New rules on credit reports may leave them looking skimpier — and less accurate

Starting July 1, 2017, important rules for credit reporting agencies have changed, and the changes may have a big impact on both the curious consumer who just wants to check his score, and the debtor seriously thinking about filing for bankruptcy.

Going forward, civil judgments and tax liens data will no longer be reported by the three major credit-reporting bureaus that do not include three of the following data points: name, address, social security number or date of birth.

That means that an estimated 11 million Americans will see some lien and judgment information vanish from their credit reports.

Good news or bad news? If you are a debtor, it might make you feel better. It might even make the FICO score go up a bit.

But not including the liens or court judgments doesn’t make them go away. That’s potentially a problem if you file for bankruptcy, because debts that aren’t listed aren’t discharged, and your bankruptcy lawyer might not know to list them if they are not on your report.

The is a solution, however. Bankruptcy lawyers have access to specially created credit reports that will still have the debts “missing” from the free reports. The catch is, these complete credit reports aren’t free. I use CIN Legal Infonet for mine, where the price starts at $33.00.

by Doug Beaton

Painting: Atropos, by Matthew Cheyne.

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Midland Funding survives bankruptcy scare in Supreme Court

Midland Funding, the giant California-based debt buyer, narrowly escaped judgment in the United States Supreme Court in May 2017, when the nation’s highest justices ruled 5-3 that they couldn’t be sued by a bankrupt debtor for filing a stale claim — i.e. a claim involving a debt where the statute of limitations had expired — in her bankruptcy case.

Only a handful of bankruptcy cases go all the way to the Supreme Court in a given year, and this one stands out because it also involves the seldom-litigated Fair Debt Collection Practices Act (FDCPA).

Aleida Johnson had filed for Chapter 13 bankruptcy in Alabama when Midland filed a claim in her case for a whopping $1,979.71 credit card debt. Trouble was, the debt was over ten years old and well past the statute of limitations. Johnson’s lawyer objected to the claim and it was denied by the bankruptcy judge. Then he turned around and sued Midland for damages under the FDCPA.

Not so fast, says the majority of the Supreme Court justices. Just because the debt was old didn’t mean that Midland’s claim rose to the level of being either false, deceptive, misleading, unconscionable, or unfair, any one of which are needed to win a case under the FDCPA. The majority opinion was written by Justice Stephen Breyer of Massachusetts.

The three dissenting justices (Sotomayor, Ginsberg, and Kagan), pointed out that it wasn’t realistic for Chapter 13 trustees to police all the unsecured claims in their cases for statute of limitations problems.

You can read the full opinion in Midland Funding LLC v. Johnson by clicking here.

by Doug Beaton

Posted in Bankruptcy News, Chapter 13 | Comments closed

Chapter 13 debt limits increase

The upper debt limits for going in to Chapter 13 bankruptcy increased as of April 1, 2016.

Chapter 13 debtors must have less than $1,184,200 in secured loans in order to qualify for relief.

They also must have less than $394,725 in unsecured loans to qualify.

BucketsThe debt limits are adjusted automatically every three years, based on consumer price inflation information. The new limits represent a modest increase over the calculations made in 2013.

Student loan debt is almost always unsecured debt, so the increase could be a boon to graduate student debtors with over $300,000 in student loans, or to parents helping many children through college. For those stuck with massive monthly student loan payments, Chapter 13 is sometimes a viable option where negotiation fails and attachments are threatened.

Posted in Chapter 13, Student loans | Tagged | Comments closed

Automatic Massachusetts homesteads limited to $125K

Since 2012, homeowners in Massachusetts have had two options for obtaining homestead protection for their residence.

andover house

First, they can do it “the old way” — by filing a legal declaration of homestead at the county registry of deeds. Translation: a small bit of hassle, a small fee to pay, maybe have lawyer get involved, or do you feel like taking it on yourself?

But then there is the “new” automatic homestead protection. Translation: do nothing except live in the house, no filing no fees.

The kicker is that the declared homestead exemption is able to protect up to $500,000 in equity in the property.

The automatic homestead exemption is limited to $125,000.

The really big kicker, though, is that for married folks, or others living under the same roof, the automatic do-nothing exemption is “one size fits all,” that is a husband and wife can NOT each claim $125K for a joint $250K benefit. $125K is all the benefit anyone gets for one house.

That makes filing the old fashioned declaration of homestead a big winner long-term. You might not have much equity in a property now, but taking the small step of filing a declaration might help out big time down the line.

Posted in Exemptions, Real estate | Comments closed

The repo man is now inside your dashboard

The latest wrinkle in auto finance has a nasty edge to it, as lenders are pouncing on new technology that allows them to remotely shut off a borrower’s vehicle if they are only a few days late on a payment.
car-repo
Writing for the New York Times and Boston Globe, Michael Corkery and Jessica Silver-Greenberg describe the advent of “Wall Street’s Big Brother,” a gizmo formally known as a starter interrupt device, which prevents a vehicle from running if a banker shuts it off for slow payment: “This new technology is bringing auto loans … into the lives of people with credit scores battered by the financial downturn.”

Meet the mother who had her car shut off on the day she had to bring her daughter to the emergency room, and the meet the banker who boasts of shutting down borrower’s vehicles while he shops at Walmart.

Sooner or later, though, another player is bound to show up in this game. That would be the local bankruptcy lawyer, who has access to the laws that will remedy he situation, and get the motor running again. And, as time goes on (or even now, if the loan was taken out more than two and a half years ago), the bankruptcy weapon of choice may be the Chapter 13 cramdown, which not only can get the debtor back on the road, but possibly with a lower payment to boot.

Game on.

Posted in Secured loans | Comments closed

Debt collectors know when to pounce on you — how one does it

One of the nation’s largest debt collectors,Portfolio Recovery Associates, has been in the news lately, and this article exposes a hard truth about the collections system: Debt collectors know when your finances improve. Because debt collectors pay the credit bureaus to tell them.
pra collector

I’m a bankruptcy attorney, and I know people want to put off filing bankruptcy for as long as possible.

Some people come to see me when they have a good job again, after unemployment. They start to settle some of their smaller debts, and when they do, everybody jumps them.

Debt collectors call from everywhere. The sheriff comes around with a pile of summons. Old judgments suddenly are trying to attach your wages.

“I’m trying to do the ‘right thing,’” people tell me, “But I can’t pay everybody at once! How do they know?”

Portfolio Recovery are a high tech debt collectors. When they see your credit score start to improve, they know it’s time to jump on you.

Portfolio’s Recovery Associates is one of the top debt collectors in the country. They are good at what they do as debt collectors because of their technology.

Portfolio’s president has bragged in the newspaper about how they use computers to identify people who just now have some money.
Most people they leave alone: “Let’s face it,” says Steve Fredrickson, the company’s co-founder and CEO, “if you’re a consumer that’s in dire financial straits and you can’t pay us anything, I don’t want to talk to you, and you don’t want to talk to me.”
But when your credit report starts to improve, they pounce. When an unemployed mom gets a job or signs up for a cellphone contract, for example, her score goes up. PRA pays to access data from credit reporting agencies, among other sources of information.

“When something does change, you want to be the first one to get them on the phone,” [PRA Vice President Neal] Stern says. “They probably owe five or six other people.”

The lesson here is that unless you have cash to settle with everybody, trying to settle one creditor at a time, does NOT buy you peace. (Bankruptcy does that.) Trying to settle your bad debts, sadly, just leads to more headaches.

Posted in Practical tips | Comments closed

Getting a mortgage after bankruptcy just got a little easier

Here’s a little bit of good news for people who have filed for bankruptcy, but are wishing they could buy a property again.
waiting
As of July 29, 2014, Fannie Mae has relaxed its rules for qualifying for a mortgage with a bankruptcy on your record.

While bankruptcy can be listed on your credit record for up to ten years, Fannie Mae will approve applications for would-be owners two years after filing.

However, for a long time, Fannie Mae has had a separate rule that homeowners with a foreclosure on their credit had to wait three years to apply for a new mortgage. That created some problems because even when people file bankruptcy to get out of an upside down house, the mortgage lenders and servicers would often drag their feet on foreclosing.

But now, Fannie Mae has announced it has eliminated the three year rule on foreclossures. So all anyone has to wait is two years after bankruptcy and they can try for a FNMA backed mortgage again.

That’s only fair. It’s not your fault if the mortgage company never gets around to foreclosing. And it’s good for the economy. More new houses can get built and sold sooner. Great news all around.

Posted in Bankruptcy News, Foreclosure, Secured loans | Leave a comment

Letter presses administration on student loan bankruptcy standard

graduationAs of May 16th, 2014 there has been a new development, a bit of a surprising twist, you might say, in the saga of student loan collections.

Seven Democratic congressmen (including Senator Elizabeth Warren from Massachusetts) have sent an open letter (text here) to the Department of Education asking them to clarify what qualifies as an “undue hardship” that should result in a debtor getting a discharge of student loan debt.

As a bit of background, in order to discharge student loans in a bankruptcy case, debtors must prove (in a lawsuit) that the loans are causing an undue hardship in their financial life. Courts across the country have struggled to determine how that phrase should be interpreted, in the process coming up with all kinds of contradictory definitions.

According to student loan lawyer Josh Cohen, the congressional leaders behind the request are asking the Department of Education for a definition of undue hardship whenever a debtor receives SSDI, has a military service related injury that prevents employment, has income from only Social Security or retirement funds that does not exceed twice the poverty guidelines, cares for an elderly or disabled family member and earns less than twice the poverty guideline, or has a record of earning less than 175% of the poverty guidelines for the past five consecutive years.

While any improvement on the student loan collection scene would be most welcome, the uncertainty here is how much influence the Department of Education (an administrative agency in the executive branch of government) would have with the bankruptcy court system (part of the judicial branch). Stay tuned.

Posted in Student loans | Leave a comment

The worst bankruptcy mistake you can make in Massachusetts

car-repoRecently I ran across someone who wanted to make just about the worst mistake possible for a Massachusetts resident who has just filed for bankruptcy protection.

She wanted to sign a reaffirmation agreement on a leased car.

Why is that such a no-no if you live in Mass? First, some terminology: a reaffirmation agreement is basically a new contract that is signed by the debtor after she has filed a bankruptcy case. The “re-aff” can be filed with the court and approved bye a judge. The debtor than owes the debt all over again, despite having filed a bankruptcy case.

Signing one is usually a horrible idea for a Massachusetts debtor who is just looking to keep their car during and after the bankruptcy case.

This is because Massachusetts state law independently protects car owners who are able to make all their payments on time. The Massachusetts General Law in chapter 255B, section 20B prevents a lender from repossessing an auto or truck without a court hearing if all payments have been made on time.

(An interesting sidelight is that the same law prevents a repossession when the vehicle is parked on land owned or rented by a debtor, even if payments are late).

With this protection on the books, it is usually crazy for a debtor in Massachusetts to go ahead and sign a re-aff. It’s especially nuts if the car is a lease, because the driver is never going to own the vehicle outright in any circumstance.

Of course, if you live in another state, all bets are off. That’s why if you cruise the internet looking for advice, lots of bankruptcy lawyers will say that you might have to enter a reaffirmation agreement if you want to keep your car. It might be true where they are, but the rules are a little different here.

This begs the question why would any creditor even bother sending out a reaffirmation to a Massachusetts debtor? Are they playing you for a dummy, or trying to twist arms? “Hope springs eternal,” I guess could be the underlying philosophy, but the main reason is that the large national creditors farm the job of printing up re-affs out to “bankruptcy support” firms who just grind out the forms without any care for the nuances of any particular state’s law.

The take-away here is easy: you don’t need to sign a re-aff to keep your car if you live anywhere in Massachusetts. And doing it on a leased vehicle is just plain stupid.

by Doug Beaton

Posted in Secured loans | Leave a comment

Bankruptcy creditor blamed for arrest warrant

police-lights-flash-siren1If a creditor is suing you in small claims court, and you file a bankruptcy case to put an end to the problem (which it should), and the creditor does nothing further to collect on the debt (which is proper), the creditor still can end up in hot water if bad things happen to you after filing.

At least that is the moral of the Stone case, where a New Hampshire company violated the debtor’s bankruptcy discharge not by engaging in collections activity, but by being completely passive and allowing the small claims case to continue on it’s own.

The creditor was a fuel oil company that filed a suit in small claims court in New Hampshire for payment on an oil delivery, and won a judgment. After the suit was filed, Ms. Stone, the debtor, filed for Chapter 7 bankruptcy. A short while later, the oil company received notice of the bankruptcy case. They also received papers from the small claims court which were meant to be served by the sheriff on a motion to establish “periodic payments” from the debtor.

Because the company knew about the bankruptcy, they did NOT serve the papers on the debtor, but pocketed them and thought that was the end of the matter.

Typically, it would have been, but here the small claims court scheduled the hearing anyway, and when nobody showed up, issued an arrest warrant for the debtor, on it’s own action.

The arrest warrant was active for eleven days before the mix-up was cleared up, and no one was actually arrested, but a bankruptcy judge later found the oil company had violated the debtor’s discharge, not by engaging in collection activities, but by passively allowing the small claims case to continue when they knew a bankruptcy had been filed.

Although this bankruptcy court did not put the burden of disclosing the bankruptcy on the debtor, as a practical matter that is almost always the best practice.

I like to send out notifications (often called “suggestions”) of a bankruptcy case to local state courts as soon as a client’s bankruptcy case has a docket number — many many problems are nipped in the bud that way!

by Doug Beaton

Posted in Bankruptcy News, Practical tips | 1 Response