Friday, November 6, 2015

Bankruptcy Scammers Exist

I just saw a post at the National Consumer Bankruptcy Attorneys site saying that law enforcement is seeing a new scam.  People who file bankruptcies are being called by spammers who spoof the phone numbers of their bankruptcy attorneys and high pressure the victims to wire money to them supposedly to pay some debt.  Some victims are threatened with arrest if they don't pay.  Apparently the bankruptcy part of it is that since bankruptcy filings (like all court filings) are public record, the scammers tell the victims personal details about their lives to make the deception more believable.

I have heard of one example of this happening in New Mexico to a colleague, so please be alert.  Any clients of mine who receive calls supposedly from me instructing them to pay some debt to someone please hang up and call me directly to verify.  I won't dun you to pay bills, and no bill collectors can legally threaten you with arrest or jail.

Tuesday, June 2, 2015

After your bankruptcy; should you have reaffirmed your mortgage?

Reaffirmation is a contract that cancels a bankruptcy for a specific debt.  It is virtually never a good idea for a debtor to reaffirm.  The disaster scenario, particularly in a stagnant real estate market, is you reaffirm the mortgage, suffer future job loss, the house gets foreclosed and the mortgagee can sue you for a massive deficiency.  They can garnish your bank account and your salary (if you get a new job).  If you do NOT reaffirm all those things can happen except the bankruptcy protects you from any deficiency.

In the run up to the big change in bankruptcy laws in 2005 the lending industry managed to almost make reaffirmation mandatory for car loans; there are some loopholes we debtor lawyers can use, but it was a pretty grim change for debtors with financed cars.  Luckily the provision did not extend to mortgages.  Mortgage companies rarely even ask for reaffirmations any longer, because competent debtor attorneys won't sign if they don't get concessions (reduced interest rate or something) and even if they do sign bankruptcy judges often refuse to allow them to be entered.  Mortgage companies can not force anyone to reaffirm.

Mortgage companies, however, often punish people who file bankruptcy by discontinuing sending them payment coupons or statements, disabling their online payment options and refusing to report to credit reporting agencies that they are making their monthly payments.  I consider it to be petty harassment by mortgage companies; they will tell you bankruptcy law requires them to take these steps.

I think refusal to report payments to credit reporting agencies is a violation of the Fair Credit Reporting Act.  Mortgage companies are required to report accurate credit information.  That isn't my area of the law, however, and I don't know of anyone who has taken that approach by suing their mortgagee in court for failure to report.

This often doesn't even come up during bankruptcy, because mortgage companies know they aren't likely to get reaffirmation agreements signed.  Usually it comes up years after bankruptcy when a debtor wants to refinance his or her home.  The mortgage company tells them "well, you need to reaffirm before we can refinance."  There are a couple of problems with this.  First, nothing in the law requires reaffirmation.  Secondly, you can only reaffirm during a bankruptcy; it isn't possible to do so after the fact.  Probably most important of all, reaffirmation is a very technical procedure and doesn't have a thing to do with creditworthiness (at least in my opinion).

If you are in this situation I have little specific advice to counter the mortgage company bureaucrat telling you to just go get a reaffirmation.  My experience, however, is that being organized and persistent when applying for loans will usually be enough to get you the loan.  Good luck!

Friday, May 22, 2015

Morality of Bankruptcy

I hear a lot of comments about the morality of bankruptcy.  Often from prospective clients who come to me for help, but hate the thought of filing bankruptcy.  They feel that they have failed if they file a bankruptcy.  They feel ashamed.  Debt collectors prey on this feeling; they threaten debtors and castigate them for failing in their responsibilities or running out on their obligations.  I find this attitude very confusing, for a number of reasons.

First of all, my prospective clients are not the only ones who need financial help!  Wall Street banks cratered our economy a few years ago, and immediately begged for help from taxpayers!  They got a trillion dollar bailout from the government, and then used some of that money to pay themselves millions of dollars in bonuses!  To this day they're getting interest-free loans from the Fed.  That Wall Street bailout cost our government and our economy a HELL of a lot more than my clients ever could!  So why is financial help ok for the big banks but not my clients?

Secondly, I see no evidence of morality anywhere else in our financial system.  Credit card companies charge 20 - 30% interest when you get in trouble; what is the morality of that?  Payday loan companies might charge 1200% interest!  H & R Block charges payday-esque interest for their short term refund anticipation loans.  Mortgage companies can't even figure out who has the note and mortgage on your house, let alone accurately apply your payments.  Why are my clients the only ones in our entire financial system who have to be "moral" by foregoing bankruptcy help?

Thirdly I often hear "my dad would never have done this".  That is probably true at least statistically.  Bankruptcy filings are higher than they were in the 1930 - 1980 time frame (depending on how old your parents are).  I think the biggest reason for that is usury laws.  After the Great Depression we enacted laws designed to protect us from another economic collapse.  Some of them limited the amount of interest a bank could charge its customers.  Your parents weren't any more financially responsible than you are, but they couldn't get into nearly as much trouble as you can given the way interest rates have skyrocketed over the last 30 years.  A big reason for the explosion of credit cards in circulation was the repeal of the usury laws.  When I graduated college in 1979 I had to beg for months to get a $300 credit limit credit card!  It wasn't profitable for the bank to manage that kind of an account.  Both of my daughters, however, received credit card solicitations while they were in college, even before they had jobs!  It is a different world than your parents' world.

Finally, is there really any immorality?  Studies show the vast majority of Americans pay debts they can afford, but not debts they can't afford.  That sounds pretty moral to me.  The prime consumers of bankruptcy in America are single mothers, people who have lost their jobs, and people dealing with massive medical bills.  These aren't people irresponsibly running up their debts and giggling all the way to the Bankruptcy Court, these are people in genuine financial need.  Compared to ancient Rome, where they could be sent to debtors prisons, our society offers people in over their heads financially the chance to discharge their debts and get a fresh start.  I don't see any immorality.  Leave the immorality to the debt collectors who try to guilt you into paying something you can't afford!

Friday, March 20, 2015

Paying for bankruptcy

One conversation I have had many times over the 29 years I have been practicing law is about the fees bankruptcy lawyers charge their clients.  "I can't afford to go bankrupt" is a common reaction when I give a prospective client a fee quote.  A related problem occurs when a prospective client is cheered up when I offer to accept payments against my bankruptcy retainer, but wants me to file the bankruptcy immediately and take payments after the case is complete.  I try to be as clear as possible that the entire retainer must be paid before I can file the case.

The first reason for this policy is the conflict of interest.  A lawyer may not represent parties on opposite sides of a dispute.  For example, I could not represent both a husband and a wife who are divorcing.  What benefits one client harms the other client.  That is a classic conflict of interest.  In the bankruptcy setting I cannot represent the debtor who is filing a bankruptcy and also one of his creditors.  For example I cannot file a client's bankruptcy, and then go to the bankruptcy court to request stay relief on behalf of my client's mortgage company so that they can foreclose on his mortgage.  That is clearly a conflict of interest.  What is a creditor?  A creditor is someone owed money by the debtor.  If I file your bankruptcy, and you still owe me $1800 for my fees in filing the bankruptcy, I am your creditor.  We have already seen that I can't represent you and also your creditors at the same time.  So taking payments for bankruptcy services after the case is filed creates an impermissible conflict of interest.

The second reason for the policy is discharge.  When you file bankruptcy, the Bankruptcy Court puts a federal injunction against debt collection in place called "the automatic stay".  This is one of the chief benefits of filing a bankruptcy.  This is the reason all those annoying creditors who have been calling you every fifteen minutes for the last few months finally leave you alone when you file a bankruptcy.  This is the reason the judgment creditor that has been garnishing your salary for the past year has to finally stop.  What this means for my fees is that I can't collect from you post bankruptcy.  I can't remind you that you still owe me money, I can't send you a bill, I can't ask you to change a payment plan.  If I did I would be violating federal law.

Finally the pragmatic reason is that it is generally better to be paid for services in advance.  In the 29 years I have been doing this I have taken a very few cases with promises of future payment.  I have a dismal record in those cases.  I do not mean to impugn anyone's honesty when I say that this payment arrangement has not treated me well over the years, and I simply won't do it any more.

All is not lost, however.  I will accept payments from clients over time.  I won't file the bankruptcy until I get the full retainer, but I will help you buy enough time from your creditors to save the rest of the retainer up.  I will field your collection calls, I will respond (within reason) to demand letters and lawsuits, and I will help you to understand the timing of adverse lawsuits and other collection matters so that we can chart our way together toward a successful bankruptcy case.