How to Deal with Bill Collectors?

WHAT HAPPENS AFTER I STOP PAYING ON MY CREDIT CARD OR OTHER ACCOUNT?

Let’s start with the basics. Typically, particularly with credit card accounts, the answer is calls, calls and more calls.

Then what? Well, normally, most creditors after about 90 days will place the account in the hands of a collection agency. At this point it will no longer be Chase or Bank of America calling you day and night but rather it will be a collection agency that starts to hound you relentlessly.

Fortunately, there is a federal law called the Fair Debt Collection Practices Act (referred to as the FDCPA) that regulates the practices of bill collectors. The law does not apply to the original creditors –the credit card companies, hospital, car lender, etc.- but it certainly applies to the law firms, debt buyers and collection agencies hired to collect on behalf of the original creditor.

WHAT DO I NEED TO KNOW ABOUT BILL COLLECTORS?

They tend to break the law every day of the week and twice on Sunday. Why? For the same reason that John Dillinger responded to the question of “Why do you rob banks” with the sardonic answer “Because that is where the money is.” Similarly, most collection agencies will violate the FDCPA with some frequency because that is where the money is. Meaning, consumers pay. Why else would there be thousands of collection agencies out there?! Bill collectors operate under the mantra of “persistence breaks resistance.” They count on the fact that they can wear you down with a barrage of calls and that almost all people want to pay back the money that they owe as long as they have the ability to do so. They also know that most attorneys, let alone consumers, do not know what the FDCPA is. Or, that they simply will not dare or bother to sue them.

WHY SHOULD YOU, THE CONSUMER, CARE ABOUT THE FDCPA?

Because knowledge is power. In fact knowledge is sometime even money:) If you can prove even one single violation under the FDCPA you can recover up to $1,000.00 for a “technical violation(s)” and for serious cases with actual damages far more than that. And the beauty is that you do not have to pay any legal fees to your attorney. If the attorney wins the case for you the collection agency has to pay your attorney his/her legal fees as well as paying you, the consumer. Kind of like with a car accident case…we do not recover unless you recover motto.

Second, it allows you to take control. Rather than changing your phone number, or being startled each time the phone rings you can once again pick up the phone.

WHAT ARE THE MOST COMMON VIOLATIONS EMPLOYED BY BILL COLLECTORS?

1.      Leaving voice mails in which they fail to identify themselves as a collection agency and fail to tell you the name of the collection agency. You would be surprised at how many times they will leave a message without disclosing this information. Why? Because they figure you are more likely to call them back about that “important matter” if they do not reveal who they are. Bottom line: Save those voice mails. There might be $1,000.00 in there!

2.     Calling and leaving an urgent message with your neighbor or more commonly a relative. Why do they do that? Because most people are mortified at the thought that their mom or cousin now know that a collection agency is calling them and will relent and pay the collector in order to keep them from further embarrassing them. This tactic is absolutely illegal. A collector can maybe call once to a third party in seeking “location information,” but beyond that they can only call and communicate with the consumer or their attorney. They are not allowed to “air out your dirty laundry.” So if this happens to you be sure to save the name and phone number that is passed along to you. And instead of a payment you can reply to the message with a lawsuit!

 3. The third most common method employed by bill collectors is lying or being less than 100% truthful. The problem with bill collectors is that they are pretty impotent. Unlike Tony Soprano and his posse they cannot break legs or burn down your store. In fact, the only thing that they can do is call you incessantly (actually, in most instances, they cannot even do that), send you collection letters, and report your account to the credit bureaus. That is it. So if you do pick up the phone (and I strongly encourage you to do so) and you hear them say anything along the lines of “if you do not pay then we are going to sue you, garnish you, put lien on your house, get a judgment against you” or in the most extreme examples “have you arrested” understand that not only are they full of baloney, but they are violating the FDCPA and inviting you to sue them and collect up to $1,000.00 for their empty threats. Only the original creditor can sue you. Only the original creditor can get a judgment against you IF they sue you first and win. Only the…you get the idea. Collection agencies are a “paper tiger!”

 

WILL I LOSE MY TAX REFUND IF I FILE FOR BANKRUPTCY?

WILL I LOSE MY TAX REFUND IF I FILE FOR BANKRUPTCY?
The chances are highly unlikely that you will have to forfeit your tax refund if you file for chapter 7 bankruptcy, unless that is….So, what are some of those “unless” scenarios? Bear in mind that the following discussion is limited to Northern Virginia. As in those bankruptcy cases filed in Alexandria, Virginia. Every state does things a little differently.

Scenario 1: You file for bankruptcy on your own
Part of the deal when filing for bankruptcy is that you have to disclose all of the assets that you own. When people typically think of assets they normally think of houses, cars, furniture, stock, and money in the bank. Tax refunds, or the potential of a tax refund however is not something that most people think of as an asset when contemplating bankruptcy. But the fact of the matter is that the US Supreme Court has made it clear: tax refunds are indeed part of the bankruptcy estate. Part of the estate simply means that it is potentially up for grabs.

The other key thing to keep in mind is that in bankruptcy if you want to keep the asset, you have to exempt the asset. And this is where many people who file a chapter 7 bankruptcy without an attorney (pro se if you want to use fancy Latin terminology) trip up. Around this time of the year (January –May) many people are expecting a tax refund. The tax refund needs to be listed on the bankruptcy petition, properly exempted AND you need to file a timely Homestead Deed. Merely exempting it on the bankruptcy petition is not enough. That last part, the Homestead Deed, really trips people up.
Which brings me to my final point: the chapter 7 trustee is not your friend. So, just because he or she seems nice, and just because they smile at you when they meet with you at the meeting of the creditors does not mean that they will not jump at the opportunity to take your money. And if you think that they will feel sorry for you because you have decided to file on your own, you better think again. They are there to represent the interest of the unsecured creditors. And by the way, just because it is the end of the year, say November 2013, and you decide to file for bankruptcy at that point it does not mean that the 2013 tax refund is not up for grabs. It is in indeed. Once again, it must be listed and properly exempted.
Scenario 2: The careless bankruptcy attorney
If your attorney is in a hurry or careless you could lose part or all of your tax refund. This is especially true if you normally get a sizable tax refund around this time of the year (say $4,000 for instance). How? Because Virginia’s Homestead Exemption typically only gives you $5,000 to exempt your assets with. That means that if you have some other assets that need to be exempted and there are no other exemptions other than the Homestead Exemption (say a life insurance policy with some cash value, a couple of thousand worth of stock, a car with some significant equity, etc) then you will now find yourself in a pickle. You will have to give up something and that something may be worth several thousand dollars.
The solution? Instead of filing your bankruptcy case in January or February of the year before you have filed and received your tax refund simply delay the filing of your case by a few months. So, file your tax return as early as possible, collect your sizable tax refunds as quickly as you can and then spend that tax refund money on necessary household items. Get braces for your daughter, fix your car, put some new windows in the house, pay your bankruptcy attorney their legal fees -that’s especially important- and when most/all of that money is gone a few months later than you can safely file your bankruptcy case. Notice that I said spend your money on life’s necessities. I did not say take a trip to Vegas or “donate” that money to your brother.
So barring the above scenarios, or if you simply are not expecting a significant tax refund, then chances are you have nothing to worry about.

SHORT SALE INSTEAD OF BANKRUPTCY?

By now the word short sale is as a common of a phrase in the English lexicon as the word “google it.” Almost all homeowners know that if they need to sell their home, and their house is unfortunately “underwater,” then they can seek approval from the bank to allow them to sell their home for less than what they owe on their mortgage. That is what a short sale is. The “sales pitch” is usually that you can avoid bankruptcy and preserve your credit score.

So, what sort of problems have people been running into when trying to do a short sale on their home?

  • The banks simply refuse to work with them. Beyond the ton of anecdotal evidence that exists out there, I have had countless bankruptcy clients of mine report the same thing: Short sales, just like a loan modification, are extremely hard to come by. You line up a potential buyer, you submit paper work to the bank countless times, and months later, after many hours of negotiations with the bank, they deny the short sale.
  • You want to do the right thing, but the bank still sues you. Far worse than the problem of the bank not accepting the short sale as an alternative to foreclosure, is the fact that many folks out there fall into a false sense of security thinking that once they have completed the short sale that the worst is behind them. They think they can move on with their lives. But many times the bank will say, not so fast, we want a bunch of money from you now as well or we will be seeking a “deficiency judgment” against you. In other words, what the bank is saying is thank you for the hard work in helping us find a buyer for your home, but you still owe us –for example- $40,000! If you had a home equity line (HELOC) in addition to your mortgage, it is almost a matter of certainly that you will be getting sued. The CNN Money article You Lost Your House But You Still Have to Pay does a great job of explaining this issue.
  • Your credit score takes a serious beating. You would think that by doing a short sale instead of a foreclosure that you would be rewarded with a higher credit score. Well, not so. The Washington Post article titled Short Sellers May Take a Big Hit On Their Credit Scores reveals that your credit score is pretty severely damaged even if you manage to complete a short sale.

So, what are the advantages of filing for bankruptcy once you realize that the writing is on the wall and you need to let go of the house? Why file for bankruptcy now instead of later?

  • You can have a solid credit score within 3 years of obtaining a bankruptcy discharge. Hard to believe, but once your credit score has taken a nose dive, nothing will get you to a good credit score faster than a bankruptcy discharge. Having zero debt reported on your credit report –which is what a bankruptcy discharge will do for you- will do wonders for your credit score. It is that whole debt to income ratio that you may have heard about. And since most people thinking about doing a short sale on their home no longer have a pristine credit score, the bankruptcy will certainly not ruin your credit at this point.
  • You can avoid having to ruin your credit once again. The banks can sue you years after the short sale has taken place, just when you have a respectable credit score once again. You may be able to still file for bankruptcy, but now you will have to ruin your credit score once again.
  • You can save yourself lots of money. I do not care who your attorney is. Here in Virginia, usually there is not much a defense to a “deficiency judgment” suit brought by the original bank who lent you the money. Typically you end up settling with the bank, assuming you have the means to do so, and that means paying them thousands of dollars.
  • Once you come to the realization that you may need bankruptcy relief after all, you may no longer be eligible for a chapter 7 discharge. Typically, when people are thinking about doing a short sale in lieu of walking away from the home, is at a time of a job loss, divorce, or the like. It is at a time when they would typically qualify for a chapter 7 discharge. But, nearly 4 years later, when the bank/HELOC files that lawsuit, you have typically bounced back, have a good paying job, and regretfully, may no longer qualify for a chapter 7 bankruptcy.

Having taken all this into account, if you are still adamant about doing a short sale, then at least hire an attorney. A lawyer, unlike a realtor, is typically far more equipped at negotiation with the bank and obtaining a release from personal liability on your behalf.

And if the bank will not waive your personal liability in writing, and your credit score is still taking a beating, than what is the point of a short sale?!

 

3 Ways to stop a garnishment WITHOUT having to file for bankruptcy (Part III)

As previously discussed, one way to deal with a garnishment is by using a Homestead Deed. Another possible method, if the facts are on your side, is to challenge the underlying judgment that preceded the garnishment.

If the foregoing options are not available to you, and if bankruptcy, for one reason or another, is simply not an option, you may be able to persuade the creditor to release the garnishment if you simply pay them a reduced amount then actually owed. Why would a creditor agree to a reduced amount than actually owed? Well, because all creditors are aware that most people have bankruptcy as an option so they would rather get something, rather than nothing. Moreover, all creditors prefer to get paid now, rather than later. Do not get me wrong, for this to work they will almost always expect a pretty hefty lump sum payment. So, you may be able to negotiate something like a $2,000 lump sum payment on a $8,000 judgment for instance.

Just to be clear, please understand that there are many creditors out there who may not be willing to “play ball” since they know that they have all the leverage in the world at this point. They can garnish your wages for a good five or six months, and then turn around and do it all over again until they have been paid in full. So, if that is the creditor you are up against, or if you simply do not have a couple of thousand dollars to offer them, then at this point you may have no other choice then to file for bankruptcy.

Finally, this strategy that I propose here makes senses if you credit score and credit report is looking pretty good. If the garnishment at hand is pretty much the only creditor chasing you down at this point and you have minimal other delinquent accounts, then by all means, see if you can buy them out. However, if your credit report looks as bad as my 8th grade school report (I was a mediocre student back then) and you owe thousands of dollars to a whole slew of creditors, then the above advice would not make sense. At that point, just cut you losses and file for bankruptcy.

How much does Bankruptcy Cost

At least once per month I get a phone call that goes something like this: I filed a chapter 13 bankruptcy case with “XYZ attorney” last year and now I need to file a Motion to Incur Debt (for example) since I need to get a new car loan, but the problem is that I just cannot get a hold of anyone at his office. I have left repeated messages and emails, but no one will call me back. So, can you help me?

I then go on to explain that in order for me to help them they would need to fire their current bankruptcy attorney –talk about awkward- and retain me. Mind you, retaining me at this point will not be cheap since right of the bat I will have to file a motion with the court and attend a hearing and get the judge’s permission to enter the case. Suffice to say, the potential client is anything but thrilled upon hearing this. In fact, most feel stuck at this point. You want to “break up” with your current bankruptcy attorney, but are finding it very hard to do so. Ouch!

The fact of the matter is that a chapter 7 bankruptcy filing is over and done with in about 100 days from the time your file. By contrast, a chapter 13 bankruptcy filing typically last anywhere from three years to five years. Moreover, a chapter 7 bankruptcy filing usually does not involve too much work after the creditors hearing takes place, which is about one month after filing. Not so with a chapter 13 bankruptcy. The “real fun” usually begins after the creditors hearing as you try to ensure that your case gets confirmed. And while the confirmation of your chapter 13 Plan pretty much signifies that “the fat lady has sung,” the fact of the matter is that there are all kinds of issues that can and typically do pop up after your case is confirmed. Here are some common illustrations:

  • There are issues with the proof of claims. You filed a 100% plan for instance, but lucky for you not all creditors filed timely claims.
  • Your car that was part of the bankruptcy filing just got totaled.
  • Unfortunately you lost your job and are wondering how that impacts your bankruptcy case.
  • You suffered a short term set back and would like to see if you there is any way to suspend your payments to the trustee for a few months.
  • Bank has just filed a Motion for Relief from the Automatic Stay because you have not kept up with your mortgage payments since the filing of your case.
  • The chapter 13 trustee is demanding your tax refund from last year, but you have already spent it.
  • You lost your part time job that you had at the time of the filing of your case and are wondering if your payments to the bankruptcy trustee can be reduced.
  • You need a new car loan and realize that you need the court’s permission before you get a new loan.

So what’s the point of all of this? When selecting a bankruptcy lawyer, particularly in the context of a chapter 13 case, understand that he or she is going to be your attorney for many years to come. Understand that issues will come up during the next 3/5 years and that you will need to have access to your bankruptcy lawyer and you will need his help. Understand that while “how much does it cost” is a legitimate concern, the more important thing to ask yourself is “how much will I be getting in return?”

Oh, and in case you are still wondering, most bankruptcy attorneys in this area charge $3,000.00 for a chapter 13 bankruptcy case. For an excellent article on the “how much does it cost” issue revolving bankruptcy filing, please see what Charleston bankruptcy lawyer Russell A. DeMott had to say in his blog article titled Bankruptcy Lawyer’s Fees: “How Much Is it?”