Commentary by Charles Feder, of Counsel to Ginsberg Law Offices
Zombie debts are old debts that come back to life.
Maybe when you think that old debt is dead because a creditor has charged it off , or a statute of limitations has passed, or even the debt has been discharged in bankruptcy. Then you get a call from a debt collector. Beware! There are several ways that debt collectors can trick or pressure you into bringing that old debt back to life.
There are a lot of “debt buyers” out there, and their tactics and scruples leave a lot to be desired. Debt buyers purchase old debts for pennies on the dollar from companies (such as credit card companies) that have charged off the debts on their books. The debt buyers then take very aggressive actions to collect, employing intimidating and often illegal tactics, such as falsely claiming that a lawsuit has been filed, or failing to identify themselves, even threatening bodily harm. A number of these companies have been fined by the Federal Trade Commission, but new ones seem to spring up like mushrooms after a rain, often involving the same people. It is a very profitable business.
Here are some common traps:
You think the matter is resolved because the credit card company charged off the debt. But that’s only a matter of the creditor’s bookkeeping. A debt buyer may still purchase the right to collect the debt.
You think that a statute of limitations has expired when it hasn’t. For example, here in Georgia actions on an “open account” must be brought within four years. However, Georgia courts have ruled that credit card agreements are “simple contracts,” subject to a six year statute.
Even more shocking, if you agree to make any payments on an old debt, the law may treat your agreement as a new promise to pay, with a new start to the period of limitation. If you agree in writing, you could even revive debts that were discharged in bankruptcy!
If you are contacted about an old debt, do not make any commitments or give out any information. Make a record of all contacts and consult with an attorney.
Filed under Bankruptcy Case Law, Chapter 13, Chapter 7, Consumer Protection, Uncategorized by on Apr 25th, 2012. 
I have long counseled my clients that bankruptcy should be viewed as a “strategic retreat” as opposed to a failure or embarrassment. In a capitalist society, people take risks, and innovation and prosperity springs from that risk taking. While you may not own a company, you are in charge of what marketer Harry Beckwith calls “You, Inc.” Every decision you make – whether it is buying a house, using your credit cards, choosing to buy or not buy insurance – has consequences and sometimes you will find yourself with a lot more bills than ready cash or prospects for enough cash.
As a bankruptcy lawyer, I see Chapter 7 and Chapter 13 as financial tools. It is not my role to past judgment on your decisions or make you feel guilty about making a particular decision. My role is to serve as a trusted financial confidante to help you understand the pros and cons of the powerful financial tool called bankruptcy.
In fact, when you do appear in bankruptcy court you will note that lawyers for your creditors, the trustees and even the judges are focused on financial solutions. Guilt and blame are not part of the equation. Like any other financial tool, bankruptcy requires you to follow certain rules, but the underlying meme is financial not emotional.
I am by no means alone in positing that your consideration of the bankruptcy option ought to arise from a reasoned, thoughtful and logical consideration of both bankruptcy and non-bankruptcy options. My colleague Frank Pepitone, a bankruptcy lawyer in Garden City, New York, argues that bankruptcy should be viewed as a type of rehabilitation. Here is his thoughtful analysis:
Bankruptcy as Financial Rehabilitation
In our society, when people face emotional or physical problems, many will seek therapy. Therapy can be as simple as talking things out with a family member or friend. In more extreme cases, people will seek the help of a professional in order to work though their problems. Read more on Bankruptcy: Personal Redemption and Financial Rehabilitation…
Filed under Pre-bankruptcy Planning, Recovering from Bankruptcy by on Apr 18th, 2012. Comment.
Student loan collection issues have been in the news lately with a number of proposals floating around Congress to allow for less burdensome discharge of student loans in bankruptcy and even a bill to forgive student loan debt outside of bankruptcy under certain circumstances.
This week I wrote a guest editorial for the Atlanta Journal Constitution proposing a return to the pre-1998 Bankruptcy Code provision that allows for student loan discharge 7 years after the loan first comes due.
At this point, however, student loan debt remains non-dischargeable and, as such, private bill collectors working on behalf of lenders who have issued non-dischargeable student loans, are aggressively pursuing delinquent borrowers – both former students as well as parents who co-signed or guaranteed their child’s student loans.
What rights are available to student loan borrowers? I asked attorney Sergei Lemberg, whose firm represents consumers in matters related to fair debt collection, fair credit reporting and lemon law to answer this question. Here are Sergei’s observations: Read more on Student Loan Debt Collection Issues…
Filed under Consumer Protection by on Apr 12th, 2012. Comment.
Last week I received a call from a prospective client who was just beginning his research into the bankruptcy process. As I have stated many times I encourage anyone who thinks that bankruptcy may be even a remote possibility to call or come in because pre-bankruptcy planning will always produce a better result (even if you end up deciding not to file) and because you will inevitably learn something from talking to me that will help you deal with your debts.
In any case, this potential client asked a few questions and just as we were about to conclude the call he mentioned that he had been sued 3 weeks prior but “it really doesn’t matter because I am currently unemployed and I can get rid of that debt in a bankruptcy later on.”
Nothing could be further from the truth. Read more on Should I Bother Answering a Lawsuit if I am Planning on Filing Bankruptcy Anyway?…
Filed under Pre-bankruptcy Planning by on Mar 30th, 2012. Comment.
It’s a tough market for recent college grads and other young adults. Many are having difficulty finding work or are underemployed and are faced with a mountain of debts. It’s tempting to move back home, but there are some drawbacks.
If your parents are willing to support you (temporarily, one hopes), and you can pay off your debts in a few months, go for it. Just don’t overstay your welcome. Now that you’re an adult, you’re a guest.
If you are thinking about filing bankruptcy, there are some things to keep in mind.
First, student loans are not dischargeable in bankruptcy (although if you have some income, you can work out a payment plan that’s not too burdensome.)
Second, if you want to file in Chapter 7 and discharge all of your (dischargeable) debts, you will have to pass the infamous “Means Test.” Two important factors in this test are household income and your ability to pay your debts. What is considered a “household” for these purposes depends on how the court views your situation. If you are paying rent and other necessities, you may be considered a renter and be treated as a separate household. On the other hand, if you are completely dependent on your parents, it would probably appear to the court as a single household. This would require inclusion of your parents’ income in applying the Means Test. The bankruptcy case would not otherwise involve them, but they would have to disclose information about their income. The second concern is that if you have some income but are not incurring living expenses, your budget will look like you have enough money to pay at least some of your debts.
If you are in an apartment and over your head in (dischargeable) debt, and you are considering bankruptcy, you probably should stay put if you can. Chapter 7 is especially attractive for people with a lot of debt and a low income who expect (or hope!) to land a good-paying job in the near future. If you wait until after you get that job, if your income is high enough, you may be forced to file a Chapter 13 and make at least partial payment of debts that would otherwise have been completely discharged in a Chapter 7.
Filed under Means Test Calculations, Pre-bankruptcy Planning, Uncategorized by on Nov 1st, 2011. Comment.
A common criticism of programs such as HAMP is that they do nothing to help homeowners have made sacrifices to stay current on their home mortgage but who are unable to refinance to take advantage of lower interest rates because their home has decreased in value and is now worth less than they owe.
Suppose you have a mortgage at 6 or 7% interest and are fortunate enough to be employed, but your spouse has lost his or her job, or your hours have been cut back. If you could refinance at current rates (say, 4%), the reduction in monthly payments might might make the difference between keeping and losing your home. Also, if you have been paying on the loan for several years and could spread repayment of the current balance over the next 30 years, that would give you even more breathing room. The problem is that you owe more than the house is now worth.
The policy change recently proposed by President Obama hold some promise of providing relief for folks in such a situation. The details have not yet been released, but thePresident’s proposal is to remove caps that had allowed homeowners to refinance 100% of the outstanding balance on loans owned or guaranteed by Fannie Mae and Freddie Mac, where the balance owed is up to 25% more than the house is worth.
The proposal might enable some homeowners to avoid bankruptcy altogether. For others, it might make a Chapter 13 plan more feasible.
Filed under Chapter 13, Foreclosure, Pre-bankruptcy Planning by on Oct 31st, 2011. Comment.
Sen. Johnny Isakson (R-GA) and Rep. Tom Graves (R-GA) have introduced a bill enticingly called ”The HOME Act” (Hardship Outlays to protect Mortgagee Equity). The bill, which sounds reasonable enough on its surface, would allow homeowners under 59 1/2 withdraw up to the lesser of $50,000 or 50% of their IRA and 401(k) funds to pay principal or interest on their mortgages.
If enacted, the bill would indeed protect “Mortgagee Equity.” Unfortunately, if people understood proper legal terminology, they would know that the Borrower is the Mortgagor. It is the Lender who is the Mortgagee, and it is the Lender’s equity in the mortgage that is being protected!
The primary effect of this bill would be to increase the lenders’ return on investment by giving them an additional tool to pressure harried debtors into raiding their retirement funds, funds that lenders are otherwise unable to reach.
One of the most common mistakes made by people desperately trying to hold onto their homes is to withdraw money from their retirement funds. Your retirement funds cannot be attached by creditors, whether or not you declare bankruptcy. As traumatic as it may be to lose a house to foreclosure, it would be even worse to catch up momentarily, only have the house go into foreclosure down the road after you have blown your retirement nest egg.
There are other ways you may be hurt by applying retirement funds to your mortgage debt. Should you end up declaring bankruptcy, you are allowed to keep (ie., exempt) a portion of the equity in your home. If you pay down your mortgage debt, you may have more equity than the allowed exemption. If that happens, the trustee can force the sale of your home and turn over excess proceeds to your unsecured creditors.
Also, if the amount you owe on your house is greater than its value and you are in a Chapter 13, you may be able to “strip” a second mortgage. If you have a second mortgage and you pay down the first mortgage to the point where the balance you owe is less than the value of the house, you will have destroyed your ability to strip the second mortgage.
Finally, if all this isn’t enough to deter you from raiding your 401(k), think about the fact that even though you may not have to pay the 10% penalty for early withdrawal, whatever you withdraw is still subject to income tax, and income tax obligations are not dischargeable in bankruptcy.
Filed under Consumer Protection, Foreclosure, Pre-bankruptcy Planning by on Oct 28th, 2011. Comment.
Homeowners trying to decide whether to try for a loan modification or file Chapter 13 are often informed that loan modifications are only available for borrowers who have fallen behind in their payments. The problem is that skipping mortgage payments in order to qualify for a loan modification program is almost a sure way to lose your home.
Here’s why:
The track record of loan modification programs is abysmal. Months go by while a loan modification application is “under review”. Borrowers consistently report that lenders repeatedly lose paperwork and ask for it over and over again. In the end, few loan modification requests are granted.
If the modification is granted, lenders often have added so much in interest and penalties that the outstanding balance of the “modified” loan has grown to the point that it would be impossible to pay, even if written at reduced interest rates over an extended term.
If the modification request is denied, the likelihood of the homeowner being able to catch up are slim indeed. Even if the lender has not piled on the intervening interest and penalties, few families in financial distress will have been able to set aside their monthly payments so that they can pay up on the arrearage. Furthermore, if you are behind even one month, the lender may choose to refuse payment and proceed with foreclosure.
If the arrearage has not grown too large while the modification application was pending, the house may still be saved by filing under Chapter 13 and paying off the arrearage over the five year course of the plan. However, if the accumulated arrearage has become too large, the required payments may be too high for the plan to be workable.
Filed under Chapter 13, Foreclosure, Pre-bankruptcy Planning, Uncategorized by on Oct 28th, 2011. Comment.
I was recently asked, “My wife is hoping to settle her personal injury lawsuit. If I file bankruptcy individually will her settlement be safe?”
It is common to see bills pile up when one member of the family is seriously injured, resulting in large medical bills and often loss of income due to inability to work.
My first piece of advice is to keep any settlement proceeds in an entirely separate bank account in your wife’s name only. The money should not be commingled with any joint funds, nor should you be a joint holder of the account or have any rights to access to the money.
If most or all of debts are in your name only, it may make sense for you to file individually. However, if you have signed as the responsible party for some of your wife’s debts, such as her medical bills, or if you have joint accounts, you may be relieved of the debts, but she may still remain liable, in which case filing bankruptcy may not be as much help as you would like.
If your wife is also responsible for significant debt, such as her medical bills or joint liability for your home mortgage, filing individual bankruptcy may not resolve your problems. While your creditors may not be able to get at your wife’s settlement proceeds, the question of the extent to which her creditors can gain access to them is a question of state law. Many states have laws protecting such funds from attachment by creditors. (This is another reason to keep those funds separate.) Also, depending on state law, your wife’s medical insurance carrier or health providers may have legal claims with respect to proceeds from the lawsuit. You should ask her personal injury attorney about this.
Whether or not you decide to file, bankruptcy, separately or jointly, you would be well served to consult with a bankruptcy attorney on how to best protect the proceeds of the lawsuit.
Filed under Pre-bankruptcy Planning by on Oct 20th, 2011. Comment.
If you are in financial difficulty, chances are that you have been depending on credit to meet your ordinary living expenses. You probably already know that once you file bankruptcy, you may not continue using your credit cards.
But what about recent charges?
Credit obtained by fraud is not dischargeable. If a creditor alleges fraud, the creditor must file an adversary proceeding and provide evidence to prove it. Generally speaking, this means proving that the debts were incurred with no intent to repay them. Although the creditor has the burden of proof, a mere declaration of an intent to repay is not a defense. The question is whether there was a reasonable expectation of the ability to repay. In making this determination, factors to be taken into account include, whether new credit cards were obtained, whether the credit application contained false information, whether there were large cash advances, purchase of luxury items, whether the amounts, times, places and types of charges varied from past patterns, how much was charged, when and what for, whether the debtor was employed or otherwise able to pay, and whether the debtor has recently consulted with a bankruptcy attorney.
While the burden is generally on the creditor to prove fraud, certain transactions create a presumption of fraud, thereby putting the burden on the debtor to prove otherwise. These transactions include debts to a single creditor for luxury goods and services incurred within 90 days of filing totaling more than $600 and cash advances totaling more than $875 incurred within 70 days of filing. (These numbers are changed periodically.)
Keep in mind that this does not mean that smaller transactions will avoid scrutiny, nor that you can avoid trouble if you wait more than the specified number of days. Creditors (and the trustee) are likely to carefully review any recent credit card transaction, transfer of assets or debt obligation.
If you are contemplating bankruptcy, the first thing you need to do is to stop using your credit cards. If this seems impossible (it’s not). If bankruptcy is a possible source of relief for you, your bankruptcy attorney can help you develop a plan to avoid the appearance of fraud.
Filed under Chapter 13, Chapter 7, Pre-bankruptcy Planning by on Oct 20th, 2011. Comment.
