Nursing Home Resident's Rights & Financial and Other Elder Abuse
Nursing Home Residents' Rights
Who is responsible for ensuring residents' rights?
It is important for residents, or those considering residence in nursing home and other long-term care facilities, to know and understand their rights as residents of these centers. Family, friends, and caregivers for residents should also be aware of resident rights. Each state has a Long-Term Care Ombudsman program to look out for residents. In Iowa, the State Long-Term Care Ombudsman works as part of the Iowa Department of Elder Affairs. The Ombudsman's office provides free, confidential services to help assure quality long-term care.
Who can use an Ombudsman's services?
* Residents or tenants of a nursing home, residential care facility or assisted living program
* Family members or friends of a long-term care resident or tenant
* Any individual or citizen's group interested in the welfare of the residents
* Individuals and families who are considering long-term care placement
* Nursing home administrators or employees with a concern about a resident at their facility
(Iowa Department of Elder Affairs. [n.d.] Office of the State Long-Term Care Ombudsman - Consumer Page. Retrieved from: http://www.state.ia.us/elderaffairs/advocacy/ombudsman.html)
How do I contact the Long-Term Care Ombudsman?
State Long-Term Care Ombudsman's Office
Iowa Department of Elder Affairs
510 East 12th Street, Suite 2
Des Moines, IA 50319
Toll Free: 800-532-3213
What are my rights as a resident of a nursing home or long-term care facility?
According to the office of the Long-Term Care Ombudsman's office, basic rights for residents include the following:
* The right of citizenship. People who live in long-term care facilities do not lose any of their rights of citizenship, including the right to vote, to religious freedom and to associate with whom they choose.
* The right to dignity. Residents of nursing homes are honored guests and have the right to be treated so.
* The right to privacy. Nursing home residents have the right to privacy, including the right to privacy with their spouse, the right to have their medical and personal records treated in confidence, and the right to private, uncensored communication.
* The right to personal property. Residents have the right to possess and use personal property and to manage their financial affairs.
* The right to information. Residents of nursing homes have the right to information, including the regulations of the home, and the costs for services rendered. They also have the right to participate in decisions about any treatment, including the right to refuse treatment.
* The right to freedom. Nursing home residents have the right to be free from mental or physical abuse, and from physical and chemical restraint unless ordered by their physician.
* The right to care. Residents have the right to equal care, treatment, and services provided by the facility without discrimination.
* The right of residence. Nursing home residents have the right to live at the home unless they violate publicized regulations. They may not be discharged without timely and proper notification to both the resident and the family or guardian.
* The right of expression. Residents have the right to exercise their rights, including the right to file complaints and grievances without fear or reprisal.
(IA Dept. of Elder Affairs.)
For a fact sheet, "Residents' Rights: an Overview," from the National Citizens' Coalition for Nursing Home Reform with even more extensive description of the rights that are guaranteed to residents under the federal government's 1987 Nursing Home Reform Law and a fact sheet detailing the right of residents' family members to participate in a resident's care, go to http://www.nccnhr.org/uploads.
ABUSE OF ELDER AND/OR DEPENDENT ADULTS
What is dependent adult abuse?
There are 4 catagories of dependent adult abuse recognized under Iowa Code 235B. They arise from "willful or negligent acts or ommissions" by a caretaker. They include:
1. Physical Abuse
2. Sexual Abuse
3. Denial of Critical Care
4. Financial Exploitation.
When the victim is over 60 years of age it is referred to as Elder abuse although it is still included under the more general category of dependent adult abuse. Physical abuse occurs when a person is injured, unreasonably confined or punished, or assaulted. Sexual abuse is non-consensual sexual contact. Financial exploitation occurs when a caretaker takes advantage of a dependent adult's financial resources for the person's own personal profit, without the informed consent of the dependent adult. This can occur through the use of undue influence, harassment, duress, or deception or result from the willful or negligent acts of the caretaker.
Neglect is the most common form of mistreatment in domestic settings. Neglect means denying a basic need like food, shelter, clothing or health care. Recent studies show that 55% of reported cases involved neglect. Physical abuse accounted for 14.6% of all cases and financial exploitation was involved in 12.3% of cases. Family members are the most frequent perpetrators of abuse.
Iowa law includes elder abuse under the more general category of adult abuse. The aim of the law is protecting dependent adults from abuse by caretakers. A dependent adult is anybody over 18 years old who is unable to protect his or her own interests or cannot adequately perform or obtain services required to meet basic human needs as a result of a physical or mental condition which requires the assistance of another person. According to the National Elder Abuse Incidence (NEAI) Study, the oldest adults, those 80 years old and older, suffered disproportionately from neglect, physical and emotional abuse, and financial exploitation.
The person committing the abuse must be a caretaker of the dependent adult. A caretaker under Iowa law is a related or nonrelated person responsible for the protection, care or custody of a dependent adult. That responsibility may be assumed voluntarily, by contract, through employment, or by court order.
Reports and Investigations of Signs of Abuse
Signs of abuse can include repeated injuries, lack of personal or medical care, malnourishment, growing depression or anxiety, and new poverty. If you suspect a person is being abused by a caretaker, it is important to make a report. Persons who report suspected dependent abuse in good faith cannot be held liable for making reports. All reports remain confidential. To make a report, call the Department of Human Services at 800-362-2178. If the abuse is taking place at a nursing home or other care facility, call 515-281-3642 during business hours, and call the 800 number evenings or weekends.
Once the Department receives a complaint, it will investigate and assess the case. The Department can refer the dependent adult to appropriate services and take other measures to stop the abuse.
What are some common forms of financial abuse of the elderly?
* Misappropriation of income or assets - Perpetrator obtains access to an elder's Social Security checks, pension payments, checking or savings account, credit card or ATM, or withholds portions of checks cashed for an elder.
* Charging excessive rent or fees for service - Perpetrator charges an elder an excessive rent or unreasonable fees for basic care services such as transportation, food, or medicine.
* Obtaining money or property by undue influence, misrepresentation, or fraud - Perpetrator coerces an elder into signing over investments, real estate or other assets through the use of manipulation, intimidation or threats.
* Improper or fraudulent use of the power of attorney or fiduciary authority - Perpetrator improperly or fraudulently uses the power of attorney or fiduciary authority to alter an elder's will, to borrow money using an elder's name or to dispose of an elder's assets or income.
* Pigeon drop - Perpetrator claims to have found a sum of money and offers to split it with an elder provided the elder first withdraws an amount equal to his or her share as a sign of good faith.
* Fake accident ploy - Perpetrator convinces an elder that the elder's child has been seriously injured or is in jail and needs money for medical treatment or bail.
* Telemarketing and mail fraud - Perpetrator persuades an elder to buy a valueless or nonexistent product, donate to a bogus charity or invest in a fictitious enterprise.
* Fake prizes - Perpetrator tells an elder that he or she has won a nonexistent prize and either asks the elder to send a check to pay the taxes on this nonexistent prize or obtains the elder's credit card or checking account number to pay for shipping and handling charges for the prize.
* Unsolicited work - Perpetrator arrives unexpectedly at an elder's residence and offers to perform work for a reasonable fee; after starting the work, the perpetrator insists that the elder pay more than originally agreed before the work will be completed.
(California Bankers Association. [n.d.] How to Spot Elder Financial Abuse, p. 7-8. Retrieved from: http://www.calbankers.com/pdf/ElderAbuseTrainingBook.pdf)
What should I do if I suspect a case of elder or dependent adult abuse?
It is important to share your suspicions of abuse with an appropriate authority who can investigate the situation further. There are several places you may go for help:
Iowa Department of Human Services (DHS)
Toll free hotline: 1-800-362-2178
Sandi Koll, Program Manager
Hoover Bldg., 1305 Walnut
Des Moines, IA 50319-0114
Or: contact your local DHS office
-The Dependent Adult Abuse Law authorizes DHS to accept reports of suspected dependent adult abuse, evaluate reports, complete an assessment of needed services, make appropriate referrals for services, and maintain a central registry.
(Iowa DHS, 2002, p.2)
Iowa Legal Aid
Legal Hotline for Older Iowans: 1-800-992-8161
Central Office: 1111 9th Street, Suite 230
Des Moines, Iowa 50314-2527
Or: any of 10 regional offices statewide
Persons with English as a Second Language: 1-800-272-0008
-Iowa Legal Aid helps elegible clients with "civil" or non-criminal legal problems. The hotline for older Iowans specifically addresses the concerns of Iowans aged 60 and over.
Iowa Attorney General
Consumer Protection Division
1305 E. Walnut Street
Des Moines, IA 50319
-The Consumer Protection Division of the Attorney General's office helps to protect consumers from fraud and ensure fair marketplace competition. You can fill out a consumer complaint form with this office.
Avoiding Problems with Creditors, Predatory Lending Practices and Reverse Mortgages
CONSUMER ISSUES AFFECTING THE ELDERLY
Older Iowans aren't immune from serious financial problems. In fact, rising medical and energy costs, stagnant incomes, and vulnerability to unscrupulous lenders and service providers put older Iowans at special risk of financial hardship. Nationally, the elderly make up one of the fastest growing segments of people filing bankruptcy. Understanding your legal rights as a consumer is crucial to avoiding the financial stress that impacts so many elderly Iowans. Below is a description of some of the more important consumer law issues the elderly may face.
Getting Into Debt
Credit cards are easy to get and look like a quick solution. But there is rarely a good reason to carry more than one or two credit cards. Having too much credit can lead to bad decisions and unmanageable debts. Credit card interest rates may start out low but can go up over time. You should always know the interest rate on your cards and should try to keep the rate as low as possible. However, it is not a good idea to get a new credit card just because of a low interest rate. The rate only matters if you carry a balance from one month to the next, and a temporarily low rate may encourage you to spend more than you can afford. In addition, the rate can easily change, with or without a reason. Other terms of the credit may also add to the cost, so that a credit card that appears cheaper is actually more expensive. Annual fees, late charges, membership fees, and the method by which balances increase can add to the cost of credit.
If you get behind on monthly payments on a credit card, interest rates can skyrocket and late payment charges are added. Variable interest rates can also be very confusing. Some variable rates conceal terms that ensure your rate will go up steeply over time. But it takes a great deal of time and effort to juggle cards to take advantage of terms designed to be temporary. Remember that all so-called "teaser" rate offers are designed to get you locked into the higher rate for the long term because that is how the credit card company makes the most money. Even people who do successfully juggle many cards soon find that the use of numerous cards has a long-term negative impact on their credit record.
In short, credit cards can be an expensive way to pay expenses. Once your credit card debt gets to where you can only make the minimum payment you are already too deep in debt. At this point, most of what you pay is little more than interest on the debt. If you are unable to pay more each month, the debt will never be paid off. Use credit cards only in cases where you know you'll be able to pay the amount off in full each month. Instead, pay with cash or checks or use debit cards if you need a convenient method of payment without carrying cash.
Many older people turn to their home as a source of money to pay off credit card or medical bills. While this may seem like the best way to stop debt collector harassment, it is almost never a good idea. In Iowa, your home is protected by law from credit card creditors but not from mortgage lenders. Credit card debt is usually "unsecured debt." This is one reason credit card debt collectors are so aggressive. They know they can't repossess your car or take your home, so they try to scare you into paying voluntarily. Examples of other unsecured debts would include medical bills, personal loans and old utility bills. A home mortgage is different. It is a "secured debt." If you don't make your mortgage payments the lender can foreclose and take your home. By mortgaging or refinancing a home to pay unsecured debts, you give your creditors the potential power to force you out of your home. The "consolidation" loans promoted by some lenders turn an unsecured creditor who can't take your home into a secured creditor who can. Deal with unsecured debt in other ways besides mortgaging your home to pay for it. Negotiating a write-off of the debt, filing bankruptcy to discharge the debt, or just ignoring it if you have no other income or property that can be taken is preferable to taking out a mortgage to pay the unsecured debt.
Many second mortgages to use the equity in a home to make home improvements or consolidate unsecured debt are known as "subprime" mortgages. Subprime mortgages are made to people with less than good credit scores and usually carry higher interest rates than a conventional loan. They may also have other unconventional terms such as payments that pay only the interest on the loan and no principal or they may have variable interest rates that will increase substantially every few months. Be careful when taking out any type of mortgage that you make sure it's one you can afford both today and three years from now. Deal only with reputable lenders and compare all costs of credit from several different lending sources before making a borrowing decision.
A reverse mortgage is a complex home loan for elderly homeowners who have substantial equity in their property. In a reverse mortgage the lender loans you money based on the value of your home, the amount of equity you have in the home, and your age at the time of the loan application. The lender pays you the money either in a lump sum, in monthly installments, or as a line-of-credit. Unlike a traditional home equity loan or second mortgage, repayment is not required until you sell your home, move out permanently or die. The amount of money you owe increases over time because you aren't making payments. If you sell your home, you can keep any proceeds from the sale of your home in excess of what you owe the lender. The homeowner retains title to the home and continues to be responsible for paying the property taxes, insurance and for the general upkeep of the property. To qualify for a reverse mortgage you must be 62 years old. The mortgage on your home must be completely or nearly paid off. You can get a reverse mortgage regardless of your income.
The costs of obtaining a reverse mortgage can be very high. You may have to pay some of these costs in cash. However, most lenders allow a portion of these costs to be financed as part of the loan balance. In addition, interest, insurance and service charges will be added monthly to the loan balance meaning the amount you owe the lender increases over time. A reverse mortgage may affect your continued eligibility for need-based government benefits programs such as SSI and Medicaid. Monthly payments from the loan must be spent within the month they are received. If not, such payments will be considered income and may make you ineligible for public benefits. A reverse mortgage may not be right for you if you want to leave your home, free and clear, to your children or others who will inherit from you. Your relatives will not be able to inherit from you unless they pay off the loan after you have passed away. You may be offered the option of using some or all of a lump sum payment to purchase an annuity. An annuity is an insurance product. Monthly payments are made to you for the rest of your life. The IRS does not tax loan advances as income, but annuity advances may be partially taxable.
An important requirement for obtaining a reverse mortgage is attendance at a consumer education session on reverse mortgages to receive mortgage counseling from a HUD-approved agency. This counseling session will help you decide if a reverse mortgage is right for you or help you choose among the different types of reverse mortgages. Most importantly, don't sign anything you don't understand.
The use of payday loans (also known as cash advance loans, check advance loans or delayed deposit checks) has become a ritual for many working Iowans, including the elderly. These payday loans are made by lenders to people who need cash before payday to pay overdue rent, put food on the table or take care of some other pressing financial need. Unfortunately, these short term payday loans carry a very high cost to the consumer. In such transactions, a cash advance is typically made to a consumer in exchange for the consumer's personal check or the consumer's authorization to electronically withdraw money out of the consumer's account. The consumer and the lender then agree that the check can be cashed by the lender or the money electronically withdrawn at some future date. The future date is usually set up for the consumer's next payday.
The problem is that the cash you receive from the lender is frequently a lot less than the amount of the check or the electronic withdrawal authorization that you give to the lender. For example, a lender may give you $200 in cash in exchange for your check for $225 that the lender will cash in two weeks. In this case, the interest and charges would be $25 and the interest rates on the two week loan would be an astounding 325%. This is an interest rate that few can afford, especially lower income Iowans who survive paycheck to paycheck. Iowa law places limits on fees that may be charged on payday loans. In addition, both state and federal law require the lender's charges to be disclosed in the same way that the charges for car loans, home loans and other consumer loans are disclosed. Specifically, the APR or Annual Percentage Rate must be disclosed. A consumer in the example above would have to be informed in writing that the interest rate was a whopping 325% on an annual basis.
Consumers who have emergency cash needs would often be better off establishing a relationship with a local credit union or community bank. Many banks and credit unions have overdraft protection or other lower cost mechanisms to help with short term financial difficulties. If such services are not available, most consumers would be much better off discussing their short term financial situation with their creditor or landlord. Arrangements for short term payment delays can frequently be made.
Car Title Loans
Before new legislation was adopted by the Iowa Legislature in 2007, car title loans were a very expensive way to borrow money. With the new legislation they may now be a better source of credit for borrowers who need small amounts of money and who are certain they can pay it back. In any case, it is always better to seek credit from lenders who offer lower rates. Here's how a car title loan might work: To get a loan, you give a car title company the title to your car in return for a cash loan. You can keep the car but the loan company keeps the title. If loan payments aren't made, the company can take the car and sell it to someone else. The title company may even keep an extra set of car keys so it can be repossessed more easily. The first loan payment can be due just fifteen to thirty days after you get the loan and the interest rate can be as high as 36% under a new Iowa law that limits the finance charges allowed on car title loans. If you miss a loan payment the car title company can repossess the car.
Until the new Iowa law has been in effect for a longer time it's unclear how many car title loan companies will actually still operate in the state. Regardless, if you need a loan, talk with local banks and credit unions before going to a car title loan company. Banks and credit unions can make loans secured by cars and they can do it at lower interest rates. Credit unions have been given new authority by the Iowa legislature to make smaller loans to borrowers who may not be able to qualify for a loan from a conventional lender.
Tax Refund Anticipation Loans
Another type of loan to avoid is the loan based on your expected tax refund. The lender may even be the company preparing your tax return. The loan is for a very short period of time between when your return is filed and when you expect to get the tax refund. For example, you might file your tax return on March 15th. You would normally expect a refund, if you are entitled to one, within thirty days. In a tax refund anticipation loan, a company will give you the amount of the refund less a fee on March 15th so you don't have to wait until April 15th for your check. But the fees on these loans can be very high and these fees are effectively interest at rates that might exceed 200% or more on an annual basis. The company may try to mislead you about the annual interest rate by telling you the rate assuming the company won't be repaid for two or three months but it is actually going to be repaid within the month. Instead, be patient and wait for your full refund. File electronically so your refund is received in a much shorter period of time.
The rent-to-own industry makes huge profits renting property such as furniture, electronics or appliances mostly to people facing financial hardship. In a rent-to-own arrangement, you are supposedly renting property for a period of time until you qualify for ownership. It is marketed as a way for people who don't qualify for credit to have use of an item while it is being purchased. There are two major problems with rent-to-own arrangements. First, items purchased this way are very expensive, often costing you more than three times the cash price. For example, a television valued at only $300 may cost you nearly three times that amount once you pay for it over a period of time with interest. The second problem with rent-to-own deals occurs when you can't keep up the payments. If you miss even one payment, the item can be repossessed. You will then lose the benefit of any payments you made toward owning the property. The more you've paid, the more you lose if you miss a payment.
If you need to buy furniture, appliances or electronic goods and you can't immediately afford them, you should look at options besides rent-to-own. The best option is to save money and then pay cash. Consider selling something you don't need to buy something you do. Also, don't assume you can't qualify for more conventional credit. Stores may grant credit even to people with a bad credit record or they may have other ways for you to purchase at a reasonable rate of interest.
Many products, services, investments and loans are advertised over the telephone. Every consumer thinks he or she recognizes telephone rip-off schemes, but nevertheless every year millions of people are victimized. Telemarketers use very sophisticated techniques to get consumers to sign up for things they don't need, products that don't work, services that are too expensive, or outright rip-offs. Elderly individuals, in particular, are often targeted for investment scams and other telemarketing abuses. Most telemarketers are highly trained in aggressive sales techniques. For example, they may tell you that you have already won a prize, that you can participate in a sweepstakes, that they are only taking a survey, that they are offering a free product, or that they are selling something that has been endorsed by celebrities. Telemarketers are usually offered large commissions by their employers based on the number of sales they make-increasing their incentive to be aggressive on the phone or to deliberately mislead you. For these reasons, it is a good idea never to agree to buy anything over the phone. The best choice is not to listen to the sales pitch in the first place to avoid the waste of time.
However, if you do listen, or if you are interested, do not invite the telemarketer to call again or to come to your home. This will make you a target. Instead ask that detailed follow up information be sent in the mail, before you agree to anything. Doing so will give you the opportunity to think clearly about whether you are being cheated and to see the terms of the offer in writing. Pressure to sign up right away without receiving detailed written information on what you are buying is always the sign of a scam.
Lottery and Sweepstakes
People facing difficulties sometimes look to the lottery as a way to improve their financial situation. This is an expensive long shot at best. Spending substantial money on the lottery or other gambling can greatly compound your financial problems. The lottery pays out only a percentage of the money it takes in. Often, for every two dollars spent on lottery tickets, you are likely to win back only one. Very few people win big prizes. The chance of winning a million dollars is slim. While you are experiencing financial difficulties, it is best to reduce or eliminate your expenses on the lottery, rather than to look at it as a way to solve your problems.
Similarly, most sweepstakes offers, including those you receive by mail, are usually longshots, meant to convince you that your odds of winning prizes are greater if you buy products you don't need, such as magazines. Others advertise prizes or "free" gifts as a come-on to get you interested in buying things you don't need. In truth, you don't need to buy anything to participate in a sweepstakes drawing and your chances of winning are no greater if you do.
Getting Out of Debt
One of the most important things to know about debt is that many elderly Iowans don't have much to worry about even if they do have significant debt. That's because they are often "judgment proof," meaning that a creditor can't take anything even if they have a court judgment against you. Creditors and debt collectors may contact you and threaten to take your income and property but both federal and state law protects certain property from being taken by most of your creditors. Creditors cannot generally take your property without first getting a judgment against you. There is an exception if you have given the creditor a security interest in your property. A mortgage on your home or a lien on your car are good examples of a security interest. To get a judgment, a creditor must file and win a lawsuit. Even after a creditor gets a judgment, the law allows you to keep certain kinds of "exempt" property. Exempt property generally includes:
• your home.
• household furnishings and wearing apparel worth up to $7,000.
• most wedding and engagement rings.
• other jewelry worth up to $2,000.
• burial plots.
• certain interests in insurance policies and benefits.
• health aids prescribed by a doctor.
• one motor vehicle with up to $7000 in equity.
• farm equipment or tools of the trade up to $10,000.
• rental and utility deposits up to $500.
• most pension and retirement plans such as IRAs and 401(k).
• cash on hand or bank deposits worth up to $1000.
Certain types of income are also exempt from collection by most creditors. These generally include social security benefits, unemployment compensation, public assistance benefits, veteran's benefits, disability or illness benefits, alimony or support payments that are needed for support, and pensions. An important exception is that a portion of your social security benefits may be garnished if you owe back child support or money to the federal government, such as taxes, student loans and public benefit overpayments. Supplemental Security Income (SSI) payments can not be garnished even by the federal government.
Except for income tax and child support debts, creditors are limited in the amount they can take or garnish from your wages. There are two limitations. The first limits the amount that can be garnished each year. This amount depends on your income. For example, if your income is less than $12,000 in a calendar year, a creditor with a judgment can't garnish more than $250. Between $12,000 and $15,999 a creditor can only take $400. Even with a salary of less than $35,000 a creditor can't take more than $1,500 in any one year. The second limitation is on the amount that can be garnished each pay period. A creditor cannot take more than 25% of your disposable earnings or 40 times the minimum wage, whichever is less.
There are also limits on the amount of money in a bank account that can be garnished. First, if a creditor could not garnish your money before you deposited it into the bank account, they generally cannot garnish it after it is deposited. For example, only a percentage of wages deposited into an account can be taken and social security benefits cannot be taken at all. Generally, these funds are protected for at least ninety days after you deposit them. In addition, you are allowed to keep $1000 in cash or bank deposits.
Unfair Debt Collection
As personal debt increases across Iowa and the nation, more and more people are being contacted by debt collectors. If you feel you have been harassed or otherwise treated unfairly, you should know that both federal and state law provide protections from certain abusive and unfair tactics. Under federal law, these protections are provided under the Fair Debt Collection Practices Act. Under Iowa law, protections are provided under the Iowa Debt Collection Practices Act. The Iowa law is broader, however, than the federal law because it applies to all debt collectors, even people who are collecting their own debts. Debt collectors are prohibited from doing any of the following:
• Talking to someone else about your debt except to try to locate you.
• Calling at unusual or inconvenient times or places.
• Calling you at work if they should know your employer prohibits personal calls, or contacting you at other inconvenient places, such as a friend's house or the hospital.
• Contacting you if you are represented by a lawyer.
• Using obscene, derogatory or insulting remarks.
• Publishing your name.
• Calling repeatedly and frequently.
• Calling without disclosing the collector's identity.
• Making communications that intimidate, harass or abuse you.
• Threatening to take actions that are illegal or that are not intended.
• Saying anything untrue to try to collect or to obtain information about you.
• Using envelopes that indicate the sender is in the debt collection business.
In addition, federal law requires a debt collector to stop contacting you if you request collection efforts to cease and requires a debt collector to send an initial verification notice that gives you the opportunity to verify or dispute the debt. If a debt collector engages in these and other types of prohibited acts, they can be sued for money damages, attorney fees and court costs.
Most consumers file bankruptcy only as a last resort after carefully considering other alternatives. Those who are struggling to keep up with unmanageable debt should weigh these alternatives in relation to the hardships that may be avoided by obtaining bankruptcy relief. In some cases, bankruptcy may be the only way to eliminate debt and preserve income and property that an older consumer may need to maintain a healthy and safe lifestyle. It may be that bankruptcy is the best or only realistic alternative. It is generally not a good idea for consumers to wait until the last minute to think about bankruptcy because some important bankruptcy rights may be lost by delay.
In general, there are two types of bankruptcy available to consumers. Chapter 7 is known as "straight" bankruptcy. The basic idea in a Chapter 7 bankruptcy is to wipe out or discharge your debts in exchange for giving up property, except for exempt property that the law allows you to keep. In most cases, all of your property will be exempt. Most older consumers who are considering bankruptcy should be able to file under Chapter 7. Chapter 13 is a type of reorganization used by individuals to pay all or a portion of their debts over a period of years using their current income. In a Chapter 13 case you file a "plan" showing how you will pay off some of your past-due and current debts over a three to five year period. Chapter 13 is most often used when consumers have too much income to qualify for a Chapter 7 or when they are trying to cure a mortgage default.
There were many changes made to bankruptcy by a law passed by Congress in 2005. Some news reports have suggested that these changes prevent many individuals from filing bankruptcy. It is true that the changes have made the process more complicated. However, the basic right to file bankruptcy and most of the benefits of bankruptcy remain the same for most individuals. Much of the initial concern about the new law focused on a new "means test" for determining whether someone can file a Chapter 7 bankruptcy. This change in the law should not prevent most consumers from filing under Chapter 7. However, if the consumer's income is above the state median family income, a chapter 13 case may need to be filed. Higher-income seniors must fill out "means test" forms requiring detailed information about their income and expenses. If the forms show, based on standards in the law, that they have a certain amount left over that could be paid to unsecured creditors, the bankruptcy court may decide that they can not file a Chapter 7 case, unless there are special extenuating circumstances.
Bankruptcy can be the right choice if the consumer has no better way to deal with debts. It may make it possible for the consumer to:
• Eliminate the legal obligation to pay most or all debts. This benefit comes from the bankruptcy discharge that a consumer gets for successfully completing a bankruptcy case.
• Stop almost all creditors from taking any steps against the consumer except through the bankruptcy process. This provided by the "automatic stay" that goes into effect as soon as the consumer files the necessary paperwork at the beginning of a bankruptcy case. Foreclosures, repossessions, utility shut-offs, lawsuits, and other creditor actions will be immediately (but perhaps only temporarily) stopped.
• Catch up on missed payments on home mortgages, auto loans and other debts secured by property the consumer wishes to keep. Bankruptcy does not, however, automatically eliminate mortgages and other liens on the consumer's property without payment.
• Stop debt collection harassment, wage garnishment, and similar creditor actions to collect a debt.
• Lower the monthly payments on some debts, including some secured debts such as car loans.
• Prevent termination of utility service or restore service if it has already been terminated.
• Allow consumers to challenge the claims of creditors who have committed fraud or who are otherwise trying to collect more than the consumer really owes.
Bankruptcy can not, however, cure every financial problem. Nor is it the right step for every individual. In bankruptcy, it is usually not possible to:
• Eliminate certain rights of secured creditors. A creditor is secured if it has taken a mortgage or other lien on property as collateral for a loan. Common examples are car loans and home mortgages. Consumers can force secured creditors to take payments over time in the bankruptcy process and bankruptcy can eliminate an obligation to pay any additional money on the debt if the consumer decides to give back the property. But a consumer generally can not keep secured property unless she continues to pay the debt.
• Discharge types of debts singled out by the bankruptcy law for special treatment, such as child support, alimony, most student loans, court restitution orders, criminal finds, and most taxes.
• Protect cosigners on debts. When a relative or friend has co-signed a loan, and the consumer discharges the loan in bankruptcy, the cosigner may still have to repay all or part of the loan.
• Discharge debts that arise after bankruptcy has been filed. Because of this, consumers may wish to delay a bankruptcy filing until they are reasonably sure that they will not incur new major debts.
When done well, credit counseling can be very helpful for consumers in financial distress. Unfortunately, there are many people who offer counseling and credit repair in order to rip you off. You should be careful to avoid scams and offers of costly debt consolidation plans as a way out of debt. Most of these deals will only make your situation worse.
If you decide to go ahead with bankruptcy, the law requires that you meet with an approved credit counseling agency first to consider your options in credit counseling. You should be very careful in choosing an agency for the required counseling. It is extremely difficult to sort out the good counseling agencies from the bad ones. Many agencies are legitimate, but many are simply rip-offs. And being an approved agency for bankruptcy counseling is no guarantee that the agency is good. It is also important to understand that even good agencies will not be able to help much if you're already too deep in financial trouble. It is usually a good idea for a consumer to meet with an attorney before receiving the required credit counseling. Unlike a credit counselor, who can not give legal advice, an attorney can provide counseling on whether bankruptcy is the best option. If bankruptcy is not the right answer, a good attorney will offer a range of other suggestions.
Many credit counselors, including some of the approved bankruptcy agencies, offer debt management plans (also called DMPs). This is a plan to repay some or all of your debts in which you send the counseling agency a monthly payment that it then distributes to your creditors. Debt management plans can be helpful for some seniors. For others, they are a terrible idea. The problem is that counseling agencies may pressure you into a debt management plan as a way of avoiding bankruptcy whether it makes sense for you or not. You should not consider a debt management plan if making the monthly plan payment will mean you will not have money to pay your rent, mortgage, utilities, food, prescriptions and other necessities. It is important to keep in mind these important points: (1) Bankruptcy is not necessarily to be avoided at all costs. In many cases, bankruptcy may actually be the best choice for you, (2) If you sign up for a debt management plan that you can't afford, you may end up in bankruptcy anyway.
The federal Fair Credit Reporting Act (FCRA) promotes the accuracy, fairness, and privacy of information in the files of consumer reporting agencies. There are many types of consumer reporting agencies, including credit bureaus and specialty agencies (such as agencies that sell information about check writing histories, medical records, and rental history records). Here is a summary of your rights under the FCRA.
• You must be told if information in your file has been used against you. Anyone who uses a credit report or another type of consumer report to deny your application for credit, insurance or employment - or to take another adverse action against you - must tell you, and must give you the name, address and phone number of the agency that provided the information.
• You have the right to know what is in your file. You may request and obtain all the information about you in the files of a consumer reporting agency. You will be required to provide proper identification, which may include your Social Security number. In many cases, the disclosure will be free. You are entitled to a free file disclosure if:
1. A person has taken adverse action against you because of information in your credit report;
2. You are the victim of identity theft and place a fraud alert in your file;
3. Your file contains inaccurate information as a result of fraud;
4. You are on public assistance;
5. You are unemployed but expect to apply for employment within 60 days.
6. All consumers are entitled to one free disclosure every year upon request from each nationwide credit bureau and from nationwide specialty consumer reporting agencies. You can access your free credit reports by going to www.annualcreditreport.com or by calling 877-322-8228.
• You have the right to ask for a credit score. Credit scores are numerical summaries of your credit-worthiness based on information from credit bureaus. You may request a credit score from consumer reporting agencies that create scores or distribute scores used in residential real property loans, but you will have to pay for it. In some mortgage transactions, you will receive credit score information for free from the mortgage lender.
• You have the right to dispute incomplete or inaccurate information. If you identify information in your file that is incomplete or inaccurate, and report it to the consumer reporting agency, the agency must investigate unless your dispute is frivolous.
• Consumer reporting agencies must correct or delete inaccurate, incomplete, or unverifiable information. Inaccurate, incomplete or unverifiable information must be removed or corrected, usually within 30 days. However, a consumer reporting agency may continue to report information it has verified as accurate.
• Consumer reporting agencies may not report outdated negative information. In most cases, a consumer reporting agency may not report negative information that is more than seven years old, or bankruptcies that are more than 10 years old.
• Access to your file is limited. A consumer reporting agency may provide information about you only to people with a valid need - usually to consider an application with a creditor, insurer, employer, landlord or other business.
• You must give your consent for reports to be provided to employers. A consumer reporting agency may not give out information about you to your employer or a potential employer without your written consent given to the employer. Written consent is generally not required in the trucking industry though.
• You may limit "prescreened" offers of credit and insurance you get based on information in your credit report. Unsolicited "prescreened" offers for credit and insurance must include a toll-free phone number you can call if you choose to remove your name and address from the lists these offers are based on. You may opt-out with the nationwide credit bureaus at 1-888-5-OPTOUT (1-888-567-8688).
• You may seek damages from violators. If a consumer reporting agency or, in some cases, a user of consumer reports or a furnisher on information to a consumer reporting agency violates the FCRA, you may be able to sue in state or federal court.
Final Word About Priorities
Many financial pressures could be reduced if consumers remember some basic rules about which bills to pay first. Here are some priorities to keep in mind when money is tight.
1. Always pay family necessities first. Usually this means food and unavoidable medical expenses.
2. Pay your housing-related bills next. Keep up your mortgage or rent payments if at all possible. If you own your home, real estate taxes and insurance must also be paid unless they are included in the monthly mortgage payment. Similarly, any condo fees or mobile home lot payments should be considered a high priority. Failure to pay these debts can lead to loss of your home. If you are having very serious problems that require you to move to a cheaper residence, you might choose to stop paying the mortgage or rent. When you do so, you should not use that money to pay other debts, but rather save it as a fund to use for moving.
3. Pay the minimum required to keep essential utility service. While this may not always require full and immediate payment of the entire amount of the bill, the minimum payment necessary to avoid disconnection should be made if at all possible. Working hard to keep your house or apartment makes little sense if you cannot live there because you have no utilities.
4. Pay car loans or leases next if you need to keep your car. If you need your car to get to work or for other essential transportation, you will usually make your car loan or lease payments your next priority after food, housing costs, unavoidable medical expenses and utilities. You may even want to pay for the car first if the car is necessary to keep your job. If you do keep the car, stay up to date on your insurance payments as well. Otherwise the creditor may buy costly insurance for you at your expense that gives you less protection.
5. You must pay child support debts. These debts will not go away and can result in very serious problems, including prison, for nonpayment.
6. Income tax debts are also high priority. You must pay any income taxes you owe that are not automatically deducted from your wages, and you certainly must file your federal income tax return even if you cannot afford to pay any balance due. The government has many collection rights that other creditors do not have, particularly if you do not file your tax return.
7. Loans without collateral are low priority. Most credit card debts, attorney, doctor and hospital bills, and other debts to professionals, open accounts with merchants, and similar debts are low priority. You have not pledged any collateral for these loans and there is rarely anything that these creditors can do to hurt you in the short term. Many won't bother to try to collect in the long term.
8. Loans with only household goods as collateral are also low priority. Sometimes a creditor requires you to place some of your household goods as collateral on a loan. You should generally treat this loan the same as an unsecured debt - as a low priority. Creditors rarely seize household goods because they have little market value, it is hard to seize them without involving the courts, and it is time consuming and expensive to use the courts to seize them.
9. Do not move a debt up in priority because the creditor threatens suit. Many threats to sue are not carried out. Even if the creditor does sue, it will take a while for the collector to be able to seize your property, and much of your property may be exempt from seizure. On the other hand, nonpayment of rent, mortgage and car debts may result in immediate loss of your home or car.
10. Do not pay when you have good legal defenses to repayment. Some examples of legal defenses are that goods purchased were defective, or that the creditor is asking for more money than it is entitled to. If you have a legal defense, you should obtain legal advice to determine whether your defense will succeed. In evaluating these options, remember that it is especially dangerous to withhold mortgage or rent payments without legal advice. However, for all debts you should consider fighting back when you have a valid defense.
11. Court judgments against you move up in priority, but often less than you think. After a collector obtains a court judgment, that debt often should move up in priority because the creditor can enforce that judgment by asking the court to seize certain of your property, wages and bank accounts. Nevertheless, how serious a threat this really is will depend on your state's law, the value of your property, and your income. It may be that all your property and wages are protected under state law. So, pay off your more pressing obligations first and then come back and pay this debt. This is also a good time to obtain professional advice if you have not done so already.
12. Student loans are medium priority debts. They should generally be paid ahead of low-priority debts, but after top priority debts. Most delinquent student loans are backed by the United States. The law provides special collection remedies to the government that are not available to other creditors. These include seizure of your tax refunds, special wage garnishment rules, and denial of new student loans and grants.
13. Debt collection efforts should never move up a debt's priority. Be polite to the collector, but make your own choices about which debts to pay based on what is best for your family. Debt collectors are unlikely to give you good advice. Debt collectors may be most aggressive to get you to pay debts that you should actually pay last. You can easily stop debt collection contacts and you have legal remedies to deal with collection harassment.
14. Threats to ruin your credit record should never move up a debt's priority. In many cases, when a collector threatens to report your delinquency to a credit bureau, the creditor has already provided the credit bureau with the exact status of the account. And if the creditor has not done so, a collector hired by the creditor is very unlikely to do so. In fact, your mortgage lender, your car creditor, and other big creditors are much more likely to report your delinquency (without any threat) than is a debt collector that threatens you about your credit record.
15. Cosigned debts should be treated like your other debts. If you have put up your home or car as collateral on a loan, that is a high-priority debt for you if the other cosigners are not keeping the debt current. If you have not put up such collateral, treat cosigned debts as a lower priority. If others have cosigned for you and you are unable to pay the debt, you should tell your cosigner about your financial problems so that he or she can decide what to do about that debt.
16. Refinancing is rarely the answer. You should always be careful about refinancing. It can be very expensive and it can give creditors more opportunities to seize your important assets. A short term fix can lead to long term problems.