Category Archives: Litigation

Dealing With Debt Collectors

1 Reply

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.

Elaine

How Lawyers Get Educated

Leave a reply

I am writing this on the plane coming home from a Bankruptcy law continuing education conference.  I taught a class on Friday and attended the rest of the conference.  It was held at a  Ritz Carlton on the beach.  I recognize that this is a terribly rough gig, but somebody’s got to do it.

There is actually more truth to that last sentence, then most people realize.  Lawyers, at least in most States, are required by their State bar associations to take a minimum number of continuing education hours a year.  In other words, like any good education, law school is the beginning not the end.  However, even if my State didn’t require continuing education, it just isn’t feasible to stay current on all areas of my practice without help.  That is where continuing education conferences come in.

I figured out years ago that the best education to help me be better what I do every day is offered Nationally, not locally.  So, every year I try to go to at least one National seminar.  This last week I happened to be teaching and attending.

So, during the last few days I have studied the intersection of the Bankruptcy Code with the Tax Code (I really could have used a glossary), litigation tools for stay and discharge violations, the whole world of non-bankruptcy, debt settlement procedures; current developments in case law, rules changes and proposed changes to the official forms; utilizing the new proof of claims rules to more effectively serve my clients’ interests, and ideas in marketing and office management.  Oh, and in the midst of it all I taught a segment for new practitioners and legal assistants on the Statement of Financial Affairs.  It was an intense couple of days, although it calmed down a lot once I was done teaching and could just be a student for a while.

At the end of the conference, my to-do list had gotten a lot longer.  I now have procedures to revamp, forms to re-write, ideas to implement and areas that I know need a lot more study.  More importantly, I am thinking in new ways and excited again about this strange way in which I make my living.

My clients are usually very understanding when I am out of town, but with hearings tomorrow and the next day and appointments most days this week; I am going to have to hit the ground running – hard.  It was worth it, though — well, probably.

Elaine

I’ve Already Been Sued — is it too late to file for Bankruptcy?

Leave a reply

I get this question a lot, and it is one of those questions that requires a little interpretation.  I don’t think that anyone who calls and asks this question really believes that just because you have been named in a lawsuit means that you can never file for Bankruptcy, which is what the question asks.  In reality there are three questions lurking here.

The first question fleshes out this way, “I’ve been sued over a debt I did not and could not pay.  The Plaintiff has taken a judgment against me and recorded that judgment in County records.  What exactly does all of that mean, and if I file for Bankruptcy now, what can a Bankruptcy do for me with respect to that judgment?”

Like with most things the answer to that question is going to vary from State to State, and I do not presume to discuss anything here other than Oklahoma State law.  That being said, in Oklahoma a judgment gives the creditor certain rights, including the right to garnish wages, levy on bank accounts and record that judgment in County records.  Once the judgment has been recorded, it creates a lien on any real estate owned by the Debtor in that County.

That isn’t nearly as bad as it sounds.  First of all, there are some limits on wage garnishments.  Bank levies are rarer for a variety of reasons, but what most callers asking this question are really concerned about is a judgment lien attaching to their house.  Now, a judgment lien attaches to all real estate owned by the Debtor in the County, so if a Debtor owns a house that he lives in and another house — say a rental property, the lien will attach to both properties.  That is significant, because in a Bankruptcy a judgment lien can be removed from homestead property, but it cannot be removed from real estate that you own and don’t live in.  Also, a judgment lien cannot be foreclosed on homestead property (meaning the creditor can’t force a sale of the house to get its money), but it can be on property that the debtor owns but doesn’t live in.

Translated, this means that in a Bankruptcy a judgment lien can be removed from your home.  If you own other property, it probably cannot be removed and will survive the bankruptcy.

Now, just because you’ve been sued, doesn’t mean a judgement has been taken against you.   This is really the answer to the second question.  The second question fleshes out like this, “I’ve just been sued.  The lawsuit was filed a few days ago, and a process server just handed me the Petition and Summons.   Does that mean that a judgment has been taken against me?”  In a word, No.   These things take time.  A lawsuit generally ends with a judgment.  it doesn’t start with one.   However, filing a bankruptcy takes some time as well, so, calling an attorney sooner rather than later is always a good idea.
The third question is “I’ve just been sued.  I owe the money.  Can a bankruptcy filing stop the lawsuit, prevent a judgment from being entered and make sure that no wage garnishment will ultimately be served on my employer?”

The answer to that question is very simple.  Yes.  Lawsuits, wage garnishments and bank levies are all stopped by a bankruptcy filing.  They are not stopped by your making an appointment with a bankruptcy lawyer, by your filling out forms or even by your paying the lawyer money.  They are stopped when your Bankruptcy petition is uploaded to the Bankruptcy Court’s electronic filing system.

The minute that a Bankruptcy is filed an order issues automatically from the Bankruptcy Court that stays (meaning temporarily stops) all collection activity against the Debtor or property of the debtor.  That means everything stops.  The automatic stay is one of the really cool things about a bankruptcy filing.

So, is it too late?  No.  That does not mean that waiting any longer is a good idea.   Getting the bankruptcy filed will take time, so be sure that you leave yourself the time you need to prevent the creditor suing you from causing you any unnecessary pain.

Elaine

Judgment Liens and Bankruptcy

29 Replies

Is it too late to file for Bankruptcy? I’ve already been sued.

I have to file for Bankruptcy THIS WEEK.  I’ve been sued, and the answer date is Monday.

Judgments and judgment liens are creatures of State law, and as such, there is considerable variance around the Country.  This may also be an area of law where I think title attorneys are as ignorant as laymen.

Here’s the skinny.

No, it is not too late to file for Bankruptcy.

Calm down.  Now, breathe.  You have more time than you realize.  We can take a little time, get this done right; and still get you the result you want.

Here is why.  First of all, pending lawsuits against the Debtor are stopped — dead in their tracks — by a bankruptcy filing.  The reason is an order called the Automatic Stay that goes into effect the instant a Bankruptcy case is filed.  Second, that date in the Petition and Summons that you were served with?  That is the answer date.  If you don’t file an Answer, then a default judgment can and will be taken against you — eventually.  It probably won’t happen on the first possible day, but it might happen that week.  In Oklahoma once a Judgment is taken, it cannot be acted upon (i.e., a wage garnishment issue, etc.) for ten days absent some pretty extraordinary events.  So, even if a judgment is taken on Monday, you still have ten days before you need to start looking over your figurative shoulder.

So, what happens if that ten days has passed, and the creditor has recorded its judgment in County records creating a lien on your home?  Simple.  You will pay me a little bit more money, but not a lot more.  Once the Bankruptcy is filed a Motion to Avoid (or remove) the judgment lien from your homestead can be filed.  It is a relatively simple procedure, albeit a bit fiddly.  A motion (which is just a fancy name for a request ) is filed asking the Court to do this.  It must be served on the Creditor.  The Creditor is then given time to object (not likely), then in every case I’ve ever had, the Court grants the Motion and enters an Order that removes the Judgment lien from the Debtor’s home — caveat below.

Now, what happens if the Debtor owns real estate that is not his home?  At that point the Debtor really, really does need to file for Bankruptcy before the judgment lien is recorded.  A Motion to Avoid may only be granted to the extent that the judgment lien is impairing the Debtor’s interest in property that he can claim as exempt.  I have never seen a successful claim of exemption in real estate that is not homestead — at least not using Oklahoma’s exemption statutes.  Of course, filing for Bankruptcy when you own real estate that isn’t your home opens a whole ‘nother can of worms all by itself, but that is a subject for another day.

Another problem is created if you have recently moved to Oklahoma and are not entitled (according to the 2005 Bankruptcy Reform Act) to use Oklahoma exemptions.  If you are using exemptions from another State (or the Federal exemptions) you may have too much equity in your home to be able to avoid the lien.  That is something that you will need to discuss in detail with the attorney you hire to represent you in your Bankruptcy filing.

However, even if you own real estate that isn’t your home or you have just moved here and aren’t entitled to use Oklahoma exemptions, that does not mean game over.  You do still have options, and with a little bit of flexibility you may still wind up with the result that you want.  Those situations, though, get very fact specific very quickly.

Oh, and something that every title attorney should know — but too many of them don’t.  A judgment only becomes a lien when it attaches to real estate, and a judgment cannot attach to real estate after the Bankruptcy is filed and discharged.  So, if you file for bankruptcy and don’t own any real estate, you can’t avoid the judgment liens — because there aren’t any, but the judgments become toothless when the discharge is entered.  So, if you go to buy a house a few years after the Bankruptcy, those old judgments cannot attach to your new house — no matter what the title company may say.

So, if you are going to buy a new house, and the title company is very concerned that something wasn’t done right in your Bankruptcy — call your Bankruptcy attorney sooner rather than later.  The Title company is probably wrong, but if they aren’t your Attorney will need a little time to fix it.

Elaine

Debt Settlement Regulation

Leave a reply

There is a movement afoot to increase the regulations governing debt settlement companies.  These are the companies who advertise that they can negotiate substantially reduced deals with your credit card companies.  If you have seen a banner ad that says something like, “Reduce your credit card debt by 40-50%”, odds are you have encountered a debt settlement company.

USAToday.com ran an article today on this very topic.  They interviewed a couple of people who had used debt settlement companies, one got bad results, one got good results.  Over the years I have seen a lot of clients who have used one of these companies before coming to see me.  I have them bring me there contracts.  Some of them are downright appalling.

There are two problems with the debt settlement business model.  In order to do it well you have to really work your files and you have to be very, very good.  There may be a way to do it well representing people in other States, but I don’t see how.  To do it well, in my opinion, you need to be prepared to aggressively defend collection litigation as it gets filed.  (If you are considering a debt settlement company, read the contract completely but pay particular attention to what they do with the money you send them and what they will, or more likely won’t, do if you get sued during the process.)

I have heard of a good debt settlement company in Texas.  They only take clients in their area, and I heard a presentation about them some years ago; but I no longer remember their name.  Even a good debt settlement company can’t get you out of the second problem.

If you “settle” debt by convincing a creditor to accept less than it is owed, the amount that you don’t pay will get reported to the IRS as forgiveness of debt income.  I have written about that before.  This means that unless you meet certain tests and deal effectively with the IRS, you could wind up having to pay taxes on the amount of debt that was forgiven.  Oops.

Debt settlement companies know how to say what desperate people want to hear.  Just remember the old rules.  Read everything.  Don’t sign anything you haven’t read or that you don’t understand.  When in doubt call the Better Business Bureau, and always know where the money goes and who gets it.

Elaine

Mortgage Servicing — Thou Shall’t Not Lie, Cheat or Steal

1 Reply

USA Today is reporting that Bank of America, as the purchaser of Countrywide, is paying $108 Million in penalty to the Federal Trade Commission (to be distributed amongst the effected parties).  The FTC discovered that Countrywide was charging excessive fees to home owners who were facing foreclosure.  These fees were for things like property inspections and landscaping (I assume that means mowing).  What Countrywide was doing was creating wholly owned subsidiaries to arrange for the services and then bill the accounts at an inflated price.

At the very bottom the article also mentions that Countrywide has been known to misrepresent the nature, and amounts due on loans, it looks like they may have discovered some false Bankruptcy claims and concealed fees.  This should be shocking.  It isn’t.  I sued Countrywide for its bankruptcy related accounting practices a few years ago.  What is more disturbing is that these practices, or variants on them, are widespread throughout the industry.

We don’t let debtors lie, cheat or steal in Bankruptcy.  It is high time we stopped letting creditors do it.

Elaine

Arbitration Tide Turning?

1 Reply

Gradually over the last 15 years or more it seems there has been a swelling tidal wave in favor of mandatory arbitration agreeements. I’ve always been suspicious when people with money and power (like large corporations and legislatures) become in favor of keeping aggrieved people out of the court system. Why? Whatever happened to faith in the concept of just as much justice as you can afford?

Recently, however, it appears the tide is turning. In May the Pennslvania Supreme Court heard a case by referral from the Third Circuit on whether arbitration clauses in consumer contracts are unenforceable adhesion contracts. In June, the 8th Circuit refused to compel arbitration when requested by a mortgage company in a Bankruptcy Adversary Proceeding.  Later in June, the Oklahoma Supreme Court went to great lengths to call arbitration clauses in consumer contracts adhesion contracts that are neither freely negotiated nor understood by consumers. Oklahoma has a strong legislative history of favoring arbitration, but the Oklahoma Supreme Court still mentioned, in dicta, that the law was starting to take a more active role in protecting consumers from abuse. (Bilbrey v. Cingular Wireless, L.L.C., 2007 OK 54.)

Now in July, H.R. 3010 (Fairness in Arbitration Act) has been referred to the House Committee on the Judiciary; and S. 1782 has been referred to the Senate Committe on the Judiciary. The House bill has, as far as I can tell, 8 co-sponsers. The Senate bill is sponsored by Sen. Durbin.

Let’s hope that this is the first step in taking back rights that most of us take for granted — until we discover we don’t have them anymore.

Elaine

Questions

1 Reply

There are days I have more questions than answers.

If a lender makes a mortgage loan disguised in the form of a line of credit to a 69-year-old woman who can barely make the payments as long as she is working but won’t be able to as soon as she stops, is that predatory?

If someone moves to another State for a few months and then moves back, can they use the Federal exemptions and hide a tax refund under the Federal wildcard?

If a debtor doesn’t raise a Truth in Lending claim in a collection case and allows a default judgment to enter before filing a Chapter 7 Bankruptcy, does that estop the Trustee from pursuing the claim on behalf of the Estate?

If someone qualifies for free credit counseling but has assets, what are the chances of getting the Bankruptcy filing fee waived?

How on Earth are we going to deal with non-priority, non-dischargeable taxes in Chapter 13’s?

How many of the homeowners currently defaulting on sub-prime mortgage loans would have defaulted if they had gotten a higher quality loan product?

How many of the homeowners losing their houses in foreclosure have been offered meaningful loss mitigation as required by FHA regulations or pooling and servicing agreements?

How many FHA mortgages are sent to foreclosure when they are less than 90 days past due in violation of Regulations? (I know of one.)

How many depository institutions have gotten away with offsetting a bank balance against a credit card debt in violation of Federal Statute? (I know of one.)

So, how was your Tuesday?

Elaine

Plain Language in an Inconsistent, Contradictory Code

Leave a reply

The Tenth Circuit recently had an unenviable job. They had to enter a decision that was clearly contrary to the plain language of the Bankruptcy Code — because the U.S. Supremes said to.

The case is Troff v. State of Utah (In re: Troff); Case No. 05-4244, (10th Cir. March 15, 2007). I think that I have successfully attached a copy of it to this post — we’ll see. ( In re: Troff) Troff dealt with some unusual facts, but in a world where the plain language of the Statute frequently makes no sense at all, how the Tenth is going to apply a conflict between plain language and established policy concerns should be of interest.

The actual issue in Troff was whether or not a Debtor could discharge a claim for criminal restitution that was actually paid for the benefit of the crime victim rather than for the benefit of a governmental unit — which is an express requirement of Section 523( a)(7).

The plain reading of the Statute appears to require discharge in this case. Unfortunately for the Debtor, that was also true in a U.S. Supreme Court case, Kelly v. Robinson, 479 U.S. 36 (1986). Basically, the U.S. Supreme Court has already interpreted Section 523(a)(7) away from the plain language of the Statute in the interests of Federalism. Basically, they found a way in 1986 to make all criminal restitution come within the scope of this imperfectly drafted exception to discharge.

The Tenth Circuit was bound to follow that authority. Two things make this opinion interesting. First, is the Tenth’s admission that they consider Supreme Court dicta binding, as well as the actual holding. Second, is the language of the opinion and the concurring opinion which seem to indicate a strong preference on the part of this panel of the Circuit to follow plain language wherever possible.

Given the litany of problems with the plain language of the new Code, the language of this opinion may well become widely cited.

Elaine