Be prepared. When most people hear these two words, they think of the Boy Scouts of America. I want to share with you why all military spouses need to be prepared as well.
I was a military spouse for three months shy of 20 years when my 1SG (First Sergeant) husband asked for a divorce. It was totally unexpected. I was devastated. Thankfully, I am an AFC® (Accredited Financial Counselor), have a Master’s degree, and had been employed by the federal government for about four years at that time. It took me a couple of months, but I was able to pick myself up by my bootstraps and soldier on. I whipped my resume into shape (we were overseas, and I was going to be forced to return to the United States) and began applying for jobs in the US.
During my marriage, we were responsible with our money. We diligently put money into savings and our TSP. We also put money into IRAs for each of us. I look back and am thankful for our conservative lifestyle and ability to save. I was prepared for my future but didn’t know what my future held.
Life throws us curve balls: Injuries and accidents, death, and even divorce. These life events take a toll on our emotions and our finances. We need to be prepared for anything that might come our way.
Do you have a life insurance policy on yourself? On your spouse? What if the military member dies? The money does not come rolling in immediately. Today’s SGLI (Servicemembers Group Life Insurance) of $400,000 may be enough to pay off the mortgage, but then what? How do you support yourself and your children?
What about disability insurance? The military will cover your active duty member if injured and on convalescent leave, but what if the spouse gets injured? How does a family account for the missing income and possible additional expenses? What if your military member has to go to a medical board and removed from the military due to an injury or disability?
Does the spouse have his or her own financial/bank accounts? We have all heard stories how one spouse blocked the other from accounts or spent what was in the accounts. Does the spouse have separate retirement accounts? Spousal IRAs for non-working spouses provide some long-term assurances for a non-working spouse who has given up a career for staying home with children.
What if your military member commits a crime and is imprisoned? You may be left without income, and without benefits.
During my years of financial counseling, I have encountered many spouses who have nothing in their name. When asked about putting money into a spousal IRA, I’ve been told it was not necessary; “We have his retirement.” I cannot count the number of military spouses who divorced after 20 years. Yes, a military spouse may be eligible to retain their military benefits after a 20 year marriage, provided the military member was in for at least 20 years, and the time overlapped for at least 20 years. There are few military spouses that fall into this category.
One of my clients was surprised with a divorce, where, unfortunately, he took control of the household money—because she did not “contribute.” Because of this move, she could not hire an attorney for her divorce. Her family did not have the money to lend her. She only had Legal Aid, while he could afford the retainer for the divorce attorney.
Every spouse needs to be prepared for whatever his or her future brings. We do not have a crystal ball to tell us what will happen in 5, 10, or 20 years.
By the time our divorce was final, we were married 20 years and 11 months. My story has a happy ending. I found a good job and have since been promoted to an even better position. I am debt free, able to contribute to my TSP again and am moving forward with planning for my own retirement. However, I wouldn’t be this far, this fast if I had not been prepared from the very beginning.
Guest Contributor: Kimberly Henne, MA, D-SAACP, AFC®
Part 3: MONEY, DEBT, AND THE LAW 101
Anyone can be sued by a debt collector.
Debt collectors don’t only sue deadbeats. They are paid to follow the money. Sometimes they get it right, and sometimes they get it very, very wrong and sue fine, upstanding citizens like you and me
Nowadays, a consumer debt is often bought and sold several times before it winds up in the hands of a debt collector who decides to take the matter to court. Chances are, by the time “ABC Debt Buyer” takes ownership of your debt as its asset, it has only paid pennies on the dollar for the debt. However, it has purchased the right to recover the entire amount that you, as a consumer borrower, originally owed plus all sorts of contractual fees, fines, and legal costs.
When a “receivable” like this winds up in court in a collection case, the name of the company bringing the suit usually bears no relationship to the original creditor, whether that was Macy’s, Mastercard or GM Credit. To confuse matters even further, the amount being sued for may include interest, fees, and fines. It may also appear incredibly inflated in comparison to what a consumer understands their debt obligation to be in dollar amounts. In the best-case scenario, ABC Debt Buyer (now a plaintiff in a debt-collection lawsuit) will follow the legal procedures required for notifying a consumer (now a defendant in a debt-collection lawsuit). They will inform the consumer that they are being sued for a certain sum of money.
However, put yourself in the shoes of our defendant. What would you do if you received legal notice about a lawsuit from an entity you did not know and never did business with, for an amount that bears no relationship to any line of credit you ever used? Chances are that you would ignore the notice, right? Maybe you wouldn’t even open the envelope if it came in the mail. Or, if it was actually handed to you by a process server in your home or place of work, you might even shred it if you concluded that it had nothing to do with you.
The next steps that a defendant takes can completely change the outcome of a debt-collection lawsuit in the defendant’s favor. Recent news articles suggest that lawsuits have become the debt collectors preferred collection tool. Why is that? Because in some jurisdictions, 90% or more of people who are sued by debt collectors do not show up in court. In basketball parlance, that means that 90% of the cases they bring are a slam dunk win for the debt collector. Not bad odds for the debt collector.
However, suppose that our consumer/defendant is one of your clients. You’ve been helping them with budgeting, planning, saving, setting goals and maybe even investing. Then they come to you rather sheepishly one day and confess that they’ve received a notice, from a debt collection company, about a lawsuit. This is where your knowledge of how the debt collection industry works can make all the difference in the outcome of your client’s case.
In last week’s blog, you learned that your client is entitled to notice and an opportunity to be heard in any lawsuit brought against them. “Notice” requires some very specific actions by the debt collector. Actions that dictate the time and place the notice may be given, to whom it may given and under what circumstances it may be given. Without getting into the legal nitty-gritty, you can help your client, whether they decide to be their own advocate or to seek out professional legal advice, by suggesting that they immediately start a journal and write down all the details. Be sure they note how they found out about the lawsuit, including the day, date, time, location, a description of who delivered the notice, and to whom it was given.
Next you can explain to your client what you’ve learned here: that no paper purporting to notify you of a lawsuit can be ignored, no matter how far-fetched the details and claims seem to be. Urge them to take the notice seriously. Explain that they have a right to their day in court and their “opportunity to be heard.” Suggest that they find out when they have to go to court and explain that it is crucial that they get there on the appointed date.
Then share the following resources with them:
Encourage them to get as much information as they can about how to defend a debt collection lawsuit. You want your client to be one of the 10% who do show up in court and defend themselves in any debt collection lawsuit in which they’ve been named as a defendant. The odds of a debt collector getting a “slam dunk” win against someone who actually shows up to defend themselves decreases dramatically compared to the outcomes for the 90% who never even show up.
With that, you’ve done your part in leveling the playing field in debt collection cases.
Guest Contributor: Marcy Einhorn, Esq.
Marcy will host AFCPE’s FPA Connect Webinar on Thursday, June 18, 2015. Her 3 part series on Money, Debt & the Law will be posted each Thursday leading up to this event.
Part 2: MONEY, DEBT, AND THE LAW 101
Read Part 1: A Snapshot View of Consumer Debt
Last week we looked at some of the factors that are driving the growth in the debt collection industry and the aggressive nature of that industry, particularly in respect to third-party debt-buyers and consumer debt. Consumer debt is at an all-time high, and the number of households that have fallen behind in timely payment of these debts continues to grow exponentially. Unfortunately, most consumers who are behind on debt payments are unlikely to seek help or information from financial professionals, even though this is the population who would benefit the most from this kind of help.
This week, we are going to look at some basic legal rights in a debt collection case. We will start by acknowledging a typical consumer’s first concern when she falls into arrears on her consumer debt payments, and that is: can they take my money? People who have overspent or have fallen out of balance with their income and consumer accounts generally have one primary concern, and that is:
“If I don’t pay, or can’t pay, or won’t pay, what are the legal and financial consequences for my household? Can they freeze my bank accounts or garnish my paycheck?”
You can hear these debtors’ thinking: “I need that money to live on! I’m barely making it as it is!”
The simple answer is, yes; debt collectors can take your money, but not without following some important procedural protections that are required by law. Those protections are known as “notice,” and “an opportunity to be heard.” A debt collector cannot use self-help to freeze someone’s bank account or start taking money out of someone’s paycheck. They must use legitimate legal processes and follow all sorts of statutory guidelines before they can get to someone’s bank account or paycheck. As you can imagine, creditors have a great incentive to short-circuit the procedures required by law. Moreover, that’s where a consumer’s knowledge of his or her rights and responsibilities under the law is of the utmost importance.
However, where are consumers to learn about their rights and responsibilities? There is no constitutional right to legal representation in consumer debt cases. Though there are legal clinics that offer guidance in this area, finding legal guidance can often be tricky. Resources vary from community to community. Often, there is no umbrella nonprofit organization or government agency to spearhead the delivery of these services. This leaves many consumers to their own devices when charting a course through their legal difficulties with unpaid debts. In the end, a consumer has to be his or her own best advocate when an account falls into the hands of a debt collector.
That is where a knowledgeable financial professional can make all of the difference. Although financial professionals cannot provide legal advice unless they also happen to be licensed attorneys, they can serve as “first-responders” in these types of distressing situations. If and when they are given the opportunity to connect with this population, it is important for financial professionals to have enough basic information about how the legal system works in debt collection cases. Just knowing that a client is entitled to receive notice when a debt collector is going to court to collect on their account can be enough information to empower a disenfranchised, unrepresented client, and begin to shift the uneven playing field in a debt collection case.
If you have a client who is being sued by a debt collector, the first questions you might encourage them to ask are:
- “when did you learn about the lawsuit?”
- “how did you learn about it?”
If they haven’t received proper notice that a case was started, or only learned of the matter through a garnishment order or a frozen bank account, the garnishment order can probably be blocked and the freeze order lifted from their account. However, these actions can only occur if your client acts quickly and goes to court to ask for the case to be reopened.
Once a debt collection case is properly before the court, your client has a right to go before the judge and tell her story. If your client first learns of a debt collection lawsuit through notice of a garnished paycheck or a frozen bank account, chances are that your client hasn’t had the opportunity to go to court and tell her side of the story to a judge. This presents a classic situation in which your client may have the right to challenge the proceedings and reopen the underlying lawsuit.
Obviously, these are not simple legal matters, and the solutions are not simple solutions. But consider the alternative: taking no action, going about uninformed about risks and outcomes, and letting the chips fall where they may in a debt collection case. The consequences can be disastrous and far-reaching.
Financial professionals who have some basic information about court procedures can provide motivation and support as clients navigate their way through these treacherous waters.
Next week we’ll look at some best and worst-case scenarios in debt collection cases when they get to court.
Guest Contributor: Marcy Einhorn, Esq.
Marcy will host AFCPE’s FPA Connect Webinar on Thursday, June 18, 2015. Her 3 part series on Money, Debt & the Law will be posted each Thursday leading up to this event.
AFCPE® is proud to partner with the Better Business’ Bureau Institute, Moneythink, IDEO.org and CauseLabs to launch a financial capability tool designed specifically for transitioning servicemembers, veterans and their families to help them navigate their finances during the transition from active duty to civilian life.
MobileMis$$ion, an innovative and FREE app, provides access to learning activities and a financial counselor via any connected Android device.* The app is designed to help veterans meet their financial goals – from saving to paying down debt improving your credit, being prepared for emergencies, planning for the future, and accessing government benefits. Veterans do this through:
Interactive Education: Educational “missions” challenge participants to learn new financial behaviors, provide a forum to share goals and ask questions and give you access to the experience of other veterans who have faced similar challenges.
Mentorship & Support: Mentors are trained military spouses actively earning an Accredited Financial Counselor (AFC®) certification from the AFCPE. They understand your situation because they have lived it!
All personal information is protected as our data is encrypted and secure. Participants control how much they share.
MobileMi$$ion is currently running a pilot with limited spaces to test the first version of the app! If you are a transitioning servicemember, a veteran or a professional working with the military community, please help share this opportunity!
Who can participate in the pilot?
- Active duty servicemembers from any branch planning to transition in the coming year
- Currently transitioning servicemembers from any branch
- Veterans from any branch who have transitioned in the past five years
Veterans who participate in the pilot not only receive access to a free resource to help them meet their financial goals, they also have the added benefit of providing feedback to improve and enhance the service of the app for future users!
AFCPE has a rich history of providing financial counseling and education to the military community, and a strong understanding of the unique needs of our transitioning servicemembers. With heavy input on the educational content the app provides, our staff and our military spouse fellows have worked with our partners to help create a one-of-a-kind experience for our veteran community. We hope you will participate and encourage others to do the same!
Let’s talk about a guy named Lawrence. Lawrence served our country in the military. Lawrence is guaranteed a home loan through the VA as a benefit for his service, after he, of course, meets certain minimum qualifications.
Lawrence almost didn’t get to close a deal due to a Realtor® who was apprehensive about working with the VA home loan. Fortunately, a knowledgeable loan officer at a brokerage stepped up to point out that the process was really not that complicated, and Lawrence did not miss out on owning his dream home.
This is a real story from a government-backed mortgage office. It is a typical example of the hurdles our veterans and active duty face when they come across those in the financial and real estate industries unfamiliar with the benefits of the VA home loan program.
There are quite a few benefits alongside the assumptions about the VA home loan program. Whether you are a future loan holder or a financial professional working with a prospective home buyer, here are some common misconceptions about this veteran benefit.
Myth: This loan is only for those in the Army, Navy and Air Force, and only for those who have been deployed in the past.
Fact: Separate from other essential qualifications needed – for the main branches of military, 90 during war or 181 days of peacetime duty is required. Reservists with the National Guard and Reserves who have been serving for six years, or for 90 days during war time, qualify for the VA home loan. The loan can also be made available to Public Health Service workers, National Oceanic and Atmospheric Administration professionals, cadets in the Coast Guard and Air Force, Naval Academy shipmen, and surviving military spouses (especially those of POW/MIA soldiers).
Myth: You need a lot of money upfront to qualify for the VA guaranteed amount.
Fact: A down payment is not required for the VA home loan. Closing costs can be paid by the property seller or the lender. You can even get the VA home loan if it’s been two years after a Chapter 7 bankruptcy (or one year after Chapter 13). The veteran or active duty member, or any of the qualifying civilians mentioned, must have had a stable two year employment history and their debt to income ratio (DTI) must dictate that they have more disposable income than what they spend on monthly bills, including paying off other debts like a car loan or medical bills. The interest rate for the VA home loan can also be very low – certain lenders will even present the veteran with a rebate to use towards closing costs if they take an interest rate a little higher than they may have wanted.
Myth: I meet the basic requirements, but this process is going to be difficult and time consuming, so I may just wait until later to take advantage of this loan.
Fact: The process for the veteran can be just as easy as finding a lender specializing in the VA home loan. Upon the submission of an application online, a good lender will get right in touch with a veteran – they will often obtain a COE for the client, as well as other steps like in-house credit inquiries and setting up the veteran with a VA home loan friendly Realtor®, as well as sometimes paying for the buyers closing costs. An expert VA lender wants to help the veteran and will do what they can to make the process as simple as possible. Full loan approval of the loan can happen within days and you could have your new home within as little as a month.
Myth: If you have been discharged due to military related injuries, you will not qualify for the loan.
Fact: Honorable discharges, especially due to injuries while serving our country, are still eligible for the VA home loan. The VA even has SAH grants so that veterans may adapt their primary residence for wheelchair accessibility or towards other medical devices.
Myth: Let’s say I’m a lender and my veteran client is about to default on a loan – I’m going to take a hit, so why put in all the extra time with VA paperwork?
Fact: First of all, the paperwork processing steps are not that intimidating. For example, when speaking on the certificate of eligibility (COE) from the VA, sometimes the veteran will already have that handy, but if not, it’s an instantaneous process via the VA website. You can familiarize yourself with the other steps by clicking here.
Secondly, the VA will do everything it can to prevent a veteran from defaulting on a loan. Some options they will provide veterans are forbearance, connect them with organizations that will give payment assistance, and help conduct compromise sales. The loan may also be assumed by another person, if the VA or the lender approves of it.
Aside from these facts, you must understand that the guaranty from the VA on the loan ensures that the lender does not take a loss in case of any financial hardships the borrower experiences. This fact, above others, should put the lender’s mind at ease. The VA protects the lender by paying what is owed to them if the veteran forecloses.
Myth: The VA home loan process for the Realtor® is an agonizing ordeal.
Fact: Veterans may from time to time come across a Realtor® who will be apprehensive about the VA home loan. They may be confused about this type of contractor deterred by the fact that a down payment is not required, or assume there is too much extra work involved. However, the truth is – there are many lenders and brokers who are very familiar with the VA home loan process and can walk you through the process. The VA also has a comprehensive page with lots of resources for real estate professionals if you click here.