Bankruptcy & Loan Modifications

     The process and procedures to dispute an inaccurate charge on a credit card is well documented and supported by Massachusetts & Federal Laws. Consumer laws have been protecting individuals from wrongful actions of creditors.  There are certain steps an individual must take to take advantage of the law’s consumer protection: contacting the creditor, waiting for response, settling dispute.

            The Fair Credit Billing Act was established to protect consumers from creditors. The settlement procedures apply to disputes of “billing error”. These may be unauthorized charges, charges with wrongful date or amount, charges for goods or services that were not accepted by you or never delivered, math errors, and failure to bill to current address. It is important to acknowledge the law applies to “open end” credit accounts. Credit accounts would include credit cards, revolving charge accounts or department store accounts.

            An individual may find protection under the Fair Credit Billing Act against wrongful credit card fees. The individual must write to the creditor inquiring the information of the charges.  The individuals name, address, account number and description of errors must be included in the letter. Additionally you must attach copies of documentation that supports your claim. The letter must be delivered within 30 days after the bill is recieved, containing the error. This is clearly stated in Section 166 of the FCBA. It is advantageous for you to send the letter by certified mail and return receipt request. This allows you to have proof the creditor received the letter within the time frame.

            Within thirty day the creditor must acknowledge your complaint. The creditor must explain the error or inaccurate amount on bill through writing. If the creditor recognizes the mistakes the letter back will include a change to your bill. Also, the creditor must remove all finance charges, late fees or other charges obtained during or related to this issue. However, the creditor may pursue the balance of the disputed amount (Section 166(a).

            If the creditor questions and pursues the disputed amount, it is necessary you keep the received letter from the creditor of the disputed amount. At this time the creditor will investigate the charges; information may be requested to prove the charges.

            During the dispute, all other payments not in dispute must be paid. A legal or other action to collect the dispute amount is restricted during investigation. The closing of your account is also restricted to creditor. However, the disputed amount may be applied against your current credit card limit. The dispute must be resolved within ninety days or two billing cycles after receiving the letter.

            Throughout the dispute process, under the Fair Credit Billing Act section 161(a), “a creditor or his agent may not directly or indirectly threaten to report to any person adversely on the obligor’s credit rating or credit standing because of the obligor’s failure to pay the amount indicated by the obligor”. This section protects an individual’s credit report allowing stability while the claims are in dispute. 

It is important to realize the creditor’s investigation may result in the determination that the bill was correct. If this happens, the creditor must immediately send notification with a descriptive reasoning. The individual may request documentations proving the bill was correct. At this time, the individual will need to pay the owed amount and finance charges collected during disputation. There may be a minimum payment required because of the dispute (Fair Credit Billing)”.�
            If you disagree with the findings of the investigation, you can act within 10 days. The letter must state your refusal to pay the disputed amount because you do not feel you owe the funds. Collection procedures may begin at this time. What if the creditor fails to follow procedure? In the case the creditor does not follow procedure, the creditor will not be able to collect amount disputed or any related funds up to 50 dollars. The collector may not collect the funds if the investigation result is finding the billing was correct.

            If a creditor has contacted a credit collections agency during the period of investigation, it is against the law. The creditor is breaking Section 166(a) of the FCBA and chapter 93 Section 49 regulation of trade. Under this section (d) the creditor communicates with alleged debtors through the use of forms or instruments that simulate the form and appearance of judicial process. This action would break the process and violate the judicial process. However, the letter of dispute must have been received by the creditor within 30 days of the incorrect bill. The creditor may pursue the individual for liable amounts if this was not fulfilled.

            All in all, the procedures to dispute an incorrect fee are a timely mannered process. The federal and state laws established will help the individual fight the creditor. It is important to realize the creditor may result in correct billing. Also, it is important to remember the finance charges which can be established throughout the process that you will be liable if the creditor is correct.

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Consumers who file for bankruptcy under Chapter 13 are in a unique position with respect to their debts and how much of those debts get paid. Under a Chapter 13 bankruptcy case, the Debtor is proposing to reorganize his or her finances and to pay back not only missed payments on mortgages, cars loans, and taxes, but also a portion to unsecured creditors. In the past that amount has been based upon the disposable income of the person filing for bankruptcy. However, in making that determination, certain allowances are used to decide how much someone is allowed to spend. In addition, the amount of money one is believed to make each month was not based upon their current situation as much as it was based upon their income over the last six months.Recently, the United States Supreme Court had the opportunity to issue a ruling relative to the plan payment and how to determine a person’s true disposable income”. The Court held that “when a bankruptcy court calculates a Debtor’s projected disposable income, the court may account for changes in the debtor’s income or expenses “that are known or virtually certain at the time” their plan payments is confirmed by the court. This is important because a person who may receive a lump sum payment or bonus could conceivably be required to may much more money each month then they really earn. Equally important, a person who earned a large salary, but whose income is about to be reduced, need to suffer due to the fact that their income was at one point in time higher then it is on the day they file, or even higher then anticipated over the next few months.

In the case of Hamilton v. Lanning, 545 F. 3d 1269 (2010), the court held that taking the forward-looking approach should begin by calculating disposable income, and in most cases, nothing more is required…, but the court can take into account other known or virtually certain information about the Debtor’s future income or expenses.”

What this all boils down to is that when deciding if bankruptcy is the right option, Debtors now have a guideline that they can point to in working with the Trustee and the Court to somewhat accurately anticipate their Chapter 13 Plan.

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Many Creditors have found themselves in the position of being owed a significant amount of money but having no way of collecting that money.  In some situations though, the Creditor may be privy to information that the reason they are not being paid is not due to a lack of funds by the Consumer or business, but rather due to the fact that the funds are being diverted to other parties or even being embezzled.  If this is happening, what options do Creditors have?  One option is certainly to commence a case in state court for breach of contract, which will then require discovery to enforce a judgment.  However, there is another option which is underutilized; a Creditor can petition the Court to force the Debtor into a bankruptcy. The purpose of an involuntary bankruptcy is to prevent and protect Creditors from unfair activities. A direct result of forcing an involuntary bankruptcy is the ability to recover payments or wrongful transfer by the Debtor.  The filing of involuntary bankruptcy allows the avoidance of time restrictions on three important elements: Inside transfers prior to filing within two years, fraudulent transfers made within one year prior to filing and non-insider preferences made within 90 days prior to filing are protected.

            Forcing an involuntary bankruptcy has two main benefits. First, filing a bankruptcy presents the opportunity to appoint a Trustee over the case. 11 U.S.C. § 303 As a result, the Debtor’s actions can be thoroughly examined and the Debtor can be held accountable.  A secondary benefit for the Creditors is a claim for “actual, necessary expenses” acquired through the time of ordered relief. This event occurs when the court accepts the petition.  The Creditors involved have the opportunity to submit this claim that includes Attorney’s and Accountant’s fees, cost for preparation for petition, and filing the petition. Also, the claim can involve any litigation necessary for petition. Under the bankruptcy law, administrative claims (11 U.S.C. § 507(a) (1) are a first priority and are finically compensated before all other claims.

            An individual or corporation as a Debtor becomes a likely candidate for an involuntary bankruptcy for two activities. First, the Debtor is missing several payments or regularly missing payments. Secondary, the Debtor can become subject if a custodian was appointed or had taken possession of the debtor’s property before the petition within 120 days.

            There are five necessary elements needed to force an involuntary bankruptcy. To file a petition, the debtor has to have at least three creditors our of twelve who are owed a minimum of $10,000 dollars together; If there are less than 12 creditors owed, only one creditor is necessary which is owed at least $10,000 dollars. The 12 creditors may not be insiders, employees or anyone getting preferences. The debts must not be dependent, meaning that they cannot be claims for a law suit yet to be matured. Additionally, the disputes must not be bona fide claims.  Bona fide cases are debts with “good faith” to fulfill. Also, until such time as the bankruptcy case is discharged or dismissed, additional Creditors may also join a pending petition.

            The process of filing an involuntary bankruptcy begins with filing a petition and a summons with the clerk of the U.S. Bankruptcy Court. The Debtor has a 20-day time

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The term loan modification is not a new one, but it has picked up a lot of speed over the past year. In the past, homeowners and lenders have been able to workout deals to change the essential terms of a mortgage through private negations. However, in March of 2009, the United States government released their Home Affordable Modification Program (“HAMP”) and all of a sudden it was the new craze. The problem is now that the Government is involved at least to some extent, consumers seem to believe that banks have an obligation to “modify” or change a loan. When in reality, the government has no teeth to force the banks to do anything. A loan modification or credit workout is purely an optional program.With that said, many consumers and frankly even Consumer Debt Advocates have been taken advantage of by the banks who have at the very least given the appearance of acting in a deceptive manor with respect to these loan modifications. Many homeowners were accepted into a loan modification trial program, in order to prove that they could make modified payments. The homeowners has made these payments for several months and after they have been faithfully making good on that agreement are kicked out for no reason, or even fraudulent or deceptive reasons and are facing foreclosure.

Many of use know the deal; the bank requests a bunch of documentation to review. They claim that they have not had a chance to review it and so ask for updated information. They do this while arrears are building up, and then finally offer a trial plan. Once the homeowner is in the trial plan for what is represented to them as 3 months, they soon learn that it can become two to three times as long, all the while the homeowner faithfully performs their obligations under a new agreement and pays sometimes tens of thousands of dollars to the bank, instead of investing that money in other avenues that my be more effective, such as filing for a chapter 13 bankruptcy, or challenging the standing of the banks.

It has been suggested by many on the interest though various blogs and chat rooms that this loan modification is nothing more then the banking industry’s “well-thought-out scam where the lender, knowing full well they ultimately intend to foreclose string the homeowner along to collect a few additional payments.

What many people do not seem to realize, is that there are other opportunities to save your home, or in the alternative, cut your losses before they arrears get too great to manage. The key to remember is that should you want to walk away from your home, if the home is sold for less then you owe, you may be liable for the debt. In order to avoid this, a simple Chapter 7 bankruptcy can eliminate that risk. Additionally, you can file a Chapter 13 case and pay back the missed payments over 5 years interest free. Perhaps more importantly, when you file a bankruptcy, the bank must stop any foreclosure or collection attempts for past due amounts. It may provide you with the time you need to go into court whether it be through the bankruptcy court, the land court or even superior court to challenge the standing of the bank.

The lender must prove that they even have a right to foreclose and in order to do this, they must have a copy of your original mortgage and note. If they can not produce that note, then a judge may indefinitely stay their foreclosure. If they file a claim for past due amounts, the bankruptcy court may hear this as evidence of a challenge to the proof of claim. You also may request a copy of your loan application and find out that there are many untrue statements that bank used to issue the loan. If this is the case, you may even be able to strengthen your position and negotiate a “real modification” where you have now come full circle.

Additionally, should you have a second mortgage that is not supported by any equity, you may be able to strip the lien entirely though a Chapter 13. In the event that the home is not your primary home, but rather an investment, you may even be able to cram down the principal to its current fair market value and a reasonable interest rate through a court order.

The bottom line is this, do not trust that you will obtain a loan modification even if you have been put into a trial period. You have several options, and should contact a qualified consumer debt attorney to learn what options are at your disposal.

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Many bankruptcy filers enter into a Chapter 13 case with a car lease.  However due to the 60 month duration of their case, their lease expires before they receive a discharge of debt.  As such, many Debtors have a need to either purchase their existing lease or to enter into a new contract. The problem is that many times the fee to do so is more then what was listed on Scheudle J.  The challenge that you may face is in order to spend more money while inside your bankruptcy, you may need to obtain court approval and to demonstrate how you will be able to make the payments.  Moreover, the Court will want to know why you should be allowed to spend more money and pay your creditors less. 

Attorney Bill Balena, has posted a great article on his Ohio bankruptcy blog about what goes into such a motion including:

The way to address this matter is by filing a motion with the court.  This is something that your attorney should do for you.  As with everything else in a Bankruptcy case these days it is all about paper.  A successful Motion to Lease or Purchase a Vehicle in Cleveland should include:

• The proposed contract.  For an automobile purchase or lease the dealer will not give you this document.  Heck, he doesn’t even have it until the day you go in to sign on the dotted line.  The court will accept a deal sheet made out by the salesman.
• A statement of the basic terms of the deal.  Include amount borrowed, loan or lease terms, amount and source of down payment, and interest rate.
• The reason for the proposed lease or purchase.
• Comparison of your existing transportation costs to the anticipated new costs.
  • If new cost is higher explain how you are going to cover the increase
  • If it is lower, explain how you intend to apply the additional disposable income (they get you coming and going).
• A statement of any connection you might have with the lender or Lease Company, or an affirmation of no such connection.

To read his complete blog, click here.

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The affects of bankruptcy can have a lasting impact on a person. Once a child is involved the affects can last for a long time. The topic of dealing with the affects of bankruptcy on children is not a topic that has received much attention over the years, but this topic is one that should be addressed.In many cases, parents try to minimize the affect of a bankruptcy on the family. Children in most situations may not even know anything has transpired. Moreover, it may be far less traumatic even if the children know their parents are facing financial distress, then to know your home has been taken away by the bank.

Once a bankruptcy claim is filed the courts will decide which debts require payment. As such, the court can determine that certain expenses are allowed while others are not. Once such expenses is 529 plans or other savings accounts for college. During times like this consulting with an attorney can be beneficial in order to get a good understanding of how your child may be affected once you file for bankruptcy.  In addition, there are many other situations that can comingle a parents debt with the financial interest of their kids.  To read more about these situations, check out Jonathan Ginsberg an Atlanta bankrutpcy attorney’s blog. 

There is no doubt that the stress of bankruptcy can take a toll on a child. A study conducted by the Iowa State University Institute for Social and Behavioral Research states that children who experience socioeconomic adversity at an early age are at an increased risk of experiencing mental health challenges during their teen years. A child may begin to wonder whether or not their family will have a place to live or what will happen to them in the future. A family’s financial status can affect a child because of society’s emphasis on being financial stable and achieving a certain level of success. Once a child realizes the lack of financial resources available for their family that child may be embarrassed and could be subjected to negative treatment amongst his or her peers.

Despite all the negative emotions associated with bankruptcy it is important to keep your children involved in the financial matters of your family. If a parent is laid off from their job of made the decision to file for bankruptcy the financial make up of that family changes. The next step is to explain the financial situation of your family with your children so they are aware of the situation. Parents must remember that children are learning from how their parents are dealing with bankruptcy and other financial matters.

The issue of bankruptcy is not an issue topic to discuss. For parents the issue of bankruptcy can become even harder to explain because their financial outlook can be affected as well. Despite this obstacle, it is important to minimize as much stress as possible and make the right decisions that will benefit your children in the future.

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When you work with an attorney on a bankruptcy filing, there’s a long list of documents you’ll be asked to gather and give to your attorney. Some of the most critical documents you’ll gather are your last three years’ worth of tax filings, both state and federal. Why are these so important?First, and most important, tax returns contain a great deal of the financial information that your attorney will use when preparing your bankruptcy petition. Your attorney will review your returns to get a good foundational grasp of your financial situation—what real estate you own and whether it’s investment property; what bank accounts or investments you may hold; whether you are self-employed and how the business has been doing over time, and so on.

Similarly, your attorney uses your tax returns as a kind of financial checklist when preparing your bankruptcy petition. Most of the information that you’ve already reported on your tax returns is information that your attorney must include in your petition.

Importantly, bankruptcy is information-based. In other areas of law, when you go to court, you may be asked to testify and tell your side of the story. At your bankruptcy hearing, your bankruptcy petition—the specialized financial report that your attorney has presented to the court for approval—tells your story for you. The bankruptcy trustee who examines your petition may ask some questions, but the more accurate and detailed your attorney’s information, the easier it is for the bankruptcy trustee to review and approve your petition.

So don’t flinch when your attorney asks for copies of your tax returns. You can share them confidently, knowing that your attorney is helping you toward bankruptcy’s “fresh financial start.”

The forgoing post was drafted by Attorneys Marsha Graham and Liz Weishaar who work in an of counsel relationship with the Law Office of Goldstein and Clegg, as well as for Weishaar and Graham.

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When you go into Bankruptcy Court for your Chapter 7 hearing, you appear before a Bankruptcy Trustee in what is known as a “341 Meeting.” Your hearing takes place in a conference room rather than a courtroom; however, you must be neatly groomed and appropriately dressed as for any official occasion.You must bring photo identification and your Social Security Card. If you forget either of these things, the Trustee’s Clerk may have to reschedule your hearing.

You will be sworn in before testifying. The Trustee’s job is to identify and liquidate all “property of the estate” that your attorney has not exempted. The Trustee’s questions depend on the complexity of your bankruptcy. In the unlikely event that a creditor objects to your bankruptcy, the Trustee examines the objections and tries to resolve the issue on the spot. You will, as in all official hearings, be asked to state your name and current address for the record. The Trustee will ask you to authenticate your signature on the bankruptcy filing. The Trustee wants to know that you have read and understand the Chapter 7 information that the Court provides when you checked in with the Clerk. Also, you need to let the Trustee know that you have read the bankruptcy filing and that it is true. The Trustee will ask questions about your income, real estate, personal property, and assets such as life insurance and 401K accounts.

It may sound like a lot, but don’t forget that you’re not on your own. Your bankruptcy attorney will have helped you adequately prepare for your hearing, so that the Trustee’s questions will be simple and easily answered.

The forgoing post was drafted by Attorneys Marsha Graham and Liz Weishaar who work in an of counsel relationship with the Law Office of Goldstein and Clegg, as well as for Weishaar and Graham.

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In today’s Wall Street Journal, I found a great article by Sare Murray and Conor Dougherty about the increase in bankrutpcy filings.  

The number of Americans filing for personal bankruptcy rose by nearly a third in 2009, a surge largely driven by foreclosures and job losses.

And more people are filing for Chapter 7 bankruptcy, which liquidates assets to pay off some debts and absolves the filers of others. That is significant because a 2005 overhaul of federal bankruptcy laws aimed to encourage Chapter 13 filings, which force consumers to sign onto debt-repayment plans in exchange for keeping certain assets.

The changes were designed to make it more difficult for people to shed their debt, particularly in a Chapter 7 filling. A “means” test, for example, was introduced to separate those who could afford to repay their debt from those who couldn’t. A Chapter 7 filing is off the table if the means test determines a person is able to pay back at least a portion of the debt after it is restructured.

to read the rest of the aritcle on Personal Bankruptcy Filings Rising Fast, click here.

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