Category Archives: consumer law

A Friend Tried a Debt Management Plan – It Didn’t Work

There are a ton of debt management companies out there that will promise to consolidate your debt, or reduce your debt or give you ONE, LOW MONTHLY PAYMENT! All too often, they don’t work. Bankruptcy does, and there are really good reasons for that.

Remember two things. First, if it sounds too good to be true, it probably is; and second, there is a huge difference between a contract between you and a private company and Federal Law enforceable by the U.S. Court system with the assistance, if necessary, of the U.S. Marshals.

If you have tried a debt management plan or consolidation plan, one of those places that promises that it is every bit as good as a bankruptcy; only to find that the phone kept ringing, and the lawsuits kept coming? Well, first of all, actually read your contract. My guess is that if you sit down and actually read all the small print, you won’t like what you find. It also won’t promise results or relief. The problem with debt management or consolidation plans is that your creditors are not required to accept a deal that you cut with someone else. Think about it, if your creditors decline to go along with the plan, what is the debt management company going to do about it?

If creditors decide that the Bankruptcy Code doesn’t apply to them, the Bankruptcy Court’s orders are punishable by contempt of court. You won’t find that in the small print of a debt management contract.

Now, there are people who think that a Bankruptcy filing is too good to be true. It really isn’t for a variety of reasons. First of all, it is a public proceeding. Now, that doesn’t mean that your First Meeting of Creditors will be held in the middle of the local shopping mall. It does mean that your court file is a public record. Second, bankruptcy is an admission of failure. It hurts. It is hard to accept. It is hard to do. The for profit debt management companies know this. They play off of it. That is why people pay them and want to believe in them. Third, bankruptcy is about the worst thing you can do to your credit report (although, if you police your credit report post discharge, it won’t be nearly as bad as you expect). Finally, there is really good public policy in favor of our bankruptcy system.

One of many things that separates our economic system from most of the world is that we understand that not only does the freedom to succeed include the freedom to fail, the freedom to fail is necessary for the freedom to succeed. If you can’t afford to fail, you can’t afford to try. This makes more sense in a business context, but the consumer context is that someone with more debt than he can pay is not a contributing member of the economy. He is not taking care of himself and his kids. He isn’t saving for retirement and college. He isn’t out buying stuff, if he is too consumed with trying to pay for the past. Bankruptcy fixes this. That is serious economic policy that was recognized by our founding fathers, which is why the need for a Bankruptcy Code is one of the few areas of law specifically mentioned in the U.S. Constitution.

So, when a private company tells you that they are just as good as the United States Court system. Ask yourself, why you want to believe that.

Then, either contact Consumer Credit Counseling Services, which is one of the few legitimate debt consolidation companies that is non-profit and won’t misrepresent what they can and can’t do; or, admit that if you have too much debt to pay, you have too much to pay – consolidated or otherwise.


Don’t Be Afraid to Sue Somebody

A friend of mine, Louis Green, and I were talking last week about talking to clients about being a plaintiff, i.e., suing somebody.  Louis is a consumer law attorney.  He handles many of the same kinds of issues that I deal with, but he practices in District Court rather than the Bankruptcy Court.

A while ago Louis had a man come to see him – who was seriously embarrassed.  He was an older man, who felt like he should have known better; but — to be blunt — he was suckered by a car dealership.

The first thing he needed to understand is that he was taken advantage of by professionals.  This can be hard for a lot of us to grasp (umm, that would include me), but people who are truly professionals at things tend to be better at them than those of us who are really just amateurs.  I hate this.  There are all kinds of things that I think I ought to be just as good at as anybody else — but I’m not, and my kidding myself is hurting no one but myself.  (Why, yes, I do self-manage my IRA — your point?  Sigh.)

This man was old enough to know better.  He had bought cars before.  He knew better than to sign things without reading them, but the print was small; and his eyesight isn’t what it used to be; and the pros made him feel rushed and uncomfortable.  Well, even though he should have known better, that wasn’t his fault.  He was damaged by it, and he stuck to his guns.  He hired a good lawyer; and he won — an award large enough the car dealership required that it be kept confidential for fear anyone might find out how much they were having to pay.

Was all of this embarrassing?  Yes.  Did his adult children find out he had been scammed?  Yes.  Did he have to take the time to go to court and participate in discovery and deal with lawyers?  Yes.  Was it worth it?  That is a question that only he can answer, but I can say it was the right thing to do.

When people come to see me, they are tired of dealing with it all; and they just want it over.  Bankruptcy is good at that, but sometimes, they really do need to step up and be a plaintiff.  Sometimes, you just need to say — No, what you’ve done is wrong; and I am going to put up with the embarrassment and the inconvenience to make you pay for it.  Is it worth it?  More often than not, yes.  Is it the right thing to do?  Yes.

So, think about it.  Sure, you can file a bankruptcy and discharge the underlying debt, but if someone has been incorrectly reporting on your credit report or illegally harassing you about a debt, if a car is a lemon (for information on Oklahoma’s lemon law) or you were scammed by the dealer, at least consider whether or not you should be a plaintiff, as well as, a debtor.


When a Collector Threatens You With Jail

There are two scenarios that I have seen where purported debt collectors have threatened people with jail.  One of them is an out and out scam.  The other is just illegal.  The scam is the most common so let’s start there.

  • Collector calls and tells you that if you don’t pay a certain bill immediately, the Sheriff is going to come to your house and arrest you.  You have to pay this today.  You are going to be arrested tomorrow.  The only way you can pay this is by electronic funds transfer from your checking account over the phone RIGHT NOW.  You cannot mail in a check — even a certified check sent next day delivery.  Nope.  It must be over the phone, straight from your checking account RIGHT NOW.

When was the last time a legitimate debt collector wouldn’t take a cashier’s check by mail?  They are so interested in keeping you out of jail that they would rather not get their money?  Really?  Does this sound like any legitimate debt collector you have ever spoken with?  Any debt collector who won’t give you a mailing address and who won’t take a cashier’s check is not really a debt collector.  A colleague of mine traced one of these calls.  It was a voice over IP call, and somehow he was able to track the IP address of the originating computer.  It was in Pakistan.

The second scenario is just an overly aggressive collector who gets carried away.  My favorite example of this is the debt collector who told a woman that if she didn’t pay her credit card account, he was going to call DHS and have them take her children away, because she was obviously an unfit Mother.  That is what is known as a violation of the Fair Debt Collection Act.  It also violates a number of State laws.  That debt collector was sued by a friend of mine for that call, and the case settled for a not insubstantial amount of money.

These scenarios work, because the collector gets the debtor scared enough to stop thinking rationally.  Consider carefully, how many children would we have in foster care in this Country if not paying your credit cards made you an unfit parent?  Not only am I not sure I can count that high, but how many news stories about this would it take before the tax payers told our legislatures to find better ways to spend our tax dollars?  Have you ever seen a television news story about this?  If it happened, don’t you think you would?  What better television than a poor, weeping, hysterical woman who has lost her children because the ex didn’t pay child support, and she has been too ill to work?  Do you really think the local news stations have too much class to air this?

Now, here is where this whole issue gets sticky.  It is easy to say that you can’t go to jail for debt in this Country, and technically that is true.  You can, however, go to jail for violating a court order; and if that order is to pay a debt — most commonly child support, and you don’t do it, well, you can go to jail for willfully disobeying the Court’s order.  The standards for that are going to vary from State to State, but even though technically this is punishment for disobeying the Court, it is effectively imprisoning someone for not paying a debt.  It is very effective at getting recalcitrant parents to pay their child support, by the way.

Another variant on this is that if you are ordered to appear for a Hearing on Assets by a creditor who has a judgment against you, and you don’t appear; well, a bench warrant can issue for your arrest.  Again, the warrant is for disobeying an order of the court to appear and provide information; but it can be an effective collection tool nonetheless.

One thing to notice about both of these scenarios, they involve judgments, court orders and lawyers.  They don’t involve telephone calls, and before you can violate a court order, you have to have been given notice of that order.  That means you have to have been a party to a lawsuit.  Ask the guy who is calling you, threatening to put you in jail, for the case number of the lawsuit.  Odds are he will tell you that he didn’t have to sue you.  Those laws don’t apply to him.  Well, maybe they don’t — in Pakistan.

I will say, though, that these calls are only effective if the person receiving the call has problems with debt.  So, if this happens to you.  Don’t get so scared that you lose your grasp on reality.  After all, you don’t know ANYONE who has gone to jail for not paying a credit card.  Ask for a mailing address.  Real debt collectors will always take a cashier’s check by mail.  They really just want their money.  Ask what order you have violated, in what court case and ask for the case number.  Then hang up.

Oh, and after you hang up — call a lawyer.  If you are getting calls like that, and they are elevating your heart rate so much as one beat per minute; it is time to call for help.


A Debtor By Any Other Name

I used to think I was being facetious when I told my clients that one of the more challenging things about the whole Bankruptcy process was being asked their name at the First Meeting of Creditors.  You know, strange place, strange people, crowded room, being placed under oath and then being asked QUESTIONS – beginning with, “Would you please state your full name for the record?”  Tough, huh?

Of course, as with many things that seem silly when one is young and foolish I have gained some real respect for the difficulty of this question.  Despite the fact that this sounds like the setup for a punch line, periodically I really do encounter someone who isn’t completely sure what his name is – or isn’t – or used to be.

This issue hit the popular press during last Fall’s elections when a number of States had new voter ID laws go into effect.  A number of people, including quite entertainingly a number of fairly high profile politicians, had difficulty voting because their name wasn’t exactly the same across a number of different documents.

Here are a few scenarios:

  • Woman gets married.  She begins using her Husband’s surname, but she doesn’t change her driver’s license, her Social Security records, and she continues to use her maiden name on her tax returns, because otherwise, her tax return wouldn’t match her Social Security records.
  • Man has a son.  Man names his son after himself.  Son is now John Doe, Jr.  So, Dad starts calling himself, John Doe, Sr.  Really?  Having a child changes your legal identity?
  • Woman gets divorced.  In Oklahoma divorce decrees usually include a provision restoring the woman to her maiden name, or another former legal name, if she has requested that.  So, when the decree is entered, there is an order from a Court signed by a Judge determining that the woman’s name is now legally her former name.  Except that changing your name can be such a hassle.  So, sometimes the divorce is finalized, but months later the woman is still using her married name and just hasn’t quite gotten around to changing anything yet.

It wasn’t that long ago when names were about personal identities and not legal concepts.   This change has been happening for a long time.  Regardless of what we may or may not think or like about that idea, once 9/11 happened there was no going back.

So, if you are thinking you might need to file for bankruptcy, get a passport or vote; it might be time to consider whether or not you know who you are, and whether or not your available documentation supports that opinion.


Dealing With Debt Collectors

The relatively new Consumer Financial Protection Bureau has put some useful resources on the Bureau’s website to deal with obnoxious debt collectors.  The first thing on this page are links to two new bulletins providing notice to debt collectors of practices the Bureau finds abusive.  These things just make kind of fun reading.

The meat of the page are the so-called “Action Letters”.  These are form letters developed by the CFPB to help consumers implement their rights under existing consumer protection laws (primarily the Fair Debt Collection Practices Act).   These letters serve the following purposes:

  • To dispute a debt and request additional information about the debt;
  • To dispute a debt and demand that the collector prove that the consumer is responsible for the debt and to stop contacting the consumer until they have done so;
  • To restrict the times and methods by which the collector can attempt to contact the consumer;
  • To notify the collector that the consumer has retained an attorney and all contacts should go through counsel; and
  • A cease and desist letter — this is a letter instructing the collector to stop all contact attempts with the consumer.

These letters are very useful tools, but they do have some downsides.  FDCPA disputes almost never produce what you hope they will, and if you really do owe the debt, it will buy you only a brief respite from collection activity.  If, however, you are willing to proceed with active litigation against the collector, this kind of verification letter can be extremely valuable.

The most valuable restriction on time and place of contact is preventing the collector from contacting you at work.  This can be very effective.  It will not, however, stop overly aggressive collectors from calling your employer — just to verify that you really do work there — yea, right.

Attorney retention letters are really better coming from the attorney.  Far too often people will tell a collector that they are represented by a certain attorney (whose name they have plucked from the phone book or a website) when they really aren’t, because they have heard that will stop collection calls.  Believe it or not, the collectors really will verify this; and you will not be winning friends with an attorney you may need to actually represent you down the road if his or her phone starts ringing off the hook with creditors of a supposed client the attorney has never heard of.  Bad plan.

Cease and desist letters basically are a mechanism for requiring that collectors stop all collection contact.  It does not mean they can’t sue you.  Well, if they can’t call you, they can’t harass you by mail and you aren’t represented by counsel; there really isn’t much left for them to do.  Now, not every collector sues upon receipt of a cease and desist letter; and I have clients who have used them very successfully, but only in very specific fact situations.

Finally, at the bottom of this page the CFPB outlines its complaint mechanism for lodging complaints against collectors and creditors.  By all means, have at it.  In fact, I encourage everyone to investigate the resources available from the CFPB and make use of them.  Just be aware of the fact that not everything will do what you expect, and most things do have consequences.  Getting a breather from collection calls is not a solution, it is a tool.


Mortgage Overcharges and Consumer Protection

Recently, Bank of America agreed to a staggering settlement for mortgage fees improperly charged by Countrywide prior to the BOA takeover.  Henry Sommer, one of the Country’s leading Bankruptcy lawyers, scholars and consumer activists has posted some thoughts about that settlement on Credit Slips.  It is well worth reading.


When You Don’t Need to File for Bankruptcy

I get calls frequently from people whose income is well below the poverty level (in many cases is Social Security only) and think they need to file for bankruptcy, because somebody sued them.

Sure, in some cases they are right. However, you don’t want to file for Bankruptcy until you are through getting into trouble. If you are still incurring significant health care costs, if you are seriously underemployed (especially without health insurance), then, you may not be through getting into debt.

Any debt you incur after you file for Bankruptcy will not be included in your discharge. That means you will still have to pay it, and once you have filed a Bankruptcy, it will be at least several years before you can file another and get a discharge.

There are ways for very low income people to protect what they have even if they are sued. So, sometimes, I have to tell people that they are better off learning how to protect their assets from creditors and wait a while until they file.


Getting Paid by the U.S. Trustee

I love reading opinions where the winning attorney had way more in the guts category than I do.  Dennis Feld, a fellow NACBA member from New Mexico, has just gotten a written opinion out of the Bankruptcy Court in New Mexico to the extent that a withdrawal of a 707(b) motion by the U.S. Trustee qualifies the debtor as a prevailing party under the Equal Access to Justice Act.

Ok, so in English?

The Equal Access to Justice Act allows an award of attorneys fees against the U.S. Government if four conditions are met:

  1. First, the petitioner must be the prevailing party;
  2. The government’s position in the litigation must not have been substantially justified (which means a reasonable basis in both fact and law);
  3. A motion requsting an assessment of fees must be timely filed; and
  4. No special circumstances exist that would make the award unjust

See, In re: Mendez, No. 7-07-11092 Bankr. N.M. decision date September 26, 2008.

The Mendez court found that the Trustee’s withdrawal of its 707(b) motion to dismiss qualified the debtors as a prevailing party. The opinion does not address the remaining three factors. However, I expect to see more litigation on this issue in the near future.

Oh, and as much fun as it is to spend Capital One’s money — and it is, trust me. It must be even more fun to cash that Treasury check.


Credit Card Issuers Wanna Do You a Deal! is reporting that Credit Card issuers are looking for a little regulatory help to make it cheaper for them to forgive some credit card debt. (Article is called, Banks seek help to forgive some credit card debt.) Essentially, some banks, who are also credit card issuers, are requesting a regulatory change; so that if they forgive some credit card debt in the form of workout agreements with card holders, the banks do not have to have to book the entire amount forgiven at one time.

The way this would work is banks would identify the customers most likely to file for bankruptcy (and pay them nothing). The banks would offer those people a deal where the bank would write off up to 40% of the total oustanding balance. The remainder would then be repaid at 0% interest over 5 years. The catch from the banks’ point of view is that the total amount of the forgiven debt would have to be taken as a loss at the time the workout was done — and, as the article points out, most banks don’t need more losses right now.

From the cardholder’s perspective there are two reasons why this isn’t the world’s greatest deal. First of all, assuming that you get the maximum 40% discount and that you are approved for the program at all means that you first, have been identified as likely to file for Bankruptcy. That tells me that this credit card account is probably not your only problem. Second, let’s say that you have a $10,000 account. Subtract 40%, and you have a $6,000 account. Pay that back over 60 months, and you have a $100 a month payment — except for all the rest of the debt you are trying to pay. Most people who file for bankruptcy have already stopped making payments on their credit cards and still can’t make ends meet. This deal might prolong the pain a little (and increase the guilt), but for most people I don’t see that it is a deal changer. The difference would be if there was some cooperation between issuers so that people in serious trouble could get this deal on all their credit card accounts. I’m not seeing that as a possibility from the terms of this article.

The second problem, and one that I harp on a lot here, is that this forgiven debt will constitute taxable income; and the banks will be sending 1099’s to the IRS on your behalf. Now, the easy answer is that the people this is targeted to should all qualify as insolvent at the time that the workout deal is made; and therefore, should be entitled to not pay taxes on this forgiveness of debt income by proving to the IRS that they were insolvent. Well, unless, they have substantial equity in either a homestead or a tax qualified retirement account (both of which are fully exempt in Oklahoma and can be kept by the debtor even if they file for bankruptcy); in which case, they might not qualify as insolvent and would have to pay the taxes due on the forgiven debt — including, of course, all that forgiven interest.

Umm, yea. Sure. How many people do you know who are in over their heads with credit card debt who 1. know that they need to present the IRS with evidence of insolvency in order to avoid paying taxes on forgiven debt; and 2. know how to go about doing that? Yea, that’s what I thought. Ultimately, these people will just trade freely dischargeable credit card debt for non-dischargeable tax debt.

Not quite the deal they thought they were getting.


Debt Collection Tactics on — huh?

I’m not sure what to think. Today there was a decent article on debt collection tactics and consumer’s rights on the front page of Here is the link to, “Rogue Debt Collectors — How to Fight Them“.

The article is pretty good, it is also pretty generic, as is to be expected from a National publication. I’m just curious what this says about the National appetite for news when this rates’s front page. I’m pretty sure that they use some kind of statistical click monitor to decide what to run where. After all, they make a lot more money than I do; and I can figure that out. So, how many people must be clicking on articles about debt management for this to rate a front page link?