do what is best for their family and themselves, not to protect banks from giving them too much money and borrowing ability without performing an adequate verification of their long-term ability to pay that loan back. Banks gave a lot of loans to homeowners who were never going to be able to pay them back, so using the borrowing ability to its fullest extent just be doing exactly what the banks designed these loans for. Using the ability to consumer useless goods and services is what many families used them for, but they can be used wisely in a financial crisis to mitigate some of the damage and prevent foreclosure. This would be possibly the first and only intelligent use of loans of this nature -- to improve the lives of borrowers, rather than satisfy their consumer-driven desires.

A big question that many homeowners have is what affect a foreclosure will have on their credit. It should be obvious to some degree what will happen when one starts missing payments on their largest loan, but there are numerous other factors to consider. Some foreclosure victims may see a huge drop in their credit score after foreclosure and an inability to borrow any money for several years, while others will be able to escape with semi-decent credit and an ability to borrow more after only a few months to a year. These factors can often mean the difference between being able to purchase a new home very quickly or being forced to save up a considerable amount for a down payment and end up with a high interest rate.

Every person's credit score is based on their entire history of using credit (well, 7 years of it, anyway), and the entire picture will be considered in assigning a score. If a homeowner has a lot of other bills that they are current on, and loans that are paid off or on time, the foreclosure may not have a huge impact. It may only cause a slight drop in the overall score because one negative mark is covered up by numerous positives. Combined with numerous late payments on other loans, though, a foreclosure can really help bring down these foreclosure victims' scores. This is why it's so important for homeowners to do what they can to stay ahead on all of their bills while in foreclosure, in order to preserve their long-term credit history as much as they possibly can.

Same thing applies with how much credit the homeowners in foreclosure have overall. If the mortgage is their only bill right now and they begin to default on the payments, they can expect a big drop in their credit score. But if they have other student loans, car loans, credit cards, etc. that they are paying as well, a foreclosure is just one negative mark on an overall positive credit report. Still a negative mark, of course, but not as bad as it could be. Again, the overall picture is more important than just one part or another. But if the entire picture is just the mortgage payment and it is behind or in foreclosure, then that will carry much more weight.

The vast number of homeowners in foreclosure are concerned with maintaining their credit-worthiness and preserving a good score. They often want to be able to borrow money again in the future at a low interest rate, whether it be to purchase a new house, replace an old car, or simply consume more goods and services. For many of them, a foreclosure is simply an unavoidable consequence of a financial hardship, and being able to borrow more indicates an ability to survive the next hardship for a longer period of time. But for others, the experience causes them to reconsider their use of credit and begins a desire to become independent of borrowing money. For these foreclosure victims, having bad credit will prevent them from living outside of their means, and it will provide them with an escape from the credit trap that so many consumers fall into.

Foreclosure situations often end up in a depressing, out of control whirlwind of unpaid bills, collection calls, lawsuits, or worse. Many homeowners desperately attempt to get back in good graces with their creditors, while others realize the uncaring system for what it is: a finely laid trap that offers riches for nothing but, used unwisely (as it is designed to be used), makes slaves out of debtors for their entire lives. Thirty or forty year mortgages, credit cards with payment plans that last hundreds of years if only the minimum is paid, and the increasing use of lawsuits to pursue defaulted loans to the very end all result in consumers playing a very dangerous game. Homeowners in foreclosure should very carefully take into consideration the uses of credit in their lives and if the payoff is worth it to them.

In many cases, homeowners facing a financial crisis have numerous problems to worry about. Getting back on track, finding some way to stop foreclosure, and figuring out a solution to pay overdue bills and credit cards are just a few of these problems. Combine these with a lack of income, and there is a real danger that homeowners could bounce a check or create an overdraft on their checking account. Sometimes, even the mortgage company will make an automatic withdrawal that the homeowners are not aware of until it is too late and their checking account has turned into another bill.

When this happens, the bank will immediately begin charging extra fees to the account, including overdraft fees, NSF (non-sufficient funds) charges, and an amount for each day that the account is behind (sometimes as much as $5.00 per day). A couple hundred dollar deficit can quickly balloon to over a thousand dollars, and the homeowners may find that their account has been closed and sent to collections. It is usually at this point that the last financial support has failed, and the homeowners are in danger of losing their home to foreclosure, being sued by creditors, having their cars repossessed, and with a huge bill where their savings account had once been.

For most homeowners in a financial hardship, this would be enough to make the situation even more desperate. However, even when the crisis is over and the house has been saved from foreclosure, or the homeowners have decided to move on, there is one last trap waiting for them, one more cruel joke that the banking industry has up its sleeve to ensure the homeowners' financial reputations are completely eradicated. They can not get a loan for the purchase of a new home, no creditor will loan them money or issue them a credit card, and nearly every bank in the country will refuse to open a new checking or savings account for them.

Yes, that's correct: the homeowners will not even be able to open a new bank account, if their previous one was closed due to an overdraft or similar reason. This is due to a nefarious reporting agency known as Chexsystes. Chexsystems is similar to the credit agencies in that member banks report to Chex which of their customers had accounts closed "for cause." When a customer does have an account closed in this matter, and then attempts to open a new account, the bank can run their names through Chexsystems, and will reject the customer if there is a record.

Chexsystems records last for five years, and consumers will find it impossible to open an account during this time. There are a few banks that will accept new accounts for customers with a record, but the vast, vast majority of banks will simply not open the new account. This puts customers on a five-year banking blacklist, forcing them to cash their payroll checks at expensive currency exchanges, purchase money orders to pay bills, use hard cash for every other purchase. Obviously, for a family that has narrowly survived a financial hardship, the extra costs associated with not having a bank account will add up very quickly.

The worst part of the system is the vindictive attitude with which it is treated. Banks will not fail to report a customer's account to Chexsystems in order to warn the rest of the industry of the problem. However, if the consumer eventually pays off the account, there is still no assurance from the bank that they will remove the Chex record or even report it as paid off. Even though Chexsystems requires that paid off accounts be reported to them, few banks comply, and consumers are kept out of the banking system far longer than they would be if the banks did not take a vengeful attitude with their former customers. It is only through much research on the process of getting off Chexsystems that consumers will learn how to deal with the bank and have the listing removed or updated.

This fourth reporting agency is often far more damaging to homeowners than any of the other credit reporting agencies. Ending up on a blacklist and being treated like an exile in one's own country designed to hurt the consumer even further is a fate that only our current banking system could have devised for dealing with the poor and downtrodden. The same banks who assault customers' senses with subliminal and overt advertising for credit cards and huge loans are the same ones who will push the customer out of the banking system completely once they have taken as much money as they can in the form of interest and expensive fees.

If any of our clients find that they are on Chexsystems, please contact us and we will email you a new form letter that is used to fight back against the original bank and against Chexsystems. It has been proven to work in the past and is designed to result in a complete deletion without resorting to legal action against the bank.

Credit is an issue that many homeowners worry about, especially when facing foreclosure. They know that numerous late payments on the mortgage or charged-off credit cards will result in the dreaded status of having "bad credit." Really, though, what is bad credit and why is it bad? And for whom is it bad? And what are the alternatives to living a life scarred with bad credit? These questions deserve some thought by all consumers, but especially by foreclosure victims who have seen their credit history destroyed by financial hardships.

A homeowner with bad credit is simply one who has been given a low score by the three major credit bureaus (Experian, Equifax, and Transunion), based on their habitual use of credit. Low credit scores may reflect having too many open accounts, not paying the bill on time, or not paying the account at all. Other creditors will look at these habits and credit score and determine whether to loan money to a consumer and how much to charge for the money loaned. A good credit score means that someone can borrow more money and pay less interest. But what makes it necessary for so many consumers to borrow so much money to finance their lives, is the fact that so many live outside of their means and lack the discipline to save money on a consistent basis. When potential creditors notice that consumers are not acting wisely with the credit, they often turn them down for additional borrowing.

Bad credit, therefore, is seemingly only detrimental to banks and lending institutions. Not being able to borrow outrageous sums of money for unnecessary items can give consumers the financial discipline that is so often talked about and so often lacking. Retreating away from the desire to buy another car or another toy sounds wonderful in theory, but is always much more difficult for any consumer who has a few thousand dollars' worth of borrowing capacity in his or her wallet. In fact, buying that $2,000 flatscreen TV may even seem like a prudent use of money, especially if the consumers passed on the $4,000 model even though they had the ability to borrow it.

Lacking this ability to incur endless amounts of credit, consumers are forced to live within their means and creditors receive no interest payments. Bad credit is good for the consumer and bad for the bank, although this is exactly the opposite of what is expounded over and over again. Of course, not using credit at all is even better than having bad credit, but the ease of obtaining credit is a serious obstacle to overcome, even for the most wary consumer. Facing a hardship, falling behind, and realizing the emotionally destructive power of credit is a lesson that many consumers simply have to learn the hard way.

Once a consumer begins borrowing, he or she immediately precludes or diminishes their ability to save money. Money that could have been saved is instead spent on paying interest on previous borrowing. As is apparent, this quickly becomes a vicious cycle, with consumers borrowing more to pay back what they previously borrowed and unable to adequately save money to get out of debt or even to respond to a temporary financial hardship. Unfortunately, life happens, and every family will face financial difficulties sometime; for consumers trapped in the credit cycle, this can lead to bankruptcy, foreclosure, or repossession of the valued assets that they never owned but came to rely upon for their own economic stability.

The solution, although obvious, is admittedly very difficult to achieve. It is also counterintuitive to conventional wisdom, although it makes logical sense in the context of reality for most individuals. Consumers need to establish a history of saving before they even consider beginning a credit history. Instead of high school graduates and college students being sent countless credit card applications and the lure of a brand new car with low financing rates, these young people, through their jobs, should stay as far away from credit as possible before they have built up a significant savings account. Young people just entering the market through entry-level jobs can not expect financial success or even stability later in life by chaining themselves to debt slavery for the foreseeable future.

Using credit is a habit for far too many individuals. Even as their income increases, these same youths who latched onto credit to increase their self-esteem, will further increase their use of credit to "keep up" with their new status as managers or executives. Unfortunately, executives who rely on borrowing money at the expense of saving are just as vulnerable to a loss of job or medical emergency as a factory worker or cashier. More income, coupled with increasing use of credit, results in the consumers playing a higher-stakes game, but it is the same gamble. Borrowing money precludes savings, which is the insurance policy that every household should have in place to weather any financial difficulty.

Credit. Is there any word that brings up such simultaneous feelings among consumers of dread, worry, and despair, mingled with hope and that unique feeling that one can simply ask for and receive anything on the planet? Few other concepts can bring forth such strong, opposing emotions as the ability to borrow untold sums of money with the simple swipe of a credit card, or a meaningless signature on an equally meaningless piece of paper. For many, though, this pleasurable godsend soon becomes a necessity for consumers, much like water and shelter.

In fact, it is when when one begins using credit to pay for such basic necessities as food, water, and shelter, that credit rears its uglier head and slowly begins to drown the consumer in higher and higher mounds of interest. Homeowners may use high-interest credit cards to pay back their high-interest mortgage, or finance a month of groceries on their credit cards, or may even borrow money to pay for the gas they use to get to work. Once this happens on a continual basis, consumers can find themselves in serious financial trouble. And getting back on top of the situation becomes more and more remote a possibility.

In this situation, all that is needed to push the consumers into bankruptcy, foreclosure, or worse is one financial hardship. A loss of job, unexpected medical expense, or major necessary home improvement can make the difference between the homeowners falling further into the danger zone and simply falling right over the edge into ruin.

Usually, by the time the financial hardship occurs, the consumers have begun falling behind on one bill or another, using credit to pay back credit, or attempting to open new lines of credit to sustain their unsustainable consumption. They know it can not last, and that they are toeing the line between bad decision and financial devastation, but they continue their spending/borrowing cycle until their creditors finally pull the plug on the free money machine. Rather than using logic and common sense, in order to keep their expenses as low as possible, while understanding that borrowing money makes them slaves to the creditor, these consumers procrastinate facing reality until they are at the grocery store and find out that none of their colorful credit cards will any longer be exchanged for real goods and services.

Of course, this is not all the consumers' fault, although they bear nearly all of the responsibility for their own lives and financial decisions. Consumers, though, are bred and trained to conform to the culture of consumption. From a school system which teaches children to be bored unless a superior gives them something to do and discourages critical thinking, to a television which tells people to purchase the newest thing and borrow money if they can not afford it, to a culture of glorified instant millionaires who did nothing of substance to earn their wealth, the average person is simply overwhelmed with a lack of choices.

Either consume or be left behind. Get version 1.5.7.987 instead of 1.5.7.986 or else you will be out of date and unable to keep up with everyone else. Increase your ability to borrow by 2,000% and finance a new car with a piece of plastic. Treat your home and everything else you own as an ATM and just keep borrowing forever.

Through this Hegelian gauntlet of credit and financial woes, it would be expected that people long ago would have learned from the horrific stories of others. But with the prevailing attitude of consumers and message of advertisers being "Bad things can't happen to me -- I'm going to be a millionaire by the middle of next week," it is little wonder that so few learn that credit can be the most dangerous trap of all, creating wage slaves for life. And to think -- none of the credit even existed until the consumers agreed that they would pay it back. Credit is an mirage powerful enough to make willing slaves of people. What else has that power?

In a few other posts, we've discussed the issue of credit and how it can help push homeowners over the edge into foreclosure, and how it can continue to have financially destructive effects even after the mortgage has gone into default. This post will look a little more at credit in general and how it can both hurt and help consumers.

Most of our posts have decried the use of credit, stating that it only helps homeowners lose control of their finances and borrow too much today based on an uncertain future. Once that uncertain future entails a financial hardship, credit cards go into default, collection agencies and attorneys are hired, and homeowners have to search out some trustworthy source of foreclosure advice. And this is all the result of them borrowing money just to finance the basic necessities.

Granted, obtaining and using credit is not a problem. Borrowing money can, at certain strategic times, help consumers purchase an investment (like their homes) that will increase in value over time, start a business, or obtain some other financially beneficial asset. Credit used in this way can help households improve their overall worth and comfort, and is a wise use of credit.

The problem is when homeowners begin using credit to finance basic necessities of their lives and to continue an unsustainable period of consumption for the sake of some meaningless, unattainable goal, such as "looking good," "keeping up with the neighbors," or "because we can." In these cases, the borrowing can spiral out of control and homeowners can find themselves throwing all of their money away at the interest charges on their various credit lines. Especially when homeowners are borrowing money just to eat, keep a roof over their heads, and keep the lights on, any financial hardship will probably end up in numerous missed payments on any of their open credit cards or mortgage.

Again, homeowners have very little or no protection when they begin to fall behind on their bills. It is very common (almost universal) for credit card companies to raise the interest rates very high when consumers miss a payment, and some even practice the concept of "universal default," whereby a credit card will raise its rate if the consumer is late on a different card from a different company -- being on-time or late on that particular card has no bearing whatsoever on the rate being increased.

These kinds of tactics are being examined by the credit card industry and even by Congress, but it is doubtful any real relief will be offered to homeowners. The exact same result of the foreclosure and predatory lending hearings will probably be seen in these hearings -- a lot of talk about protecting consumers from high interest rates and irrationally high fees, and then silence. Even in the midst of a collapse of consumers' ability to repay their loans, the only new laws and regulations will most likely protect the credit card industry.

Take, for example, the new proposed regulation requiring more disclosure on the part of credit issuers to show how much it will cost the borrower. In realitly, borrowers do not read the current paperwork they get from lenders, and a new law changing what the borrowers do not read will not give them any better understanding of how they are being drawn into the credit trap.

Thus, credit used for a very specific purpose may help homeowners improve their financial positiions and their quality of life. Building equity in a home, starting a business, or improving one's efficiency are all viable reasons to borrow money for the short term in anticipation of a better future. However, borrowing for the sake of consumption or for basic necessities, or borrowing for the goal of improving one's credit score to be able to borrow more later: these are simply unsustainable and unachievable goals that can not lead homeowners to a better financial life. They will, as we are experiencing now, be forced to pay the bills even after their stream of income dries up, and then find themselves looking for solutions on how they can stop foreclosure.

Foreclosure and the loss of a job are two situations that can become irreparably linked for some homeowners. Homeowners lose jobs, fail to pay bills, and find their credit score dropping dramatically. While everyone knows that borrowers in these situations will have a tough time obtaining credit at reasonable rates, it is not as well known that people with poor credit will even have a hard time finding a job. Their low credit score, caused in part by the loss of a job, can lead to even further hardships when homeowners are unable to find a new job.

Job loss is one of the top reasons homeowners find themselves buried under their mortgage, credit cards, car loans, and other debt. Layoffs, seasonal work, and failed self-employment are just the three most common occurrences we hear about from our clients. These unexpected, unfortunate situations result in thousands of foreclosure victims losing their homes every month. But possibly even worse, the former homeowners may find their foreclosure coming back to haunt them in ways they may not expect.

With many more employers looking at applicant's credit scores, it will become even tougher for homeowners to begin working again and get back on top of their debt, or repair their credit after saving their homes. According to The Christian Science Monitor, "Credit checks are a growing factor in hiring, with 35 percent of employers checking applicants' credit in 2003, up from 19 percent in 1996," and applicants with poor credit are not offered positions. Obviously, a current or recent foreclosure can mean the difference between being offered a fresh start, and being publicy humiliated a few more times during a long job search.

Furthermore, this does not even take into account the fact that employers, by ordering credit reports, are only contributing to even lower credit scores for job applicants who need a second chance. Every time a consumer has their credit pulled, the inquiry shows up on the report; a large number of inquiries tells the major credit bureaus that the person is on an "application spree," and will penalize the applicant with a lower score.

The article goes on to emphasize that "employers who screen for credit are setting up a Catch-22 for poor people: They need jobs to get good credit, but employers won't hire them because they don't have it." Also, this credit requirement effectively locks out many minorities from obtaining higher-paying jobs: "Studies show that minorities are more likely to have bad credit, but credit problems have not been shown to negatively affect job performance." And as ForeclosureFish.com has examined in an earlier post, minorities generally do not receive the best mortgage products when they attempt to become homeowners.

All of this points to an instance of employers and lenders attempting to extract as much profit from the poor and minorities, and then preventing them from receiving a second chance to build credit and prove their worth as employees in moderately or highly paid positions. Foreclosure victims, who represent an extreme case of being trapped in a "job loss - credit score - job prevention" cycle, bear the full brunt of these policies, all of which are designed to protect only the corporations at the expense of the homeowners' privacy and future.