I came across this article describing the tactics debt collectors use to get money from financially distressed debtors:

In one outrageous example, a collector for a funeral home threatened, to "rip the bodies" of the plaintiff's parents out of the ground, "put them on his lawn..." and chop their heads off.

Unfortunately, the article is not all together accurate because of this:

With new bankruptcy laws making it harder to wipe out credit card bills, experts say collection agencies feel justified doing whatever it takes to collect.

Posted by Bill McLeod at 11:14 AM | Permalink | Comments (0) | TrackBacks (0)

Yesterday the news was about the escalating foreclosure rate in Massachusetts.

Today, Boston.com is reporting that home prices in Massachusetts dropped 4% during May.

That might not seem like a lot, but let’s look at this possible scenario: a home that might have fetched $400,000, is likely to get only $384,000.

Many are also accruing little equity or losing what little they may have acquired. Interest rates on five-year adjustable-rate mortgages have increased more than one-half percentage point this year, to 6.32 percent, according to Freddie Mac, the national mortgage backer.

But the report ended on a peculiar note:

…economists said that as long as the national economy remains strong and job growth continues, the housing decline in Massachusetts would not be severe. ``You've seen pretty tremendous home price appreciation so as that cools off you're going to see some fundamental changes," said Bob Walters, chief economist for Quicken Loans in Detroit. But a strong deterrent to a market crash like the one Massachusetts experienced in 1991 is strength in the US and local economies, which generates jobs and income for houses, he said.

Posted by Bill McLeod at 5:20 PM | Permalink | Comments (0) | TrackBacks (0)

Are we headed for one? The number of foreclosures in Massachusetts continues to inch upward. According to a Press Release from ForeclosuresMass.com, the rate of foreclosures during the month of May are 105% higher than they were in May 2005 and over 165% higher than they were in May 2004.

From Jeremy Shapiro, president and co-founder of ForeclosuresMass.com:

"It is clear that many homeowners, especially those with adjustable rate mortgages, are being pushed closer to the edge as interest rates rise at such a consistent clip. We may be witnessing a 'perfect storm' scenario where a flat real estate market, higher interest rates, rising energy costs and specialty loans are causing significant difficulty for thousands of Massachusetts property owners."

A Perfect Storm might sound a little dramatic. However, interest rates continue their creep upwards and it is expected that the Federal Reserve will announce a 25 basis point increase after their meeting on Thursday. It is expected that there will be a further increase in August.

And like all storms, the only way to protect yourself, your home and your family is to be prepared.

Posted by Bill McLeod at 12:56 PM | Permalink | Comments (0) | TrackBacks (0)

New York Attorney General Eliot Spitzer has filed suit against Boyajian Law Offices, P.C., JBC Legal Group P.C. and JBC & Associates, P.C. for abusive debt collection practices and activities.

The suit alleges that the Boyajian companies (1) used dunning letters and falsely stated or implied that they came from attorneys; (2) falsely accused debtors of criminal activity, and threatened debtors with arrest; and (3) failed to supply verification of the debt when requested to do so.

In addition, they were apparently trying to collect on bad checks which were more than 6 years old - and in New York, the statute of limitations for bringing such a claim is 6 years. According to a report here the outfits were apparently collecting checks made payable to Ames and Bradlees, two retailers than have long since been out of business.

Boyajian released this fascinating statement:

"Our clients deserve the full protection under New York law to recover their losses from those who passed bad checks, regardless of the time period that may have elapsed," he said. "Instead of protecting the consumers, it appears the Attorney General of New York is seeking to protect bad check writers who have written checks in the past." [emphasis added].

This debt collector is saying "I don't care what the statute of limitations says"! Boyajian (who is reportedly a lawyer in California) is defending himself and his companies by saying that he does not care what the law says. And it's not like he could have been misquoted - this was from a written written statement.

Are these entities and are these activities what Congress is thinking of excluding from the Fair Debt Collection Practices Act? If it is, then consumers - and attorneys general in all 50 states need to be concerned.

See my prior posts:

Bounced Check Chaos

Pay Attention to this Legislation

FDCPA Amendment Under Consideration

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Attorneys rely on courts' interpretations of statutes in representing their own clients. Since BAPCPA is fairly new, its new rules and requirements are still working their way through the courts. Among the requirements that I have written about is the need to obtain credit counseling prior to filing bankruptcy. I refer to this as the "ticket in". This certification from a US Trustee approved counselor needs to be obtained before filing. But now, an issue is arising in the courts as to when the credit counseling needs to be done prior to the filing. At least two bankruptcy courts have chimed in on the issue, and they are not agreeing.

Under section 109 of the bankruptcy code:

an individual may not be a debtor under this title unless such individual has, during the 180-day period preceding the date of filing of the petition by such individual, received from an approved nonprofit budget and credit counseling agency described in section 111 (a) an individual or group briefing (including a briefing conducted by telephone or on the Internet) that outlined the opportunities for available credit counseling and assisted such individual in performing a related budget analysis.

So what does the term “date of filing of the petition” mean?

The Warren Case

Coming out of the Bankruptcy Court in Arkansas is the case of In re Warren. The issue of exactly when the credit counseling must be completed was litigated. The Trustee argued that because it is the 180 day period preceding the date, the code refers to a particular day on the calendar. Thus, if the date of the filing is December 1, the credit counseling requirement must be fulfilled with 180 days preceding that date, but ultimately not on that date.

The Arkansas Bankruptcy Court did not agree:

In the instant case, the Court interprets the words "date of filing" as used in section 109(h)(1) to mean the specific day, month, year, and time of day the petition was filed. In bankruptcy, the exact time of filing is a critical bright line in determining property rights of debtors and creditors. At the moment a petition for relief is filed, the automatic stay goes into effect, affording the debtor an extra measure of protection from the legal maneuvers of his creditors. On October 27, 2005, at 3:03 p.m., the debtor was subject to impairment of his property interests; at 3:04 p.m., the moment of filing, he received the relief from his creditors afforded him by the automatic stay and other provisions of the Bankruptcy Code.

The Arkansas Bankruptcy Court also looked at the legislative history, and found nothing suggesting that “Congress contemplated at least a one-day waiting period after completion of credit counseling.” There really is nothing anywhere that suggests that debtor's have to "cool off" or "sleep on it" before they file bankruptcy.

DC Disagrees

In two cases, In re Murphy and In re Mills. the District of Columbia Bankruptcy Court did not agree.

In Murphy, the bankruptcy court found that because the counseling took place on the date before the petition was filed, the requirement was satisfied. However, in Mills, which was decided after the Arkansas court decided Warren, the court took a more stringent approach.

In Mills, the debtor fulfilled the credit counseling requirement on the same day she filed the bankruptcy petition. The court flatly disagreed with the analysis in Warren and essentially stated that the statute speaks for itself.

What Does It All Mean?

But does it? It is clear by these two cases that there is a dispute as to the interpretation of the Section 109 credit counseling requirement. In Mills, the debtor’s case was dismissed because the debtor did not obtain credit counseling on the day prior to the filing. Undeniably, it was a result the debtor was not expecting or hoping for.

The District of Massachusetts has not yet issued any ruling on this particular issue. With that said, it’s my recommendation that for now, it’s better to be safe than sorry. Debtor’s contemplating bankruptcy should – unless a Massachusetts bankruptcy court ruling states so otherwise – to make every effort to fulfill the credit counseling requirement prior to filing the petition....meaning, at least a day. No debtor wants to be the “test case” on this issue, and no debtor wants to see their bankruptcy petition dismissed when the protections afforded by the bankruptcy code are exactly what they require.

Posted by Bill McLeod at 6:22 PM | Permalink | Comments (0) | TrackBacks (0)

It’s a question I am asked often:

“Do I need to list this on my bankruptcy petition?”

The answer is always “yes.” The rule of thumb, actually the only rule is to list and disclose everything.

In a May 24, 2006 decision from the US Bankruptcy Court in Boston, a debtor learned what happens when you do not list and disclose everything: the discharge order was revoked.

The Facts

Debtor filed his bankruptcy petition in September 2001. Within the 3 month period before the filing of the petition, the debtor transferred a lot in exchange for a promissory note, as well as a mortgage that the debtor held. The note provided that the debtor would be paid $250 per month in interest, which the debtor was paid for the 3 months prior to the filing of the petition. The debtor then assigned the note and the mortgage to a bank as additional collateral for a debt that the debtor already owed the bank.

When the debtor filed his Schedules, as well as the Statement of Financial Affairs, the debtor did not identify (1) the transfer of the property; (2) the transfer or assignment of the mortgage and the note; (3) the interest income derived from the note in the three months prior to filing; and (4) that money was owed to him on the note, i.e., an “accounts receivable.” While the debtor identified the bank’s secured claim, he did not identify the additional collateral that had been assigned to the bank, i.e., the note and the mortgage.

In April 2002, debtor received the discharge. Two months later, debtor learned that the lot had been sold, and that the note could be paid. Shortly thereafter, after the bank deducted its proceeds, the debtor received over $27,000 payable to him and another. However, that money belonged to the Chapter 7 Trustee and ultimately debtor’s creditors.

But I told my Lawyer!

Debtor claimed that the property information did not need to be listed based on advice of his counsel. Debtor did disclose the identity of the lot to counsel. However debtor never told his attorney that he sold the property, took a promissory note and mortgage, received income from the note, or assigned the note and mortgage to a creditor. Debtor reviewed the petition and the schedules, admittedly by just “perusing it.”

Debtor also attempted to argue that he did not list this information because he had a good faith belief that the property had no value. But the court noted that if there truly was no value, “there is simply no reason not to list it…[t]he only reason not to list the property would have been the possibility that (a) the Debtor might be able to sell the property for value and (b) his failure to list it might escape detection.”

In this case, the debtor not only did not list the transfer, he did not list the income derived from it (the interest income), he did not identify the note and the mortgage, and he did not properly describe the secured claim of the bank. Based on all of this, the court did not believe that debtor’s claim that he did not know about the obligation to disclose the information.

Discharge Revoked

Under Section 727(d)(2) of the Bankruptcy Code, a provision unaffected by Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, the court shall revoke a discharge if the debtor “acquired property that is the property of the estate ….and knowingly and fraudulently failed to report the acquisition of or entitlement to such property, or to deliver or surrender such property to the trustee.” Debtor’s only argument in this case was that he did not “knowingly and fraudulently” fail to report the proceeds of the sale.

The court construed “knowingly” as proof that debtor’s “failure was accompanied by knowledge that the property… belonged to the estate and that he was obligated to report or surrender it to the Trustee.” “Fraudulently” requires the specific intent to defraud the estate or the Trustee.

Taking all of the facts into account, specifically all of the failures to disclose any information concerning the property, including all information incidental to the transfer, the court determined that the debtor’s actions were knowingly and fraudulently. As a result, the debtor’s discharge was revoked.

No Benefit to Debtor

There is no benefit to starting the Chapter 7 process if the goal is anything other than obtaining (and retaining) a Chapter 7 discharge. In this case, this debtor did not disclose important information to his attorney, the court and the Chapter 7 Trustee, presumably because he knew what the consequences were. In effect, he wanted to have his “cake and eat it too.” Unfortunately for this debtor, one very bad decision has resulted in no cake…and no discharge. Personally, I do not understand why at the very least, all facts were not disclosed to his attorney. People contemplating bankruptcy need to make complete and truthful disclosures. One of the prices that can be paid is the revocation of the relief sought in the first place: the discharge.

Posted by Bill McLeod at 2:37 PM | Permalink | Comments (0) | TrackBacks (0)

The Fair Debt Collection Practices Act is a federal law that gives many protections to consumers. While the law has broad sweeping effect across the nation, states and municipalities are allowed to enact even stronger protections.

In response to a 70 percent increase in consumer complaints in two years, the New York City Department of Consumer Affairs held information gathering hearings, and may propose tighter restrictions on debt collecting agencies.

"People ought to pay their debts," Jonathan B. Mintz, the city commissioner of consumer affairs, said during a break in the five-hour hearing. "But when debt-collection companies cross the line, which unfortunately they appear to be doing in an increasing way, then something has to change."

Read more about it in the New York Times.

Posted by Bill McLeod at 7:48 PM | Permalink | Comments (0) | TrackBacks (0)

Lately, I have been getting calls from financially distressed folks who are seeking to stop foreclosure through a Chapter 13 filing. These individuals have recently received discharges in Chapter 7. Presumably, many of these people were among the many that filed before the Bankruptcy Abuse and Consumer Protection Act (BAPCPA) became effective in October 2005. The number one question I am asked by these former Chapter 7 debtors is "can I file Chapter 13 to save my home?”

Under the old law, a debtor could file a Chapter 13 petition following the receipt of a Chapter 7 discharge without any restrictions. The law is different now.

BAPCPA added Section 1328(f)(1) to the Bankruptcy Code. In that section, a Chapter 13 discharge cannot be awarded if the debtor received a Chapter 7 discharge within 4 years before the Chapter 13 was filed. Based on the current law, there is no restriction on filing a Chapter 13, obtaining the order for relief, and getting a Chapter 13 plan confirmed.

What does this mean? It means that homeowners can stop a foreclosure, get caught up, but ultimately, will not have the benefit of getting a discharge. While that might seem like a drastic result, most people who have just received a Chapter 7 discharge do not have any unsecured debts. This option might be workable for some debtors, but the best opinion on that can only come from an attorney who has heard all fact relating to income, expenses, assets and debt.

Posted by Bill McLeod at 2:25 PM | Permalink | Comments (0) | TrackBacks (0)

Not too many people care to share the personal and often painful journey of living with unmanageable debt and seeking bankruptcy protection, but I am happy to have found this one to be able to share.

From today's New York Times Magazine:

In late 2002, after five years of negotiating these calls, and of imagining that I'd somehow conquer my debt, I acknowledged it would never really happen. I filed for bankruptcy to free myself of around $20,000 of debt. It felt good. I was full of relief and gratitude for the chance to start again. I did not feel the guilt I feared I would. And I came to love the sound of no phone ringing, of not having to lie and say [that I] was somewhere else.

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Foreclosures in Massachusetts continue to rise. ForeclosuresMass.com reports that they are at a 12-year high.

From today's Worcester Telegram:

The role played by the state’s slow economy [in the high foreclosure rate] is not clear, but many home buyers who used sub-prime loans or variable-rate mortgages are having trouble keeping up with payments as interest rates increase — especially those who purchased properties with little or no down payment.

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Last month I wrote about pending legislation that would amend the Fair Debt Collection Practices Act to exclude companies that collect bounced checks. In today's Orlando Sentinel, Jeff Gelles shares his point of view:

...it seems only fair that people accused of a crime should be told forthrightly who's sending them letters or answering their calls. If these programs rely on deception, something is wrong.

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This title of this article seems to question the existence of such a link. Personally, I can attest to representing a number of individuals who have found themselves in financial distress because of an addiction to gambling.

Posted by Bill McLeod at 11:55 AM | Permalink | Comments (0) | TrackBacks (0)

This article seems to suggest it might be.

Posted by Bill McLeod at 11:14 AM | Permalink | Comments (0) | TrackBacks (0)

The problem with this point of view from today's NewsBlaze is that it is inaccurate:

In a nutshell, Chapter 7 filings will be almost impossible to get if you have a job. You will be required to pass a means test showing that your income is less than the median income for the state in which you live. Mandatory Chapter 13 repayment plans will require attorneys to double-check consumer income/debt information, which will exponentially increase attorney fees; and this, too, will require a means test that will allow creditors to collect, over five years (instead of three), as much as they would have received had you filed a Chapter 7 and gave back the assets. And the biggest kicker? The new law requires mandatory debt counseling, which means more agencies like AmeriDebt could pop up.

Not true.

People who work can still file for Chapter 7. People who earn more than the state's median income can - if they qualify - file Chapter 7.

Chapter 13 payment plans can be anywhere from 36 months to 60 months...depending on a number of different factors. They are not all 5 year payment plans. If you read something different elsewhere, you're not reading accurate information.

And finally, the debt/credit counseling requirement does not mean that consumers will be forced to submit to companies like AmeriDebt who bilked millions from unsuspecting consumers. Only US Trustee approved consumer credit counselors can be used prior to bankruptcy, and every bankruptcy attorney knows who they are.
You can read more about this requirement here

Posted by Bill McLeod at 5:46 PM | Permalink | Comments (0) | TrackBacks (0)

First, read this from today's Mississippi Sun Herald:

When you're in debt and need help negotiating your way out, and staying out in the future, consumer credit counseling sounds like a godsend. But it can also be a nightmare

Posted by Bill McLeod at 5:38 PM | Permalink | Comments (0) | TrackBacks (0)

From today's Columbuis Dispatch:

People are reluctant to discuss financial problems because they fear people will perceive them as less worthy..... "Debts can be such a black plague that some people don’t want their spouses to know, let alone anyone else."

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