In other words, credit card companies, hospitals, personal loan companies, banks and other lenders regularly sell and resell debt – and this may include debt owed by you.

Here’s how it works. Let’s say that you open a Mastercard or Visa account with a local bank. Over the years you may start running a balance – perhaps $2,000 or $3,000. You are able to make the minimum monthly payment but the balance grows slowly. At some point, you find yourself with a problem – you miss one or two monthly payments and your account becomes two or three months past due. The credit card company cancels your account and starts sending you collection letters.

At that point, the credit card company may decide that it would rather sell your delinquent debt for cash before it gets too much older. Depending on how delinquent the debt is, a debt buyer may pay only 4 or 5 cents on the dollar. Your 2 month delinquent debt of $3,000 will be packaged along with other similar debt and sold in bulk to a debt buyer at this discounted rate.

The debt buyer may attempt to collect the debt by dunning you (calling repeatedly) or the buyer may retain a lawyer and sue you.

Debt buying is a perfectly legitimate business as long as the debt buyer follows the rules. Debt buyers also know that most consumers do not know the rules so the debt buyers often take advantage of a consumer’s ignorance of the law and inattention to what is going on.

Some of the illegal tactics used by debt buyers include:

• repeated collection calls that violate the Fair Debt Collection Practices Act ban on harrassment and after hours calls
• misleading consumer into consenting to autodialed calls
• failure to respond to consumer disputes of debt
• farming debt to law firms for litigation without appropriate documentation
• threatening consumers with lawsuits for debts where the statute of limitations has run
• collecting on debt where the debt buyer has no documentation

Debt buyers know that most consumers will not respond to collection lawsuits. High volume collection law firms may file hundreds or even thousands of lawsuits each month, often with little or no lawyer oversight, yet the collection firms win most of these lawsuits by default when the consumer/defendant fails to answer.

The Consumer Financial Protection Bureau is starting to go after debt buyers who pursue shady practices. Recently, for example, the CFPB imposed a $79 million penalty against to large debt buyers – Encore Capital Group and Portfolio Recovery Associates.

According to the Collections and Credit Risk web site:

The CFPB found that Encore and Portfolio Recovery Associates attempted to collect debts that they knew, or should have known, were inaccurate or could not legally be enforced based on contractual disclaimers, past practices of debt sellers or consumer disputes. The companies also filed lawsuits against consumers without having the intent to prove many of the debts, winning the vast majority of the lawsuits by default when consumers failed to defend themselves. The alleged practices violated the Fair Debt Collection Practices Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Even more recently a federal judge in the Northern District of Georgia declared Georgia’s post judgment garnishment statute unconstitutional because it failed to include various consumer protection safeguards having to do with funds that are not subject to seizure. Whether this judge’s ruling holds up on appeal remains to be seen.

While I applaud the CFPB’s actions, you should not assume that the debt buying and collection lawyer industries will suddenly change their ways. The profit in buying and selling debt is so great that some debt buyers may look at CFPB’s fines as a cost of doing business.

• If you are receiving collection phone calls, you do not have to put up with harassment even if you owe the creditor money.
• If a sheriff’s deputy knocks at your door and hands you paperwork do not put that paperwork in a drawer and hope that the problem will go away.
• Most importantly, do not assume that the only reason to call a bankruptcy lawyer is to file a bankruptcy. If you live in the Atlanta metro area, I invite you to call my office at 770-393-4985 to talk with Susan Blum or myself about any debt issue you may be facing. Sometimes the Bankruptcy Code may offer a solution but many times, a strongly worded letter, advice about how to respond to a collection lawsuit or even an explanation about the collection letter you have received will help you decide how to proceed.

Collection agents rely on your ignorance of the law and your fear of challenging their apparent authority to intimidate you into acting for their benefit.  You do not have to play their game anymore.

More about the debt collection business:  click here

The post Don’t Fall Prey to Illegal and Immoral Behavior by Debt Buyers appeared first on theBKBlog.

Every Chapter 7 or Chapter 13 debtor must attend two credit counseling classes. The first, called the pre-bankruptcy credit counseling course, is required before you can file. Your certificate of completion is your ticket in to the bankruptcy process.

Once you have an active case, however, you must attend a second course called a financial management course, obtain a certificate of completion and have your lawyer file that certificate with the clerk of bankruptcy court.

This financial management course offers tips about how to set up a household budget and how to avoid financial mistakes that resulted in your need to file for bankruptcy in the first place.

If your lawyer does not file this financial management course certificate of completion you will not be eligible for a bankruptcy discharge. Instead, your case will be closed without discharge.

Why is a discharge order so important? It represents a formal order from the bankruptcy judge that all debts which can be eliminated or adjusted have been so modified. This order is binding on all state and federal courts and if a creditor attempts to collect on a discharged debt, you can sue that creditor for damages in a contempt proceeding.

Equally important, the discharge order serves as a formal notice to the world that your bankruptcy case is officially over and that a future creditor will not be surprised by a reopening of your bankruptcy file.

Mortgage lenders, in particular, do not count a “case closed without discharge” as the end of your bankruptcy case. As far as most mortgage lenders are concerned, a non-discharged bankruptcy case is still an open bankruptcy case.

Last week, I spoke to a gentleman who is dealing with this very problem.

This gentleman had filed a Chapter 7 back in 2010 with another lawyer. As instructed he attended a financial management course and obtained a certificate of completion which he forward to his lawyer.

Unfortunately his lawyer was in the midst of some major business problems. This particular lawyer had borrowed money to grow his practice but overextended himself and had to lay off most of his staff. The lawyer ended up filing his own bankruptcy and has since moved out of town.

The lawyer received but never filed his client’s financial management certificate. The case was closed without discharge.

Fast forward five years and the gentlemen has rebuilt his credit to the point where he is able to purchase a house. But there is a problem – no conventional mortgage lender will underwrite the loan until two years has passed since the issuance of the bankruptcy discharge (note that there are other mortgage problems that did not apply here which have a 1 year post-discharge requirement).

The gentleman hired me to reopen his case, file the certificate and get a discharge issued, which I did. The problem remains, however that the date on the discharge order is 2015. In this case, my new client is going to have to wait until 2017 before he qualifies for mortgage underwriting.

Needless to say, my client is not very happy with his prior lawyer but there is nothing he can do but wait.

The takeaway from all this is clear: if you file bankruptcy, do not wait to find and complete a financial management course, and ask your lawyer for confirmation in the form of a filing receipt that the course certificate was filed.

Note as well that there may be other pre-discharge filings you have to make – for example in Chapter 13 case you will need to file a certificate that all child support payments which have come due in your Chapter 13 case were made.

Within two to three weeks after your case closes, you should receive an discharge order from the judge. You should keep this discharge order as part of your permanent files because you may need to show it to creditors or other agencies in the future. If you misplace your order your lawyer can download and reprint a copy from the online PACER system.

The post Case Closed without Discharge Creates Big Problem for Chapter 7 Debtor appeared first on theBKBlog.

This report, published on the National Bureau of Economic Research – a professional organization for economists – compared 500,000 bankruptcy records with tax records and foreclosure records.

The study compared Chapter 13 debtors whose cases were approved and completed successfully to discharge to Chapter 13 debtors whose cases were dismissed. Successful Chapter 13 debtors:

• saw annual earnings 25% higher after bankruptcy – compared to their pre-bankruptcy earnings. Dismissed filers saw no increase in earnings
• had a higher employment rate
• had a 30% lower mortality rate compared to filers whose cases were dismissed
• were 19% less likely than dismissed filers to lose a home to foreclosure

The study authors suggest that successful Chapter 13 filers have an increased incentive to work and increased economic stability following receipt of bankruptcy protection.

This economics research projects conclusions are not surprising to me at all and I wonder if the study’s authors considered the reality of Chapter 13 filing in 2015:

• It is very difficult to maintain a Chapter 13 for five years and achieve a discharge. Twenty years ago, when I submitted a proposed Chapter 13 plan, I was able to build in a little room for unexpected developments.
• Now, Chapter 13 budgets are constrained by both the means test calculations and more demanding Chapter 13 trustees. I have seen many otherwise viable Chapter 13 plans undone by unforseen emergencies like a family illness, short term job layoff or emergency home repair.

Anyone who manages to make it through a 5 year plan no doubt did so because of diligence and perseverance, along with a little luck.

It is good to see that objective economic analysis proves that bankruptcy does have a positive impact on debtors as well as our economy as a whole. I often counsel my clients that bankruptcy functions as a necessary safety valve in a market economy and now there is proof that this is true.

The post Live Longer After Filing Bankruptcy? Economists Say “Yes” appeared first on theBKBlog.

1. Your credit score may be negatively impacted. You are most likely to face this problem when you have joint debts with a bankruptcy filing spouse and your spouse does not pay a joint debt on time.

For example, Chapter 13 allows a bankruptcy debtor to restructure payment obligations, which may include reducing the monthly installment, or extending the term of the loan. As a non-filing spouse you will likely be in violation of the contractual terms of your loan, which will appear as a late payment on your credit report.

2 Your joint bank accounts may be at risk. The bankruptcy law does allow a Chapter 7 or Chapter 13 debtor to declare a set amount of cash as exempt (sheltered) property. Depending on the particulars of the case the amount of this exemption can range from zero to around $10,000.

Generally the ownership of a joint account is considered “joint and several” meaning that you and your spouse have a complete interest in the funds. You can claim as your sole property a percentage of the joint bank account but you will need to show what percentage arises from your contribution ¹. This can result in tricky accounting problems, especially if there are other bank accounts or if one spouse took responsibility for making specific household payments.

Often it is wise to try to separate your finances from those of your bankruptcy filing spouse but you have to be careful here too as property transfers shortly before bankruptcy can be challenged. Talk to a lawyer before making any transfers and talk to the lawyer early.

3. Your bankruptcy filing spouse will need access to your employment information including your salary. This information will appear on your spouse’s bankruptcy schedules, which are public records (although one would have to know where to look to find this information).

The bankruptcy law assumes that a married couple shares some or all responsibility for household expenses. This presumption can be rebutted but you will need documentation.

4. If you are separated from your spouse and your estranged spouse threatens or actually files bankruptcy, you will want to get legal help. Generally support and maintenance obligations are not dischargeable in bankruptcy but you will want to make sure that your divorce lawyer understands the implications of bankruptcy law prior to signing off on a final order.

5. When one spouse files bankruptcy and the other spouse does not, the bankruptcy filing will put stress on the marriage relationship. Your family lifestyle, including where you live and how you spend your money, may be questioned or impacted. Marital problems can be avoided by minimizing surprises.

Your spouse’s bankruptcy lawyer can offer advice and information to a point – remember that your spouse’s lawyer is representing your spouse and his interests only. If you want a complete picture about how your interests may be impacted you may want to retain your own lawyer.

The post Spouse Filing Bankruptcy Individually: Here’s How You will be Impacted appeared first on theBKBlog.

Do you know what it means to have a judgment entered against you?  Judgments arise from lawsuits – often collection lawsuits – and they happen when a state court judge decides in favor of the other party.

In collection lawsuits, this means that the judge has ruled in favor of the plaintiff – usually a credit card company, finance company or other person or company who is suing you for money damages.  Sometimes a judgment is entered after trial but most of the time, a default judgment is issued when the defendant (i.e., you) does not answer the lawsuit.

In Georgia, if you are sued, you must file a written “answer” with the clerk of court, within 30 days after you are served with a lawsuit.  If you do not file an answer in a timely manner, the plaintiff can go to court and ask the judge to issue a default judgment.

Unfortunately you will not know when or if this default judgment is entered.  If you choose not to participate in the litigation, you may not receive notice about the status of that litigation.

Here at Ginsberg Law Offices we often speak to clients who only found out about a judgment when they opened their pay stub only to discover that 25% of their take home pay was seized, or when their savings or checking accounts were seized by the judgment creditor.

The take away from all this is clear – if a sheriff’s deputy or process server knocks on your door and hands you a lawsuit, your next move should be to call a lawyer for guidance.  If you hear a rumor that someone has sued you (perhaps out of state or in the county where you used to live), don’t ignore the problem hoping it will go away. Instead, call a lawyer.  Lawsuits usually do not go away, and, as discussed above, bad things can happen if a judgment is issued.

The post Beware Judgments appeared first on theBKBlog.

The clock on this statute of limitations begins to run when you last use the card or when you last make a payment. There is some authority to suggest that the creditor can restart the statute of limitations clock if you acknowledge that you owe the debt, enter a payment plan, or accept a settlement offer.

If you get a collection call or letter from a creditor or collection agency on a credit card debt that has been dormant for almost 6 years, it would not be wise for you to accept the call or say anything to the caller. Instead you should contact a lawyer to speak on your behalf.

The expiration of the 6 year statute of limitation does not mean that the debt has expired – it simply means that if the creditor/collection agent files suit, you can (and should) raise a statute of limitations defense and the lawsuit will be dismissed. Creditors can continue to call you to demand payment. If you choose to speak with the collection agents (which I do not recommend) you only need say the following:

The statute of limitations has run on this debt and I am under no obligation to pay this debt. If you contend that you do have the right to sue me for this stale debt, please put that assertion into writing and mail it to me. Otherwise I am hereby asserting my rights under the Fair Debt Collection Practices Act – you may no longer contact me for collection of this debt.

You do not have to verify your mailing address or say anything else.  Just hang up.

Creditors and collection agencies sometimes file suits against consumers even after the 6 year statute of limitations has passed. If the consumer does not respond to the lawsuit, or does not raise the statute of limitations defense, the collector may obtain a valid judgment which can be used to garnish wages, seize bank accounts or lien real estate.

Collection agencies, debt buyers and collection lawyers who file suit on stale debt take a risk, however. If the defendant consumer hires a knowledgeable attorney, the attorney can get the lawsuit dismissed and can pursue damages against the collector plaintiff for violating one or more consumer protection statutes.

If a client of mine is receiving collection phone calls for credit card debt that is older than 6 years, I will call the collection agent and ask him if he is contending that the debt at issue is subject to legal action. If the collection agent lies, we would have a lawsuit for damages under the Fair Debt Collection Practices Act and other federal laws. Most of the time the agent will acknowledge that his company cannot sue successfully but will reference my client’s credit reports.

I also send the bill collector a “drop dead” letter – which is a written notice to the creditor to stop communicating with my client, with a penalty of damages if the collection agency does not stop. Unfortunately stale debt is bought and sold all the time, meaning that the drop dead letter I send to collection agency #1 will not bind collection agency #2.

Delinquent or unpaid debt can remain on your credit report for up to 7 years, then it has to come off. As far as any demand for payment on “moral grounds,” I tell the collection agent to jump in a lake.

Credit card companies and collection agencies buy and sell stale debt all the time. In the bankruptcy business we call this debt “zombie debt” and it is big business – generating over $1 billion in revenue. If you get the sense that the bill collection world has a lot of the “wild west” still in it, you would be correct. As a rule, I think that nothing good at all can happen if you speak directly to a bill collector or collection agent. Instead, let me do the talking.

The bottom line here is this: if you owe money to credit card companies, there is very little good that can come out of conversations between you and the bill collector. Even if bankruptcy seems like a remote option, it makes sense to talk to a bankruptcy lawyer to better understand your rights and responsibilities.

In my next blog post, I will discuss civil judgments issued by Georgia courts and their “dormancy periods” which are not at all the same thing as a statute of limitation.

The post Statutes of Limitation in Georgia: Credit Card Debts appeared first on theBKBlog.

Giving up your home will be traumatic – even if you recognize the financial realities. Your family life will be disrupted, the kids may have to change schools, and you will have to sell or store furniture and other personal property that may not fit into a rental.

One of the questions that I get whenever a client has to surrender his home is “when will I be able to qualify for a mortgage so I can buy another house.” Many people are under the misconception that home ownership will be delayed five or ten years or more. The reality is much less harsh.

The answer to the question of when you can again qualify for a mortgage will depend on two factors – one, of course, has to do with your credit worthiness. If you use your bankruptcy to eliminate debt and reduce expenses, you will be in a much better position to manage credit. Obtain a secured credit card, arrange for a loan with a credit union, remain employed and within 6 months to a year after your Chapter 7 discharge, your credit score will bounce back enough to make you a viable borrower.

The second factor has to do with the loan program you choose:

• Conventional loans require a wait of four years from date of Chapter 7 discharge or four years of consistent Chapter 13 payments.
• FHA loans and VA loans require a two year wait from the date of your Chapter 7 discharge or two years of consistent Chapter 13 payments.
• An FHA program called the FHA Back to Work Program (which is set to expire on September 30, 2016) allows a borrower to purchase a primary residence just 12 months after Chapter 7 discharge or 12 months into a Chapter 13 plan, if you can document the economic reasons for your financial hardship.

So, as a practical matter, most bankruptcy debtors who have given up their homes in bankruptcy can be eligible for a new mortgage as early as one to two years after their bankruptcy has been discharged or a year or two into a Chapter 13 repayment plan.

As difficult as it may be to walk away from your home, take comfort in the realization that your return to home ownership will not be unduly delayed.

The post How Soon After Bankruptcy Will You Qualify for a Mortgage? appeared first on theBKBlog.

When preparing a bankruptcy petition, I use my petition preparation software to create a budget, which, of course, I discuss with my clients. Many of my clients are surprised or even shocked to discover how much they spend each month and how far in the red they are.

In many cases, bankruptcy can help solve this problem by consolidating payments in a Chapter 13, or by eliminating debt (and sometime surrendering property) in a Chapter 7.

Obviously bankruptcy can function to solve an immediate problem but filing a Chapter 7 or Chapter 13 won’t help you if you revert back to the same old bad spending and savings habits after receiving your bankruptcy discharge.

Pre-bankruptcy credit counseling and pre-discharge financial management courses – now both mandatory – are designed to help you avoid a repeat trip to bankruptcy court but a 45 minute online course is not going to do much for you unless you make some real changes.

One tool that can be incredibly helpful in helping you better manage money is a spreadsheet. Most computers come with a basic spreadsheet program installed – and there are free downloads if your computer is not equipped.

I recently ran across an interesting article on the Makeuseof blog that references ten free spreadsheet templates that will help you stay on budget, and can help you plan for Christmas and vacations.  The link to this article is here and the spreadsheet templates are courtesy of vertex42.com.

Pre-made spreadsheet templates will save you a lot of time because all of the categories and formulas are already set up for you. Even if you have never used a spreadsheet before, I urge you to give one of these templates a try – you will be surprised at how easy they are to use.

The post Free Budgeting Resources to Help You Recover from Bankruptcy appeared first on theBKBlog.

According to the CFPB, Hanna & Associates violated federal law which prohibits deceptive practices in the consumer financial marketplace. The Agency wants compensation for victims, a civil fine and an injunction against the firm and its partners.

The allegations in the complaint include:

• intimidating consumers with deceptive court filings. Hanna & Associates allegedly used automated processes to generate lawsuits with little or no involvement by attorneys. One of the firm’s lawyers, for example, “signed” more than 130,000 collection lawsuits in a two year period.
• introducing faulty or unsubstantiated evidence. Lawsuits filed by Hanna & Associates included sworn statements about a particular individual’s debts. These sworn statements were issued by officers of the banks, credit card issuers and debt buyers who had hired the Hanna firm. The CFPB argues that these officers could not possibly have had personal knowledge about the individual cases and that the Hanna firm has dismissed over 40,000 suits in Georgia alone when these sworn statements were challenged by defendants.

In a statement, Hanna & Associates denied any wrongdoing and stated that it has followed all state and federal laws.

I will keep an eye on this litigation and let you know if the Hanna firm reaches a settlement with the CFPB or if the case goes to trial.

While this particular litigation may not impact you directly, I hope that you pick up a few things from this case.

First, just because a plaintiff (credit card company, debt buyer, etc.) makes an assertion against you in a lawsuit, you should not automatically assume that you have no defense.

Perhaps you think that you do owe money to the plaintiff. However, if the debt is stale (the statute of limitations for collection may have run) or if the plaintiff has little or no documentation proving you owe money, you would have a viable defense.

Second, credit card companies and other consumer debt issuers most likely do not have paper files. Their “documentation” may be an internal ledger sheet or a bogus “sworn statement” from a company official. This documentation can be challenged and may give you leverage to negotiate.

As always, if you get sued do not ignore the lawsuit. If you do not respond (or call a lawyer for advice) within the set time to respond (usually 30 days) your case will go into default and all of your options to challenge the legitimacy of the lawsuit will disappear.

The post Giant Collection Law Firm Sued by Government for Deceptive Practices appeared first on theBKBlog.

Under the automatic stay provision of the Bankruptcy Code, of course, lenders cannot initiate or continue collection activity against a debtor who has filed Chapter 13 unless and until the lender first convinces the bankruptcy judge to lift the automatic stay.

In Georgia, most foreclosures are non-judicial meaning that to start foreclosure a lender needs to notify the debtor and run a written notice of the pending foreclosure in the legal newspaper of the county where the property is located. In the Lodge case, the mortgage company started the foreclosure process and bought the ad.

The day after purchasing the ad, the lawyer for the mortgage company, McCalla, Raymer, recognized the mistake and immediately canceled the foreclosure process. Unfortunately for them, however, it was too late to stop the ad from running.

When the ad ran, it was picked up by several of the foreclosure notification companies that operate in the Atlanta area and the Lodges began receiving solicitations from home buyers and bankruptcy attorneys offering to help them avoid foreclosure.

The Lodges thereafter sued the mortgage company and McCalla, Raymer in federal district court alleging that they suffered from emotional distress due to the violation of the automatic stay and for violation of the Fair Debt Collection Practices Act.

The district court denied the Lodges’ claim and the case was thereafter appealed to the 11th Circuit Court of Appeals. Circuit Courts of Appeal are the highest appellate court in the country except for the Supreme Court, so Circuit Court opinions are binding on all district and bankruptcy courts in the 11th Circuit (which includes Georgia).

Click here to read the decision

A copy of the 11th Circuit’s opinion is here – just click on the picture on the left.  As you can see, they denied the Lodge’s claim for emotional distress because the Lodges failed to introduce specific evidence of damages. There were no doctor’s notes, proof of reduced income or any other evidence save their testimony that they were damaged.

Thus, even though there was a clear violation of the automatic stay, no damages were awarded because no proof of injury was submitted.

What do you think? Is this a case where the mortgage company got off too easy for ignoring the automatic stay – the core protection of the Bankruptcy Code? Were the debtors being punished for having “unclean hands” – arising from their failure to make on-going mortgage payments as required by their Chapter 13 plan. Is it reasonable to put the burden on cash strapped debtors to pay for medical care to produce evidence of damages? Will this decision give license to mortgage companies to be less concerned about the significance of the automatic stay? Or did the 11th Circuit get it right by insisting on evidence of damages and not just a showing of a stay violation.

The post Appeals Court Denies Damage Claim for Clear Violation of the Automatic Stay appeared first on theBKBlog.

What is now being described as “Judicial Modification” is really the well known bankruptcy concept referred to as “Cramdown”.  The word does not appear in the language of bankruptcy code but this innovation emerged as a tool for debtors when the 1978 bankruptcy code was enacted by congress.  The term is used to describe the modification of creditors’ rights, against their will, when the negative impact on a particular creditor is substantially outweighed by the benefit to the debtor.

The Helping Families Save Their Homes in Bankruptcy Act of 2009 was introduced early in the 111th Congress (2009-2010) in both the House of Representatives as H.R. 200 by Representative John Conyers, a Michigan Democrat, and S 61 in the US Senate by Senator Richard Durbin, an Illinois Democrat.  This legislative proposal would lift a longstanding limitation contained in the bankruptcy code with respect to the rights of homeowners and residential lenders in a bankruptcy proceeding.

The bankruptcy code provides for modification of the rights of secured creditors in both Chapter 11 and Chapter 13 cases.  Under current law, a Chapter 13 plan is permitted to include, pursuant to 11 USC §1322(b)(2), language that will “modify the rights of holders of secured claims” with the express exception that no “claim secured only by a security interest in real property that is the debtor’s principal residence” may be so modified.

The White House proposes “careful” legislative changes that allow bankruptcy judges to modify mortgages written in the last few years when there are no other reasonable options for families with problem loans.  The proposed plan provides that:

“When an individual enters personal bankruptcy proceedings, his mortgage loans in excess of the current value of his property will now be treated as unsecured. This will allow a bankruptcy judge to develop an affordable plan for the homeowner to continue making payments. To receive judicial modifications in bankruptcy, homeowners must first ask their servicers/lenders for a modification and certify that they have complied with reasonable requests from the servicer to provide essential information. This provision will apply only to existing mortgages under Fannie Mae and Freddie Mac conforming loan limits, so that millionaire homes don’t clog the bankruptcy courts.“

While the proposal is more limited than the current legislative initiative, it will cost the taxpayers relatively little by comparison with the many other investments being made by the Obama administration in an attempt to improve the economy.  As a bankruptcy lawyer, I have no doubt this portion of the Homeowner Affordability and Stability Plan will do a great deal to keep many families in their homes.

Usury, once associated with organized crime, has become institutionalized in credit-card lending, subprime home loans, and, increasingly, private student loans.  Home loans and easy credit have driven the economy for the last decade, generating obscene profits for banks and lending institutions.  Congress, meanwhile, adopted a laissez-faire attitude.  If it wasn’t obviously broken, no-one wanted to expend effort to fix it.

The general lack of Federal oversight in the mortgage industry and the ease with which lenders could circumvent the Truth in Lending Act were clearly imprudent, as they allowed unscrupulous mortgage brokers and lending institutions to defraud both homeowners and investors in ways which reverberate throughout the entire American economy. But were any of the actions of either Congress or the loan industry immoral, and if so, against whose standards are they to be judged?

Any moral code which condemns as a sin something which has proven to be disastrous in purely practical terms (as the explosion in subprime mortgages clearly has) is worth revisiting. Examining several historical sources on the subject of usury revealed some useful distinctions between moral and immoral money lending. Under usurious practices considered to be un-Christian, Medieval and early Modern Roman Catholicism included:

• Charging fees for the use of money above and beyond what could be justified by the labor expended in making the loan, risks to the lender, and losses incurred because the lender did not have the use of the money.
• Using a borrower’s distress to force him to enter into an unequal bargain in favor of the lender.
• Creating a loan whose repayment terms cannot be met.
• Making necessities of life, such as shelter, surety for a loan.
• Substituting loans for charity.
• Using indebtedness as a means of coercing others into acting against their own best interests.

The actions of subprime lenders in originating loans pretty clearly violate the first four points.  Government policies that used the availability of subprime loans to low-income borrowers as a substitute for direct housing subsidies could be viewed as an abrogation of charity. The encouragement of private usury, in this instance, has become a matter of public policy.  Usury cloaks itself in a mantle of social egalitarianism in order to propagate and amplify social inequality.

The last point, coercion, figures prominently in refinancing agreements, often entered into because the homeowner has other unmanageable debts and is subject to abusive collection practices. It is virtually never in a homeowner’s best interests to obligate home equity to pay off unsecured debt, even in those rare cases where the terms of the home equity loan contain no hidden pitfalls or excessive finance charges.

The Bible and the Koran both condemn usury.  A cursory survey of historical writings reveals unequivocal condemnations by St. Gregory of Nyssa (379 AD), St. Thomas Aquinas (13th century), Martin Luther (16th century)  and Pope Benedict XIV (Vix Pervenit, 1745), among others. Have things changed so much in the world, that all of their arguments, derived from many different principles and sources, are null and void?  Not if you look at results.

At the end of every seven-year period you shall have a relaxation of debts, which shall be observed as follows. Every creditor shall relax his claim on what he has loaned his neighbor; he must not press his neighbor, his kinsman, because a relaxation in honor of the LORD has been proclaimed“

and Leviticus 25, which describes the regulations both for a seventh year Sabbath and a fiftieth year of jubilee.

Apologists for the finance industry posing as Christians cite Psalm 37:21: The wicked borrow and do not repay, but the righteous give generously,” and claim Christians are obliged to keep payback promises even when life throws a curve ball, according to an article in Christian Science Monitor, Monday July 3, 2007.  This is a classic example of taking a single passage out of context and twisting it in a way diametrically opposed to the message of the Gospels.

The passage in Deuteronomy is a commandment to cease efforts to collect payments on the principal amount of a debt, rather than an injunction to forgive the entire amount of the debt. Debt collection is equated with other commercial activities tending to accumulate wealth, such as harvesting crops for sale rather than personal consumption.  The Sabbath, whether weekly or every seven years, provides a respite for the debtor and the laborer whose surplus goes to enrich others. The sabbatical provisions of Deuteronomy are more analogous to automatic stay provisions of bankruptcy than to discharge.

When coupled with the very numerous prohibitions against lending money or goods at interest in Deuteronomy, Leviticus, and elsewhere in the Old Testament, and the absolute discharge provisions of the fiftieth year jubilee, the passage certainly provides scriptural support for current personal bankruptcy laws.

Lending money or goods at interest, especially to the poor in one’s own community, garners some of the Hebrew prophets’ most scathing condemnations, for example Ezekiel 18:13 – “Hath given forth upon usury, and hath taken increase: shall he then live? he shall not live: he hath done all these abominations; he shall surely die; his blood shall be upon him.”  There is little doubt that these passages, when written, referred to all interest and not just to interest above some arbitrary threshold of reasonableness. 

From a biblical perspective, the bankrupt who seeks discharge of debts consisting predominantly of accumulated interest and fees is only seeking relief from the predatory actions of a lender who sinned and is profiting from it.  The debtor who entered into such a loan arrangement in good faith should not feel that his inability to meet the letter of an abusive contract violates his duty as a Christian.

Psalm 37:1 is almost the only passage in the entire Hebrew Scriptures explicitly condemning non repayment of debts. It refers to deliberate attempts to defraud creditors, not to debt incurred with the honest intention of repaying it, and even then, the disapproval is mild compared to that heaped on lenders and their usurious practices elsewhere.

In contrast, Mathew 18:21-35, an explicit teaching of Jesus Christ, likens God to a king who forgives his servant the enormous sum of ten thousand talents, and subsequently has that servant jailed when he attempts to exact a much smaller debt from an underling. The parable concludes Then his lord summoned him and said to him, ‘You wicked servant! I forgave you all that debt because you besought me; and should not you have had mercy on your fellow servant, as I had mercy on you?’ And in anger his lord delivered him to the jailers, till he should pay all his debt. So also my heavenly Father will do to every one of you, if you do not forgive your brother from your heart.”

The corporations responsible for abusive lending practices willingly allow so-called Christian pundits to preach to their flocks a message of unending obligation and religiously-mandated self-sacrifice to atone for the sin of borrowing unwisely.  They are not, to my knowledge, correspondingly willingly to personally shoulder the burden of their improvident lending, but rather take refuge under our far more generous corporate bankruptcy laws. Apparently these hypocrites think Ps 37:1 overrides Mathew 18:25.  If they’re wrong, the Gospel suggests that they’re in for an unpleasant surprise, either in this life or the next.

To paraphrase my friend Jay Fleischman who writes in the New York Consumer Litigation Center Blog.  The three primary national consumer credit reporting companies are required by a federal law, the Fair Credit Reporting Act (FCRA), to provide you with a free copy of your credit report, at least once every 12 months if you ask for it.

All you need to do to order your free annual credit report is go to http://www.annualcreditreport.com, or call 1-877-322-8228 , or fill out an Annual Credit Report Request Form and mail it to the official address: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.

This report is really free.  It is not an independant commercial venture, only the legal response by the consumer reporting bureaus to the mandated consumer service.

In Oregon we have an exemption specifically protecting the Earned Income Credit and keeping it entirely exempt from exectution by a debt collector with a judgment.  This exemption also applies to the trustee in a bankruptcy case.  It is found in ORS 18.345(n) and has no limit on the dollar amount of the credit that is protected.

With regard to the Earned Income Credit, Oregon is far more progressive than many other states.  The homestead exemption in Oregon is modest, although recently increased from $25,000 for an individual to $30,600, it is still not sufficient to protect even a small condominium unless it is heavily encumbered.  However, the need to protect the federal benefit that helps low income working people make ends meet was clear for the Oregon legislature.  State Senator Vicki Walker’s job as a bankruptcy court reporter may have played a part in getting this legislative safety net put in place.

You can visit my Oregon Exemptions website page for a detailed list of statutory exemptions in Oregon.

However, not everyone is as careful in the way they use credit cards as I am.  After nearly 30 years as a bankruptcy lawyer, I have a healthy respect for credit and use it carefully.  This wasn’t always the case.  Back in my student days, when money was tight, I would occasionally use my credit card less carefully and without paying attention to the cost of the credit.  I know that I bought things I would have passed up if I didn’t have easy access to credit.  Many of those “impulse purchases” would have been avoided if I had been required to wait until I could pay cash for the goods I bought.

Now the credit card companies are getting into the student loan business.  A recent online advertisement offered airline miles for student loans with this announcement:

“Earn 1 Mileage Plus mile for every $1 borrowed with a new Chase Private Student Loan. A Chase Private Student Loan can help pay for education-related expenses not covered by federal loans or other aid. Act now and earn 1,000 additional miles.” 

The ad included a toll free number and airline website location for more details.

Because I do not promote the lender, I have left out the details of this offer.  You can certainly find it if you go to the bank website.  But I do not recommend it.  There is very little, if any, government regulation of these private student loans.  In fact, the private loans are subject to all of the bad things about student loans in general and have none of the benefits of government sponsored loans.

First and foremost, The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 changed the law and expanded the rule against discharge of student loans in bankruptcy cases.  Now, all student loans, not just government sponsored student loans are left out of a bankruptcy discharge except in the most extreme of circumstances.  To see how extreme this can be, look at my recent article on the bankruptcy law network.

Congress allows cramdown of the loan balance to the property value in three types of bankruptcy cases.  A cramdown can be ordered in cases under chapters 11, 12 and 13.  However, with the exception of a family farm in chapter 12, the bankruptcy laws will not allow a cramdown when the real estate is the debtor’s home.  This means that a homeowner is not allowed to use this valuable tool to save their home from foreclosure.

Congress is now considering new laws to help homeowners save their homes by changing the loan terms.  In a recent web article, bankruptcy lawyer Brett Weiss discusses recent comments by the founder of a notorious sub-prime default loan servicer, Larry Litton.  Clearly, some lenders do not like this proposed change to the bankruptcy law.

There is no doubt that the change would help homeowners keep their homes when they are short of money and they face foreclosure.  I, for one, believe the change would benefit everyone.  The lenders only want their money and not the house.  When home prices are falling, a foreclosure can cost them even more.

Not only does foreclosure of homes cost the homeowner and the lender, it can drive prices down for entire communities.  The recent news is full of articles about neighborhoods were every other house is offered for sale by a bank or loan company.  This is because the banks, like you and me, can only get their money out of a house by selling it.  They have foreclosed so many houses that the banks are now in competition with each other, trying to sell them.  With so many houses on the market, the price is going down even more.

Houses without homeowners in them are subject to vandalism, illegal occupancy by criminals for various purposes, and can decline in value quickly.  With a mortgage market in termoil, and home loans in short supply, this is not in the best interest of anyone involved in the process.

I recently had a new client bring in collection notices for nearly $250,000 in tax assessed by the Oregon Department of Transportation as the result of a an audit of the company books.  The client had failed to properly respond to the audit notices and to pursue all of his administrative remedies.  He later spent over $25,000 in attorney fees to no avail when he tried to get a new hearing.  It is unable to continue operating trucks and has had to close his business.

I was unable to fully answer his questions and did a little research on the discharge issue.  It seems that the Oregon bankruptcy court has determined the highway use tax to be in the nature of an excise tax.  See my article on this subject posted at Bankruptcy Law Network.

Because the tax is considered and excise tax it can be discharged in a bankruptcy proceeding if it meets certain requirements.  The returns must have been filed, there can have been no fraud, it must be at least three years after the returns were supposed to have been filed.  If the returns are filed late, it also must be two years after the returns were actually filed.

Courtesy coolsprings.com

…noting that this is the current home of someone who previously filed for Chapter 7.

When you go to most consumer bankruptcy attorneys to file for a Chapter 13 repayment plan, you’re told that the plan payments will be too high for you to afford, since the full amount of the arrearage must be paid over a maximum of five years. If the arrears are $60,000, for example, this would require at least a $1,000 per month payment on top of resuming the regular monthly payment. Most people just can’t afford it.

This may result in many people thinking that they have no alternative other than losing their home. But there may be another alternative: an individual Chapter 11.

Most people don’t even know that an individual can file for Chapter 11; they think that it’s just for businesses. This is not the case. In fact, my law partner, Dan Press, and I have written a book about individual Chapter 11 cases, Chapter 11 for Individual Debtors, and we teach other attorneys how to handle individual Chapter 11 cases. In a Chapter 11 case, there is no five-year limit on the repayment term for mortgage arrearages. In many of my Chapter 11 cases, I have obtained repayment terms of up to 30 years, without interest. In the example above, instead of a $1,000 per month payment, my client is looking at a monthly payment of $166.67. This is a lot more doable.

Chapter 11 isn’t for everyone. It is much more complex and expensive than a Chapter 13, and there aren’t a lot of consumer bankruptcy attorneys who know how to steer you through an individual Chapter 11.

We do.

I remember that kid’s balloon was still inflated, like someone had just had a birthday party. That what kills, me, the things the children had to leave behind. Sometimes, their crayon pictures are on the wall.  A lot of toys are in the closet…It’s traumatic.

It was too traumatic for one woman in Massachusetts. She faxed a note to her mortgage company saying, “By the time you foreclose on my house, I’ll be dead.” As this ABC News story sadly relates, 53-year-old Carlene Balderrama of Taunton, Massachusetts, fatally shot herself with her husband’s rifle shortly before the foreclosure.

Nadine Kaslow, chief psychologist at Grady Memorial Hospital in Atlanta and a professor at Emory University’s School of Medicine, said such financial stresses come attached with significant psychological consequences.

There is no question that the economic downturn in our country is causing havoc with people’s mental health,” she noted. “It is very depressing to lose one’s home. It represents loss of stability, a feeling of failure. … It is scary and overwhelming.

But it’s not the end:

Once you find out that foreclosure is not a sign of personal failure, that it is not anything that is happening to nobody else … there’s hope.

And given the numbers, it’s happening to a lot of people. According to RealtyTrac, the number of U.S. homes receiving a foreclosure notice between April and June of this year shot up 121 percent compared with the same period last year. That means that 739,000 households received a foreclosure notice during this three-month period — which translates into one out of every 171 households in the country.

There is a way out–Chapter 13 gives you the chance to catch up on missed mortgage payments over 5 years. And even if you can’t, a Chapter 7 will delay the foreclosure to give you some time, let you wipe out any arrearages and deficiency and start over with a clean slate.

The articles may be found by clicking on the links:

Obama vs. McCain on Bankruptcy
Obama and McCain’s Votes on Bankruptcy Amendments
Barack Obama on BAPCPA
Barack Obama on Bankruptcy/Credit Reform

This is primarily because of required new forms that have to be adopted by the State, and without which, the foreclosure cannot comply with the technical requirements of the new law. The forms should be issued in early July, and the floodgates will open. Three months worth of foreclosures will be filed at once, with auctions likely scheduled in early September.

Thousands of new cases are likely to be filed, so if you’ve fallen behind on your mortgage, now is the time to examine your options, before the rush hits.

The answer lies in the federal National Bank Act and a series of Supreme Court decisions.

The National Bank Act, first adopted in 1863, provides for the establishment and regulation of national banks. For more than 100 years, that law was interpreted to require that even national banks can only charge interest at the rate allowed by the state in which its customer is located. In 1978, the Supreme Court changed everything. In Marquette National Bank v. First of Omaha Corp., it ruled that a national bank can charge its customers, no matter where they are located, interest at the rate allowed by the state in which it is located. Even though the customers in Marquette were located in Minnesota, the fact that the bank was centered in Nebraska allowed it to charge its Minnesota customers the higher Nebraska interest rate.

Shortly after Marquette was decided, North Dakota pretty much repealed its usury statutes. National Banks descended like a horde of locusts on that state, establishing their main offices there. CitiBank was the first, and others followed its lead. North Dakota’s interest rate cap—or the lack of an interest rate cap—became the de facto national interest rate on credit cards. Ever wonder why so many of your credit card payments are sent to North Dakota? This is why.

The practical effect of Marquette was to repeal every state’s usury laws insofar as they deal with National Banks. And any lender that wants to charge exorbitant interest and still follow the letter need only form a National Bank, and the sky’s the limit.

Mr. Weiss’ summary of BAPCPA may be found by clicking on this link.

• We let you answer your phone without your heart seizing with fear that it’s someone calling to collect a bill.
• We give you room in your mailbox for birthday cards instead of bills.
• We let your answering machine be empty when you come home from work.
• We let you know your kids will be going to the same school next fall, because you’ve saved your home from foreclosure.
• We let you know you’ll keep your job because you’ve saved your car from being repossessed.
• We let you sleep at night.

Oh, and we also deal with creditors and the Court, prepare and file pleadings, argue on your behalf, and do all of the other “lawyer work.”

But what our clients remember is the important stuff above. *That* is what we really do.

The full article may be found on the Washington Business Journal website.