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 | Leave a comment

TelexFree owner on the run?

Briefcase-with-CashAs a followup to yesterday’s piece on the TelexFree bankruptcy case, Boston Globe reporter Beth Healy writes today that one of the embattled company’s owners may have left the company for Brazil.

Because criminal charges have not been brought in the case, there is nothing to stop that. TelexFree filed for Chapter 11 bankruptcy protection in Las Vegas last month, but the SEC convinced a judge there to move the case to Masachusetts, where the firm’s headquarters are.

Chapter 11 bankruptcy usually means a firm is going to try to maintain operations. TelexFree says they provide phone services for calling South America, but accusations of a pyramid scheme have been swirling recently.

SEC lawyers think TelexFree might have as much as $100 million in assets that could be available to creditors, most of whom are the company’s participants and promoters. That figure includes $38 million in cashier’s checks the company’s acting chief financial officer allegedly carried with him last month as he attempted to leave TelexFree’s offices while federal agents were there seizing computers and records.

A lawyer for the SEC said they would ask a judge to move the case from the bankruptcy court in Worcester to Boston.

Since potentially hundreds of thousands of TelexFree participants stretch from Boston to Tanzania, the SEC’s counsel said it’s, “going to be a massive problem to figure out the accounting.”

by Doug Beaton

Posted in Bankruptcy News | 2 Responses

TelexFree bankruptcy case headed to Massachusetts

telexIt looks like the TelexFree bankruptcy case is headed to Boston.

According to a story by Beth Healy in the Boston Globe, a judge in Las Vegas has decided that the controversial company’s bankruptcy would be better off being heard in their home state of Massachusetts.

TelexFree is a purveyor of free Internet telephone service, but accusations of a Ponzi-like swindle have been flying.

TelexFree filed for Chapter 11 protection in Las Vegas in April, 2,700 miles away from its main office in Massachusetts, just days before state and federal securities regulators brought civil fraud charges against the company’s principals.

Then, Federal agents raided TelexFree’s Marlborough office on April 15, two days after the bankruptcy filing, and regulators soon froze the company’s assets. Secretary of State William F. Galvin accused the company of luring $90 million from Massachusetts residents who signed up for TelexFree’s Internet phone service and opened investment accounts with the company on promises of large returns.

According to the Globe article, TelexFree was shut down by a judge in Brazil in 2013 and then shifted its attention to US investors, according to the lawsuits filed by regulators and Bonsignore. The company has thousands of victims around the world, according to the regulators.

In Massachusetts, the company appears to have targeted predominantly Brazilian and Dominican immigrant communities.

by Doug Beaton

Posted in Bankruptcy News | Leave a comment

Unemployment overpayment might survive bankruptcy

depression unemploymentDebtors who have been notified by a state unemployment agency that they have been overpaid — and also that the state would like to be re-paid, pronto — might be able to discharge such a debt with a bankruptcy case.

Or they might not be able to. It really depends — on the particular facts of each case.

First the basic law: unemployment over payments are not taxes, and are generally discharegable as unsecured debts.

But debtors need to be brutally honest with themselves before charging off to bankruptcy court. Over payments are often the result of working and earning while still collecting an unemployment check, and when this is “discovered” by the state, reprisals ensue.

One response by the state would be to challenge the dischargeability of the debt in bankruptcy court by alleging fraud under section 523 of the bankruptcy code. In that event, the debtor will get a trial on the issue in front of a bankruptcy judge, who will decide whether the debt gets discharged or not.

That didn’t go so well for the debtor in the Searle case in New Hampshire recently. She collected a little more than $14,000 during a period of unemployment, which the state now wants back, because it found out she had done a little part time work during the same time.

This debtor did basically two things wrong: First she seems to have invented her own rule that earnings of less than $350 per week didn’t have to be reported on the unemployment agency’s internet check-in system.

Second, the debtor testified that she went for an in-person interview with a state employee in 2010, when she applied for an extension of benefits. The debtor said the interviewers “had everything in front of them,” meaning all of her earning information, and that therefore, the state was aware of her situation and compensated here anyway.

That MIGHT have worked, except the bankruptcy judge in New Hampshire had no idea of what “everything” was, and therefore it could not conclude that the state was remiss in relying on the debtor’s untrue submissions that minimized her earnings from work.

The moral of the story? Unemployment over payments are technically dischargeable in bankruptcy. But be careful that the over payment is actually due to bureaucratic bungling, and not semi-honesty on the debtor’s part. And be sure everything is documented — on old-fashioned paper, preferably!

by Doug Beaton

Posted in Practical tips | Leave a comment

Fancy eyeglasses cause trouble at bankruptcy hearing

eyeglassesOn the bankruptcy questionnaire I give to prospective clients, the very first thing I ask them to value is their jewelry.

There’s a reason for that: it’s not that jewelry is subject to forfeiture in bankruptcy (in fact, there are generous allotments for debtors to keep jewels), but that it’s something that they are likely to show up wearing at the meeting of creditors in their case, and an alert trustee may notice a discrepancy with what is actually declared on the forms.

Something like that played out in Boston today, when a debtor who had already drawn the attention of the US trustee’s office showed up wearing eyeglasses from Lenscrafters that cost north of $1000. The case trustee, who had apparently been in the market for glasses himself this spring, spied the pricey frames.

It was pretty clear from the case that this woman was going to be “invited” back next month for a second grilling no matter what, but she didn’t help her cause by flashing the fashionable eyewear. Memo to debtors: there’s no need to dress down on purpose for a bankruptcy hearing, but you do need to make sure what you do wear is fairly listed on your schedules when you file the case!

by Doug Beaton

Posted in Practical tips | Leave a comment

Wells Fargo in hot water over foreclosure manual

US-MORTGAGE-BANKING-COMPANY-FILESThe New York Post reports that one of Wells Fargo’s own foreclosure manuals could be used against the bank in a bankruptcy trial.

Or as the Post puts it more bluntly, “Wells Fargo is in a federal judge’s hot seat.”

On March 12, The Post broke the news of a bankruptcy lawyer’s allegations in court papers that the 150-page manual, written on Nov. 9, 2011, provides procedures for fabricating foreclosure papers on demand. According to court papers, the manual details “a procedure for processing notes without endorsements and obtaining endorsements and allonges.”

Robo-signed documents have often been discovered en masse during the recent financial crunch, and can void a bank’s attempt to proceed to foreclosure.

The book in question is called the “Wells Fargo Home Mortgage Foreclosure Attorney Procedure Manual.” Manhattan lawyer Linda Tirelli argued to bankruptcy judge Allan Gropper that the endorsements on her client’s mortgage note were “fraudulent in nature.” If the disputed manual is admitted in to evidence, it’s contents could become well known, and possibly support claims by homeowners against Wells Fargo all across the nation.

by Doug Beaton

Posted in Bankruptcy News, Foreclosure | Comments closed