Cactus Outside of Tucson, AZ

The number of U.S. households facing foreclosure in January increased 15 percent from the same month last year, and a surge in cash-strapped homeowners who’ve fallen behind on mortgages could be on the way, the Associated Press reported recently.  With high unemployment, it should not come as a surprise.

Many of my clients in the Houston area are trying to get their “adjustable rate” or ARM mortgages modified, with little success. The consumer bankruptcy bar through a national organization name NACBA, tried to get Congress to approve changes in the bankruptcy laws that would let bankruptcy judges modify the loans of Chapter 13 debtors, but that effort failed twice. The mortgage industry just has too much “swing” in Congress, in my opinion.

We have had success lately in “stripping off” second mortgages, but that is only effective if there is absolutely no equity to support the second mortgage, and the homeowner has to file Chapter 13 bankruptcy to do so, of course.

I’m not sure where this is all going to lead, but it can’t be good. When the $8000 tax incentive for homebuyers ends, and interest rates start creeping up, there had better be an end to the recession soon, or there will likely be big trouble on the homeownership front in this country.

By filing Chapter 13 for homeowners in trouble, I can deal with what they are behind, the arrears, but they must be employed or have regular income coming in. And I cannot force the mortgage company to do a loan modification. Unfortunately I have an increasing number of prospective clients who are ready to just walk away from their house; they realize that there is no equity and that they just can’t afford it.

Beautiful Country Outside of Tucson, New Mexico

Will you be looking for a mortgage soon, after being in a bankruptcy? It will likely be somewhat more difficult to qualify for a mortgage, starting this summer.

Why? The Federal Housing Administration (FHA) announced policy changes on January 20th.

New borrowers will now be required to have a minimum FICO® score of 580 to qualify for FHA’s 3.5% down payment program. And that is just the minimum. Most lenders now are going further to minimize their risk, and will require at least a 620 score for an FHA loan.

Also, new borrowers with less than a 580 FICO score will be required to put down at least 10% down on their home purchase. A lot of people will not be able to raise that kind of cash, or it will take them some time.

Other things have also changed, but for many people the biggest problems will be the credit socre and the amount of money that will now be required as a down payment.

After my law office completes a bankruptcy, we perform a free “credit clean-up” for clients, that I’m told has the effect of raising the credit scores from 50-125 points.

We ask the credit bureaus to “re-investigate” each of the “tradelines” or credit accounts, so that they accurately report the bankruptcy, and show the accounts as a -0- balance and the fact that they were “discharged in bankruptcy.”

If this is not done, sometimes one or more unsecured credit accounts continue to show as delinquent, which makes it look like the bankrupt person acquired new credit after bankruptcy, and defaulted on it.

So, now is the time to go for a mortgage. If you need to wait, you will need a better score, and some more cash, to qualify for an FHA mortgage.

Sunset Outside of Tucson, Arizona

Yes. For example, I had a prospective client come in recently, and he had a lot of credit card debt, about $75,000. But he also owned a small business that was just getting off the ground, a corporation, and he had a small rent house with some equity in it.

If he filed a Chapter 7 bankruptcy, otherwise known as “liquidation” bankruptcy, there is a liquidation Trustee appointed, whose job is to sell any “non-exempt” or extra property that the debtor has, and use the money to pay the debts as far as the money will go.

In this example, a Chapter 7 Trustee or liquidation Trustee may take the client’s stock in the business away from him, and either sell it or liquidate the business and use the equity to pay the creditors. And, a liquidation Trustee may try to sell the rent house, which the debtor did not want to sell because a relative was renting it from him.

But, if the client files a Chapter 13 bankruptcy, we could propose a plan to pay about $250 per month to a Chapter 13 Trustee for 5 years. The Chapter 13 Trustee then pays that money to the creditors, and when the plan is completed, the rest of the $75,000 debt is “discharged” or cancelled, and the client no longer owes it.

And the client can keep and continue to operate the small business, and keep the rent house. In Chapter 13, the debtor remains in possession of all property, unless the plan provides otherwise.

Also, the creditors cannot try to collect the $75,000 during the Chapter 13, because the client is protected by the “automatic stay,” a bankruptcy court order that goes into effect as soon as a bankruptcy case is filed.

Chapter 13 bankruptcy can be an excellent tool to help a consumer reorganize or rehabilitate their finances, while keeping their property and paying their creditors at a level that they can afford. It also stops the debt collectors from calling, and stops all other collection actions such as lawsuit and garnishments from creditors.

UR Next (or could be next) for the Credit Card Banks

I have had a number of prospective bankruptcy filers come in recently, that have a lot of credit card debt. Some only $20,000 or $30,000; a few as high as $60,000 or $100,000. One fellow had $160,000!

They have had the credit card debt for a long time, and have been able to manage it up until now. They tell me that the credit card banks are raising the interest rates, seemingly for little or no reason.

And we’re not talking about raising the interest rates just a few points. They have their rates raised from a modest 8-10% to the default interest rate of 29.9%. The rates are raised so much, that making payments really doesn’t do any good; very little if any of each payment goes to the principal of the loan; it almost all goes to interest.

I don’t know, but I suspect, that this recent activity is related to the new restrictions on the ability of credit card banks to raise interest rates, without so many days’ prior notice. These regulations are not yet fully in effect, so I believe that this recent activity is designed to take advantage of the situation, and raise bank customer’s interest rates, before the banks become restricted and can no longer do so, at least without giving considerable notice.

How do you avoid getting ripped off by these sky-high interest rates? Obviously, pay off your balances if you can. If you can’t, a bankruptcy filing can, if you qualify, eliminate the debt through Chapter 7, or stop the interest and let you pay part or all of the principal of the debt through Chapter 13.

But if you’ve had your interest rates raised recently, you know how scary it is getting- and it’s time to do somthing.

At least the FTC has “cooled the jets” of a group of such companies operating out of the United Kingdom, and the payday lenders have agreed to change their ways and pay $1 Million in fines.

Anyway, payday loans are dischargeable in bankruptcy just like any other debt. Some of my clients think they are different, because they have given a post-dated check to the company, or given them their checking account information. To my knowledge, if the payday loan companies deposit the check, it is not something that they can prosecute you for- they knew the check was bad when they took it.

And if you are going to file bankruptcy and they have your checking account information, I would just close the account, and list the payday lender and possibly also the bank as creditors. And stop borrowing from payday lenders. You can be worse than broke. You can be broke and in debt to payday lenders.

An excerpt from the FTC article is as follows:

“The defendants operated from the United Kingdom and targeted consumers in the United States, who were misled into believing that the defendants operated from Nevada. According to a complaint filed by the FTC and Nevada in 2008, the defendants told consumers that the loans had to be repaid by their next payday with a fee ranging from $35 to $80, or the loans would be extended automatically for an extra fee debited from consumers’ bank accounts until the loans were repaid.

The FTC charged the defendants with violating the FTC Act by using unfair and deceptive collection tactics. The Commission alleged that they falsely threatened consumers with arrest or imprisonment, falsely claimed that consumers were legally obligated to pay the debts, threatened to take legal action they could not take, repeatedly called consumers at work using abusive and profane language, and improperly disclosed consumers’ purported debts to third parties. They also allegedly failed to make required written disclosures to consumers before consummating a consumer credit transaction, such as the amount financed, the annual percentage rate, payment schedule, total number of payments, and any late payment fees, in violation of the Truth in Lending Act (TILA) and Regulation Z.

The settlement order requires the defendants to pay $970,125 to the FTC and $29,875 to the State of Nevada. The order prohibits them from falsely claiming that consumers may be arrested or imprisoned for failing to pay debts, that they are legally obligated to pay the full amount of a purported debt, and that for nonpayment they are subject to lawsuit, seizure of property, or garnishment of wages. The defendants also are barred from repeatedly calling consumers’ work places, using obscene or threatening language toward consumers and third parties, and disclosing the existence of consumers’ purported debts to third parties.

NOTE: Stipulated court orders are for settlement purposes only and do not necessarily constitute an admission by the defendants of a law violation. Stipulated orders have the force of law when signed by the judge.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,500 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics.

MEDIA CONTACT:

Frank Dorman
Office of Public Affairs
202-326-2674

STAFF CONTACT:

Nadine Samter
FTC Northwest Region
206-220-4479

(FTC File No. X090012)
(Cash Today settlement)”

North Beach, Oahu Hawaii

I’ve seen this happen before, a debt settlement company going bust. It seems to be happening more often.

Our Texas Attorney General is going after restitution from a “Debt Settlement” company in Bankruptcy Court. In this particular one, it is “Debt Relief USA.”

I don’t recommend “debt settlement” companies, per se. But if you are going to use one, at least choose one that is properly registered and operating legally in Texas. They have to put up a bond, for one thing!

For a list of the ones that are legally operating, go to the website of the Texas Consumer Credit Commissioner http://www.occc.state.tx.us/pages/searches.html and click on “List of Debt Management Service Providers.” Those are the only ones that can legally settle debts in Texas, besides attorneys. And of course you can settle your own debts.

I have a longer article titled “Is Your Debt Settlement Company Legal?” about the perils of going with a debt settlement company on my web site at http://jthomasblack.com/legal.php?nID=18.

Below is the Attorney General’s press release:

Attorney General Abbott Pursues Restitution for Texans from ‘Debt Settlement’ Company in Bankruptcy Court

Bankrupt Debt Relief USA said to hold $4.6 million in client funds

AUSTIN – Texas Attorney General Greg Abbott today took legal action to recover $4.6 million that a bankrupt “debt settlement” company wrongly withheld from its clients in Texas and other states.

In June, Debt Relief USA Inc. of Addison filed for bankruptcy protection in the Northern District of Texas. As a result, more than 2,500 financially distressed customers did not receive the debt relief they were promised. In fact, debtors’ problems were exacerbated by the bankruptcy because some of Debt Relief USA’s clients received no assistance and are now being pursued by collection companies.

According to investigators with the Office of the Attorney General, Debt Relief USA targeted individuals with thousands of dollars in unsecured debt, promising customers it would render them “debt-free in as little as 36 months.”

Under Debt Relief USA’s model, debtors stop paying their debts in order to save the money they would have paid creditors over time. Instead, they paid monthly installments to Debt Relief USA, which promised to later negotiate discounted pay-offs with creditors.

However, investigators indicate that Debt Relief USA assessed an “administration fee” of about 8 percent of each customer’s total debt, as well as monthly “maintenance fees” of up to $40. If the company successfully settled a debt, it then charged a “negotiation fee” of 13 percent of the amount of debt saved.

According to court documents the state filed with the bankruptcy court, Debt Relief USA collected “set-aside” funds from its customers. However, the Texas Finance Code prohibits set-aside funds unless a company is licensed or registered and has posted a bond with the Office of Consumer Credit Commissioner. Debt Relief USA failed to meet the legally mandated registration and bond requirements. As a result, the Attorney General has filed a proof of claim in the bankruptcy case seeking restitution for financially harmed debtors and the return of any fees paid to Debt Relief USA by current or former clients.

In addition, the Office of the Attorney General moved to protect the defendant’s clients’ privacy by successfully arguing that their names and confidential information be removed from the public record. Further, the Attorney General successfully moved to have the bankruptcy case converted from a Chapter 11 reorganization to a Chapter 7 liquidation with a neutral trustee appointed by the court. The trustee’s duties will include liquidating the debtor and paying claims to creditors.

Investigators with the Office of the Attorney General found that Debt Relief USA often never contacted creditors on behalf of their “clients,” which ultimately damaged its customers’ credit reports and even led to debt collection lawsuits by creditors. Debt Relief USA customers risked the ongoing accruals of late fees, interest, over-limit charges and other fees associated with the creditor’s account. Therefore, even in the event of a settlement, customers often owed significantly more on their accounts, which reduced their overall debt settlement savings. In addition, any savings realized under a settlement would be subject to taxation, since these are considered “income.”

In addition to restitution, the Attorney General seeks civil penalties of up to $20,000 per violation of the Texas Deceptive Trade Practices Act, as well as attorneys’ fees.

Texans who believe they have been deceived by similar fraudulent business practices may call the Office of the Attorney General’s toll-free complaint line at (800) 252-8011 or file a complaint online at www.texasattorneygeneral.gov

One bank will start charging $19 fee if credit card borrowers have no account activity for 12 months; an “inactivity” fee! They must have people sit around and think this sort of thing up, over strong drinks. Discover will reportedly start charging 2% fee on purchases made outside the U.S. Another bank will start charging a “reinstatement fee” to be able to redeem accumulated reward points, if the credit card borrower has paid late.

This is just the kind of treatment of consumers that gets them coming into my office to file bankruptcy. One prospective client this last week, said that he saw how he was not going to be able to pay his payments, so he called his credit card bank to try to work something out, ahead of time. “Sorry,” they told him, “unless you are delinquent on your payments, we can’t help you.” “Wow,” he told me, I am trying to keep my payments from BECOMING DELINQUENT, but they won’t help me.” Unfortunately, I hear that a lot.

If credit card banks would just listen to people, and try to work things out (some of them do), I would not be such a busy bankruptcy attorney these days. If you are having financial troubles and want to review your options, and live in the Houston area or surrounding counties, please give my office a call at 713-772-8037 for your first free appointment with me.

The "side" entrance to our office building, in Houston

A record percentage of credit cards are delinquent, 10% according to published reports. This is absolutely stunning, as credit card delinquencies historically have run 3%, maybe 4%.

Most people don’t know that credit card debt is “securitized,” or rolled into bond-like financial instruments and sold on Wall Street. This could turn into another mess like recently happened with mortgages; securitization of mortgage debt recently almost wrecked the worldwide economy.

I understand from published reports that the banks are having to “rush to the rescue” of some of these credit card trusts. By securitzing their credit card debt, banks keep much of the risk of the stupendous amount of credit card debt in this country “off the books” and technically not a risk that they have to keep reserves to cover, I suppose. That way, it doesn’t hurt their profitability.

In my opinion, it’s just greed. The world worked a lot better before debt was a commodity, and became this country’s biggest export. It was better when credit was more difficult to get, and people had to qualify for it. Perhaps we’ll get back to that model soon; it may just take another financial catastrophe or two before we collectively wise up.

A Chicago Sunsel from 45th Floor Marriott Hotel

Last week the nation reached a dismal milestone: one million new foreclosures initiated since January 1 this year.  In addition to devastating the families who lose their homes, the neighbors suffer, too. Our updated “spillover” analysis shows that 69 million households who just happen to be located near foreclosures will lose $502 billion in property value — about $7,200 per family.

If Congress had only approved the Mortgage Modification bill, to allow bankruptcy judges to modify home loans, it wouldv’e given several hundred thousand homeowners at least a fighting chance to stay in their homes.

“Hopefully” the Hope for Homeowners and similar programs will have some effect, but there is no sign of it yet. I am having some luck suing mortgage servicers and lenders that made “toxic” or predatory loans to my clients, or have violated mortgage servicing laws. As part of a settlement, we demand that the loan be modified to more reasonable terms. But I can only help a small number of people, compared to the number that could have been helped had the law been changed.

Can’t get your loan modified? Call your Member of Congress! They are the ones, particularly the U.S. Senators, that defeated the mortgage modification bill. If you can’t get a loan modification, call your U.S. Senator’s office and tell them that you need help getting a reasonable loan modification of your mortgage.

It's almost summer in the backyard

We have had a rash of creditors and debt collectors trying to collect their debts illegally recently, I’m not sure why. I guess times are tough all over, particularly if you are in the debt collection business.

If creditors or debt collectors try to collect their debts during a bankruptcy case, without first getting permission from the Bankruptcy Court, that is a violation of the “automatic stay,” one of the fundamental protections of people that file bankruptcy. Under the Bankruptcy Code, you have the legal right to sue that creditor for any actual damages that you have, punitive damages, court costs, and most importantly, attorney fees.

I’m not kidding about the attorney fees, they really are the most important part. If the violating creditor or debt collector didn’t have to pay the debtor’s attorney fees, the debtor would have to pay them, and if they didn’t have the money to pay the attorney, a lot of these actions wouldn’t get filed, that should have been filed.

If a creditor or debt collector tries to collect a discharged debt after the bankruptcy discharge, that is a violation of the bankruptcy discharge. The Discharge is the permanent, federal court order that extinguishes or cancels the debtor’s personal liability to pay most types of debts.

While the Bankruptcy Code does not have a specific section that provides for a cause of action or lawsuit, as for violations of the automatic stay, the Bankruptcy Court can punish a violator of the discharge injunction. The debtor’s attorney can bring an action against them for contempt of court (for violation of the discharge order), and also under Section 105(a) of the Bankruptcy Code, which gives the Bankruptcy Judge the power to enforce their own orders.

My office is available and ready to help our clients stop illegal debt collection action by creditors and debt collectors. Depending on the facts of each case, we will sometimes send a final demand to the violating party, trying to get them to stop, or to withdraw their demand. If they won’t, we file an action in Bankruptcy Court, and ask the judge to award damages, sanctions, and/or attorney fees and costs. Unfortunately that is a fairly common occurrence.

But if enough other debtors and their attorneys file these types of actions, that may change. The “word will get around” that creditors and debt collectors cannot engage in illegal debt collection, particularly in connection with a bankruptcy case.