Debt settlement firms are mostly bogus

By doug | Published: March 30, 2010

Debt settlement companies that prey on the hopes of those behind on their bills often leave their customers in the lurch, to face just as many harassing calls and notices as before.

Just ask Gloria Snowden of Baltimore, who signed up with a company that promised to negotiate away her $10,000 credit card debt. Snowden paid the firm $400 dollars per month, and ended up with nothing, and had to file for bankruptcy anyway. If she had just filed for bankruptcy from the start, she would have been a lot better off.

The Associated Press reported that Snowden battled with the company for five years to live up to its promises, before finding out that the Maryland attorney general’s office had jailed the companies leaders for fraud.
Many debt-settlement firms offer legitimate financial services, but a lack of regulation has made it difficult for people such as Snowden to sort the good from the bad. The fast rise of firms has prompted lawsuits and pressed states to draft laws to protect their most financially vulnerable residents.

“The Maryland General Assembly is considering a bill that would cap the firms’ fees, which are often paid before they make a single call to a creditor. In one year, complaints about such companies to the state attorney general’s office have quadrupled to 121. Investigations have been launched in Illinois, Vermont, Maine, New York, and Florida.” It would be worth it for the Massachusetts and New Hampshire authorities to fight these scams as well, for there are plenty of victims right here in the Merrimack Valley.

“It’s a sign of the times. . . . People found themselves in deeper and deeper debt,’’ said Marceline White, executive director of the Maryland Consumer Rights Coalition. “As they were trying to dig out, these firms rose up.’’

 

By Doug Beaton

Posted in Bankruptcy News, Practical tips | Comments closed

Creditors need to read their mail, too!

By doug | Published: March 29, 2010

Around here we are very familiar with the phenomenon of debtors who at some point just give up and stop opening their mail. Every week, they bring in the unopened bills, and I open them and add them up!

But what about a creditor who misses something important because they didn’t open the mail? Suprisingly enough, this issue went all the way to the United States Supreme Court last week, in the Espinosa case.

The issue was what should happen when a creditor fails to object to a Chapter 13 plan, then later tries to re-open the bankruptcy case to complain. United Student Aid Funds, Inc. is a student lender; the debtor submitted a Chapter 13 plan that proposed to discharge his student loans with them. At the time the debtor’s attorney he filed the plan, he mailed a copy to all the creditors, as required by law.

Normally student loans can’t be discharged, at least without a specific ruling by the bankruptcy court that the loans constitute an undue hardship. But in this case the bankruptcy court didn’t make any ruling, for or against a hardship discharge.

But the creditor never objected to the plan, either, apparently not noticing until it was too late that the plan called for discharging their loans. When they did discover what was going on, several years later, they marched into court and tried to get the debtor’s discharge removed.

But the Supreme Court, in an opinion written by Justice Clarence Thomas, said they were too late, and rejected the creditor’s request — supported by your U.S. government, by the way — to use federal procedural rules to overturn final judgments. The practical effect of this ruling is that creditors are now truly bound by Chapter 13 plans they don’t object to, even when the plans might conflict with existing laws. Creditors have to stick up for themselves like anybody else, in other words, or risk losing rights if they don’t.

 

By Doug Beaton

Posted in Bankruptcy News, Chapter 13, Student loans | Comments closed

Got mortgage trouble? Stay tuned . . .

By doug | Published: March 26, 2010

Business news outlet CNBC is reporting that the Obama administration will announce important new initiatives to deal with the depressed housing markets later today.

There will be changes to the battered-down Home Affordable Modification Program (HAMP), including a new emphasis on writing down the principal on troubled mortgage loans, and financial assistance to unemployed homeowners.

With the jobless rate still near 10 percent, more people are falling behind on payments and heading into delinquency, unlike the earlier stage of the crisis when many foreclosures were the result of bad lending in the subprime mortgage market.

A new measure would attack that problem by giving unemployed homeowners three months of forbearance, essentially buying time.

A write-down in the principal of the loan, as opposed to a simple reduction in the mortgage rate, will now be given serious consideration; loan servicers will receive additional incentives the longer the loan stays current.

More incentives will also be provided to second-mortgage holders to write down the value of those loans.

It will be interesting to see what those incentives are, because second mortgages can already be eliminated in many cases by using the Chapter 13 bankruptcy laws.

 

By Doug Beaton

Posted in Bankruptcy News, Chapter 13, Foreclosure, Real estate | Comments closed

Massachusetts mortgage settlement met with skepticism

By doug | Published: March 25, 2010

A settlement agreement between Massachusetts Attorney General Martha Coakley and mortgage lenders Countrywide and Bank of America has been met with skepticism by some housing advocates, according to a report filed by Jenifer McKim in the Boston Globe.

“Bank of America has been one of the worst loan servicers in offering homeowners help in this crisis,’’ said Boston lawyer Gary Klein.

Meanwhile, Kris McDonald, a community leader with the nonprofit Brockton Interfaith Community, was a little more hopeful. “Less foreclosures means less hardship to homeowners and less deteriorated structures in our neighborhoods,’’ said McDonald. “We’re encouraged by this announcement, but we’re reserving judgment until we see concrete action from Bank of America.’’

The settlement calls for Bank of America and Countrywide to propose reductions in principal on underwater home loans at the beginning of the loan modification process, rather than as a last resort. The skeptics don’t think they will do it even after the settlement. Time will tell; if you have personal experience dealing with either of these lenders, let me know.

 

By Doug Beaton

Posted in Bankruptcy News, Foreclosure | Comments closed

Red flags for debt settlement scams

By doug | Published: March 24, 2010

I have written previously about why for most people bankruptcy filing is a better option than getting tied up with debt settlement companies, but for anyone who is determined to try one out, be wary of getting caught up in scams run by these organizations.

How can you tell if a debt settlement offer is on the level? Here are three red flags that should send you running the other way, in to the arms of your friendly neighborhood bankruptcy lawyer:

RED FLAG: The debt consolidation company charges high up-front fees or monthly fees.

RED FLAG: The debt consolidation company wants to sign you up for their service; but they have not reviewed your financial situation.

RED FLAG: The debt consolidation company wants you to begin making payments into their plan before your creditors have agreed to take part in the plan.

In general, be very wary of debt consolidation or debt settlement companies who are not legitimate and/or make claims that they can make debt “disappear.” This is simply untrue. Debt consolidation simply puts all of your debts together so that you make one payment as opposed to several payments. Unfortunately, many debtors end up paying a very high premium for this type of service.

 

By Doug Beaton

Posted in Practical tips | Comments closed

So what is better, debt settlement or bankruptcy?

By doug | Published: March 24, 2010

So you have decided to tackle a debt problem. Congratulations — but you may immediately stumble on the question of just how to do it. For instance, should you sign up with a debt settlement company, or just declare bankruptcy?

If you own a radio or a television, you can’t get away from a constant barrage of debt settlement advertisements. At first it sounds good, but let me tell you how these companies typically work.

If you agree to sign up, the company will have you sign a contract that allows them to deduct fees from what you send them every month. These fees will be large — 50% of more of what you send in. They will take monthly payments from you, with the idea that you will build a fund for settling the debt. Then at some unspecified time in the future, after your fund has grown, they say they will strike settlement deals with your creditors for some percentage on the dollar. Many claim to erase about half of your debt.

But because the debt settlement company’s fees are large, it takes a long time to build your account up to any meaningful level. In the meantime, nothing is getting accomplished. Your stress level may be just as bad as if you had done nothing. You may even be worried about how you are going to make the payments to the settlement company. Plus, you may have been able to settle with your creditors for 50% just by calling them up yourself (maybe, maybe not, a little persistence sometimes pays off here).

Now, contrast this scenario with going to see a bankruptcy attorney from the get go. In a simple Chapter 7 case, all of your unsecured debts can often be erased 100% in a matter of a few days. Bankruptcy prevents your creditors from bothering you by phone, mail, or any other method, and your attorney has the skills to see that this law is enforced — or else. As far as your credit rating goes, there probably is not going to be much difference, given that the debt settlement strategy is going to have you skipping all your regular debt payments and going in to default on your credit accounts by not paying on time.

But attorneys cost money, don’t they? Of course they do. But you quickly pay more in those monthly fees to the debt settlement companies than the attorney fees and the court fees combined would cost.

Finally, if you go the debt settlement route, even if you are successful, you have to ask what is accomplished. For instance, if you have $30,000 in credit card debts, and you do manage to settle them for 50 cents on the dollar, will you in fact have $15,000 to pay the settlement? Someone who files for bankruptcy and manages to save $15,000 after the filing will be able to put that money toward rebuilding their lives.

For most people, in most circumstances, debt settlement firms should be avoided.

 

By Doug Beaton

Posted in Chapter 7, Practical tips | Comments closed

Massachusetts supreme court will decide foreclosure issues

By doug | Published: March 24, 2010

The Supreme Judicial Court in Massachusetts said yesterday that it will hear the Ibanez foreclosure case, which has caused turmoil in the banking and mortgage lending business.

In 2009, the Land Court issued the original Ibanez ruling which required that the true mortgage holders be properly identified before foreclosure proceedings could continue.

The pace of foreclosures in Massachusetts ground to a halt, as lawyers questioned exactly what paperwork was necessary to complete a valid foreclosure in the state. With foreclosures in doubt, legal title to the properties were also in doubt, and many lenders became cautious, and avoided foreclosing.

The ultimate source of the problem is the tangled web of financial relationships that ruled the mortgage banking world for much of the 2000’s. Identifying who held a mortgage on a property, which used to be a simple process, instead became a nightmare, with mergers, failures, bundled sales of mortgage notes, and more obscuring who really holds the rights to what property throughout the state.

If the SJC gives the green light to foreclosures again when they issue their ruling, Massachusetts could see a wave of new bankruptcy cases. People who have been living essentially “payment-free” while the Ibenez case festered will need to discharge months of overdue payments through Chapter 7. Homeowners who are not too far behind, and who want to try to keep their homes, will opt for Chapter 13 repayment plans in order to stay in their property as long as possible.

 

By Doug Beaton

Posted in Bankruptcy News, Chapter 13, Chapter 7, Foreclosure | Comments closed

Massachusetts homestead exemption is valid even if you plan to move

By doug | Published: March 23, 2010

The bankruptcy court in Massachusetts has ruled that a debtor can claim an exemption under the Massachusetts homestead law even when they are actively planning on moving out.

Bankruptcy judge Joel B. Rosenthal  ruled that since the Massachusetts homestead law is written to protect anyone who occupies a building as a residence, the debtor’s intentions about keeping their property in the future are irrelevant.

The question came up in a case where a debtor had a large amount of remodeling work done on his home before selling it, and also shortly before he filed bankruptcy. Several contractors had sued him and obtained liens on the property, but for some reason they were not paid out of the proceeds when the home was sold. After the bankruptcy case was filed, the former homeowner, Alfred McLaughlin, asked the bankruptcy court to remove the liens retroactively.

One of the contractors, Eric Silva, then went in to bankruptcy court and tried to have Judge Rosenthal disallow the debtor’s homestead exemption and keep the liens in place. Silva argued the debtor was acting in bad faith when he had the work on his home done, because he planned to move out, not pay, and file for bankruptcy.

But since the Massachusetts law requires only that a debtor be occupying the home at the time of the bankruptcy filing, the judge ruled that any future plans were irrelevant to claiming the exemption, and therefore bad faith was not proven.

The case is 09-44714, In re McLaughlin.

 

By Doug Beaton

Posted in Exemptions, Real estate | Comments closed

An example of exemptions at work — jewelry

By doug | Published: March 22, 2010

Following up on the idea that most people don’t lose their property when they file for bankruptcy, lets take a quick look at a situation that occurs over and over again in consumer bankruptcies — debtors who own jewelry.

That would, of course, cover just about everyone, as it is rare to find a person  who doesn’t have at least one trinket of some type. At my office I like to have debtors catalog their jewelry for me right at the start of the process.

There’s a couple of reasons for this. Although most jewelry is valuable, at least to a modest degree, it can be easily overlooked by debtors worried about putting values on a house or a car. Most people who wear jewelry have some pieces that they wear almost everyday, meaning they will have it on at the meeting with the trustee in their case. So it would be sort of nice that they declared it properly on their case forms — makes the hearing go much smoother!

Although debtors are often worried about losing items of sentimental value during a bankruptcy case. The federal bankruptcy code currently provides an exemption of $1350.00 specifically for jewelry; the exemption doubles to $2,700 for married couples filing jointly. If the value is greater than that, your attorney can often use “wild card” exemptions to protect the excess amount.

Debtor’s filing bankruptcy in New Hampshire and  using the NH state law exemptions receive a $500 jewelry allowance, plus there is wild card money available under the New Hampshire bankruptcy exemption schedule as well.

Consumers who have truly valuable jewelry collections that exceed these exemption limits by a large amount may be able to propose a Chapter 13 plan and keep their jewels anyway. So there really should be no worry about losing sentimental jewelry in a typical consumer bankruptcy case.

 

By Doug Beaton

Posted in Exemptions | Leave a comment

Will they take all my property when I file bankruptcy?

By doug | Published: March 19, 2010

One of the most stubborn myths about filing bankruptcy is that debtors lose everything they have by doing so. In the real world, most debtors don’t lose a thing!

Massachusetts, New Hampshire, as well as all the other states and the federal government have enacted lists of property that an individual may keep after filing bankruptcy. The legal jargon for the lists is “exemptions,” and the property you keep is called “exempt property.” The ultimate goal of a bankruptcy case, (at least from the point of view of the debtor) is to have ALL the property declared exempt. Somewhat confusingly, this is called a “no asset” case, because from the point of the creditors, no assets are put up for auction, and therefore there is no money to be distributed among them.

In other words, no bankruptcy trustee will arrive at your door ready to seize your favorite chair for liquidation. That’s just not how it works. But on the other hand, if you have a large amount of cash in the bank or hidden in your mattress the bankruptcy trustee may want to distribute some of that to creditors. But even cash may be protected in bankruptcy if you work with a competent bankruptcy attorney to create a pre-bankruptcy plan designed to maximize your bankruptcy exemptions. Remember, bankruptcy is not just designed to insure that creditors get paid, it is designed to give debtors a second chance financial and taking away all of their assets would not allow them to get that second chance.

 

By Doug Beaton

Posted in Exemptions | Comments closed
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