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Abuses by Debt Collectors May Result in Adoption of New Rules by the Feds

Debt collectors have attempted to intimidate consumers into paying debts that are prescribed or not owed at all in cases of mistaken identity.

This Way Inside

This Way

If new rules are adopted debt companies would have to more fully document their accounts. Also proposed are requirements that would prevent a collector from contacting a debtor more than 6 times a week. And if a debtor dies the collector would have to wait a month before contacting the survivors.

The Consumer Financial Protection Bureau (CFPB) will begin a lengthy adoption process which may or may not end with the implementation of the rules. It promises to be a very politicized path to adoption. But there is some cause for optimism. Debt collection is the most frequent complaint the CFPB deals with. And the bureau began working with consumer groups and industry leaders three years ago to formulate acceptable compromises regarding these problems.

In Louisiana, an open account, like a credit card debt or a credit at a store, prescribes three years from the date of last activity in the account. LA R.S. Art. 3494 (4). Despite this many creditors pay no attention and attempt to collect on older accounts that are past their prescription date. Consumers are often not aware that they may have a legal defense to collection of a debt.

Another issue arises when a creditor has sued the consumer and obtained a legal judgment to enforce payment a debt. In Louisiana, a money judgment prescribes 10 from its date of signing. LA CC Art. 3501. Obviously, a much longer period than for an open account. Most of these judgments are obtained by default, which is when the consumer doesn’t make an appearance in court to defend the suit. Problems arise when the consumer has not been properly served notice and citation of the lawsuit before the judgment is taken. This even has a name “sewer service”.

Another problem arises when the creditor has insufficient proof of the debt. Consumer debt is often sold and resold at deep discounts to debt collectors. This exacerbates the problem of proof as vital documents are lost or so called robo-affidavits are filed without personal knowledge.

Consumers have been ill served by debt collectors where their lack of knowledge and vulnerability have made them easy prey to unscrupulous or careless operators.

8 Ways to Stay Out of Bankruptcy

I am a bankruptcy attorney. From my point of view here are the things that most often push people into bankruptcy._1130814

1)  Never ever co-sign a loan for a friend. Some of the most tragic bankruptcies occur when the client has otherwise sterling credit but his “friend” doesn’t pay.

2)  Avoid ruinous debts with ridiculous interest rates. These include payday loans, used car loans, even mortgages with 30, 90 or even 200% annual interest, or more. They are roads to disaster.

3)  Always, pay more than the minimum on credit card debt. If you can only afford the minimum payment than you are carrying too much debt. The interest will eat you up.

4)  Carry health insurance.

5)  Student loans are not free money.  Be very careful with student loans. They are non-dischargeable debts in a bankruptcy.

6)  What follows is very hard advice.  People hate to hear it, but, if your economic circumstances change adjust. If through divorce or unemployment you can’t afford your lifestyle — downsize.

7)  Contact your mortgage company and apply for a home loan modification. Then, think twice before signing it. You are often pushing costs to the end of the loan where you will eventually have to pay them back.  But on the other hand you may be lowering your interest rate. So consider the terms and your alternatives, like selling and moving somewhere cheaper.

8)  Don’t refinance your home or take money out of a 401K to pay unsecured debts.

The Dreaded Means Test in Chapter 7 Bankruptcy

The Means Test is the fierce hurdle Chapter 7 bankruptcy filers have to clear to avoid having the Court dismiss or convert their cases. Sound important? It is.When Congress reformed the bankruptcy law it felt that too many people were filing Chapter 7 liquidations, who could otherwise repay their creditors. To understand the complex rules of the Means Test it helps if you keep the lawmaker’s objective in the back of your mind.

JohnMenszer-0732What is income? Income is the current monthly income of the debtor as based historically on the last six months before filing. It includes all sources of income with the exception of social security benefits and tax refunds. It includes gross wages, pensions, sole proprietor income, dividends, unemployment benefits, payments made on behalf of the debtor by others and child support actually received.

If the Debtor’s income is below the median household income for his state and the size of his family, then there is no need to fill out the rest of the Means Test. You can stop there. The presumption of abuse does not apply. It is OK to file a Chapter 7.

What are expenses? While the income calculation is based on the personal circumstances of the debtor, the expense calculation begins with figures published by the IRS, which are national standards. The IRS has determined allowances for food, clothing, housing expenses, transportation and medical expenses based on family size for different areas of the country. These national standards are adjusted for remaining debt payments on houses and vehicles, payroll taxes, education expenses for minors (but only within strict limits), court ordered support payments, mandatory retirement payments, necessary and provable healthcare payments that exceed the national standards and past-due priority claims, like taxes and child support.

What is the amount proportional to the debtor’s total unsecured debt? In determining abuse Congress looked to how much a debtor could repay every month and also to what percentage of his total unsecured debt he could repay in the maximum of 60 months of a Chapter 13 bankruptcy. Then Congress indexed these figures for inflation.*

As of the writing of this blog*, if a debtor’s Means Tested income minus expenses is less than $130.37 per month, there is no abuse and the debtor can go on and file a Chapter 7. If a debtor’s Means Tested income minus expenses is greater than $207.92 per month, there is always a presumption of abuse and the debtor should consider filing a Chapter 13 or not at all, unless there are special circumstances like the Debtor took a lower paying job during the 6 months prior to filing. If the debtor’s Means Tested income minus expenses falls between these figures, then it is necessary to look to the total of the unsecured debts. If the Means Tested net income shows the debtor can repay more than 25% of these debts in 60 months then abuse will be presumed and the debtor had better consider filing a Chapter 13 or not at all. If the ratio of monthly net income times 60 months to unsecured debts is 25% or less of the debts, then Congress deemed this to be a negligible amount and it is OK to file a Chapter 7.

The Means Test is dreaded not only because it prevents certain people from filing a Chapter 7 bankruptcy, but because it is such a darned hard test to take.

Abusive Auto Loans – It Used to Take a Repo Man

In life after bankruptcy, some of my clients have an immediate need to purchase a used vehicle. The wise consumer will avoid a new species of car loan.Stanley Schwam Party

Subprime auto loans are often defined as loans to borrowers whose credit scores are under 640. These loans have now been linked to new type of repossession gadget. Beware the contract that requires that your vehicle be outfitted with a starter interrupt device.

Lenders can remotely trigger the device which disables the ignition. Once triggered the car cannot be driven without the gadget being reset by the lender. The devices also contain GPS technology which allows the car’s location and movements to be tracked.

Borrowers must stay current with their payments or else the lender can remotely interfere with their ability to drive their automobile. An agent from Covington, Louisiana, a suburb of New Orleans, says that he first contacts a delinquent borrower by telephone or in person and that they have to be at least 30 days behind before he will trigger the device. But judging from consumer complaints other lenders are not so considerate. There are reports of borrowers ending up stranded in bad neighborhoods or while taking a family member to a doctor.

State regulators are looking into the legality of these devices. Meanwhile, it is estimated up to 25% of new subprime loans use these devices. My advice is to stay away from them.

 

Click here to read more about starter interrupt devices from the New York Times.  

In a bankruptcy what happens to debts between a divorced husband and wife?

Unfortunately, divorce and bankruptcy often go together.  What happens to the debts that spouses owe to each other when one files for bankruptcy?  The bankruptcy code distinguishes between two kinds of marital debts and limits the dischargeabilty of both.

1)  The domestic support obligation refers to alimony and child support, but includes payments coming due before, during or after the bankruptcy, if they are subject to a separation  JohnMenszer-9385agreement, divorce decree or court order.  If they are in the nature of alimony, maintenance or support the court looks to the true nature of the payments, despite what they are called in the agreement or order.  Not only can these debts not be discharged in a Chapter 7 or in Chapter 13 bankruptcy, they are deemed priority debts and paid in preference to unsecured debts, like school loans and credit cards.  Furthermore, a Chapter 13 debtor with domestic support obligations must keep his support payments current or his bankruptcy is liable to be discharged.

Domestic support obligations can include attorney fees paid by one spouse to the other spouse’s attorney, when the second spouse is awarded alimony or child support.  They can include agreements to pay utilities, mortgage payments and insurance when they are deemed necessary to support the non-filing spouse.  The burden is on the creditor to prove that the debt is non-dischargeable.

2)  The other category of marital obligations are marital property settlement debts.   These encompass all debts to a spouse or child incurred by the debtor in the course of a divorce or separation, which are not otherwise domestic support obligations (category 1, above).  In other words, everything else.  They can include credit card debt, student loan payments, uncompensated labor, anything that is not deemed a support payment.  They are also not dischargeable in a Chapter 7, but are dischargeable in a completed Chapter 13 bankruptcy, after the debtor has made all the payments and fulfilled all the other requirements for discharge.

The only game in town for a debtor seeking to be rid of marital property settlement debts is to make Chapter 13 payments for either the 3 or 5 year required period.  The debtor’s resultant Chapter 13 discharge will absolve the debtor of the obligation to pay any outstanding marital property settlement debts that did not get paid through the bankruptcy.