Bankruptcy Questions Answered

Reaffirmation of Debt Need Not be Under Same Terms as Original Loan

Most people know that Chapter 7 allows you to wipe out unsecured debt – credit card bills, medical debt and other signature loans.  But what about secured debt – loans you are still paying to finance your home, your car, perhaps some jewelry or furniture?

This past March, I discussed redemption of property in Chapter 7.   Redemption of property is a viable option but it is far less common than "reaffirmation" of debt.

Why Do You Need to Reaffirm?

Secured loans actually contain two different kinds of obligations.   On one hand, you obligate yourself personally to pay a particular debt.  This is typically in the form of a promissory note.  The second layer of obligation ties the specific item of property to the loan.  This is called a security agreement.

When you file a Chapter 7 and a discharge is issued by the judge, your personal liability on your secured debt is extinguished.  This is why payments on a non-reaffirmed car loan or home loan will not be reflected on your credit reports.  You have no personal obligation to pay.  However, a Chapter 7 discharge does not extinguish the lender's security interest against property.  This is why a vehicle lender can repossess or a mortgage company may foreclose to recover property.   In such a situation you would not have any personal liability for any deficiency amount.

A reaffirmation serves two main purposes:

1. you will have the certainty of knowing that you are once again in a contractual relationship with the lender.  If you do not reaffirm, you could wake up one day to find that your vehicle has been repossessed or that you are being foreclosed upon.
2. secondly, payments on a reaffirmed debt will appear as positive information on your credit reports.  This means that your credit score will recover more quickly

Can You Negotiate Better Terms in a Reaffirmation?

Because a reaffirmation agreement is a new contract between you and your lender, you absolutely can negotiate different terms.  I have negotiated reduced payments, lower interest rates and reduced balances on furniture, electronics, and vehicles.  I have also negotiated lower payments on 2nd and 3rd mortgages.

It has been my experience that some lenders will just not play ball.   They would rather incur the expense of recovering, storing and reselling a used item.   I think this attitude of  "we do not negotiate with debtors" is silly and counterproductive, but some lenders take this position (I suspect that some of these lenders do not have the staff or protocol for handling a negotiated debt).

On the other hand, many lenders will agree to a deal with terms a lot better than the original contract.  But you do have to ask, and, of course, if you agree to any terms, you must live up to the deal.  Reaffirmation agreements can be canceled by the debtor within 60 days after the agreement is entered, or the case is closed, whichever comes first.

Posted in Debt negotiation, Obligation, Reaffirmation and negotiation, a, agreement, agreements, amount a, and, balances, deal  , debt, deficiency, handling, item, layer, lower, negotiated, payments, protocol, rates, reaffirmation, reaffirmation because, reaffirmation of secured debt, reduced, serves, specific, terms  , the, ties | Comments Off

Understanding the Changed U.S. Debt Outlook Rating

The credit rating agency Standard & Poor’s made waves last week when it announced that it had downgraded the outlook on U.S. debt from “stable” to “negative,” leaving many ordinary Americans wondering what the change means for the economy and how debt rating works in the first place.

Here’s a look at what our country’s debt rating might mean in future months and how that rating is like an individual credit score.

Rating the U.S. Debt

Currently, the United States has a credit rating of AAA, which is the highest rating possible. This rating indicates that the U.S. is a stable country and is likely to repay any loans it takes out. But there’s more to the story.

• Outlook on U.S. debt: While the other two major credit rating agencies (Moody’s and Fitch Ratings) have not announced any changes to their ratings on the outlook for U.S. debt, Standard & Poor’s downgraded that rating last week, citing as one reason the continued inability of Congress to make a decision regarding the long-term future of spending policies.
• A warning move: While the change in the outlook rating does not officially alter the country’s credit rating, it serves as a warning and reminder to legislators and others in positions of power that the country’s financial stability and credibility on the world stage are at stake.
• Potential for positive impact: Some commentators have mentioned that the changed credit rating could actually prove beneficial to the country, as it may push Congress to act swiftly (and without unnecessary political posturing) in taking steps toward changing financial policy.

The Parallel with Individual Credit Ratings

As anyone who has ever file for bankruptcy, applied for a mortgage or thought about borrowing money for a car knows, individuals have credit ratings too. And, as with the credit rating for the United States, credit ratings for individuals are used to help lenders and investors determine whether or not to lend money to a person and on what terms.

If Standard & Poor’s actually downgraded the country’s credit rating, it would have a similar effect on the nation as seeing a drop in a credit score would for an individual. In other words, the U.S. would have more difficulty borrowing money and could suffer a variety of financial consequences.

So how can a country (or an individual) keep its credit rating as strong as possible?

• Pay bills on time.
• Pay down as much debt as possible.
• Try to keep credit usage low (that is, stay well below the limit).
• Keep old accounts active (but not maxed out).
• Contact creditors before bill due dates if there is ever reason to expect inability to make timely payments.

Posted in Bankruptcy and the Economy, Credit, Credit Rating, Credit Report, Credit Score, Credit and Bankruptcy, debt | Comments Off

The Truth About Bankruptcy: Report Shows Many Wages Unlivable

A recent press release from a group called Wider Opportunities for Women reveals what many families struggling to make ends meet already know: many families with breadwinners employed full-time are unable to earn enough money to ensure a basic standard of living.

The study (discussed more below) highlights the troubling economic reality that many Americans face and could potentially help to de-mythologize the reasons people are pushed to file for bankruptcyprotection.

The Basic Economic Security Test

Here’s some background about the study and its findings.

• Data collected since 1995: Over the past fifteen years, WOW has gathered data from state and federal pools (including census reports) to attempt to determine how much income is required to establish economic security across the country. The study attempts to determine not what people can survive on minimally, but how much they need to earn in order to achieve stability without help from public assistance.
• Economic security numbers: The study found that a single person would need to earn $30,012 per year (about $14 per hour), a single person with two children $57,756 annually (about $27 per hour), and a family of four $67,920 per year ($16 per hour for two workers) to establish economic stability.
• Minimum wage not enough: Compare the above numbers to the federal minimum wage ($7.25 per hour) and to the income identified as poverty-level for those groups ($10,830 for an individual and $22,050 for a family of four) and it’s easy to see that current diagnostic standards for “poverty” are somewhat misleading. Sources report that more than 14 percent of Americans lived below the poverty line in 2009.

Financial Stability, Emergencies and Bankruptcy

Given these numbers, it’s no wonder that millions of Americans require help from the bankruptcy court each year. One essential part of economic stability, as the report highlights, is being able to save money for emergencies. And, on bankruptcy filing surveys, filers commonly cite as reasons they filed financial emergencies such as:

• Illness or injury that led to high medical costs and/or job loss;
• Job loss, layoff, or reduction;
• Family events such as divorce, the death of a family member and the birth or adoption of a child;
• Over-extension on credit (which can result from relying on credit to buy necessities); and
• Unexpected expenses (like a car or home repair).

Recession Hurting Many Families

The study also showed that Americans with less education have the most difficulties finding jobs with livable wages, and that more low-income families than ever have reported not being able to afford basics like food within three months of losing their income.

Posted in Bankruptcy, Economy, Setting the Record Straight about Bankruptcy, debt, jobs, statistics | Comments Off

Debt Collectors & New Media: What Rules Apply?

Debt collectors using new media to contact debtors, raising an issue that Consumer Financial Protection Bureau head Elizabeth Warren has indicated should be a top priority for lawmakers and attorneys general in every state.

A recent post from WalletPop.com highlights the issue, which has become more prominent and consumers - and marketers - embrace the latest technology.

Here’s a look at why this issue needs attention and how it might affect you.

Debt Collection Rules

Thanks to the Fair Debt Collection Practices Act, originally passed in 1978, debt collectors have to follow certain rules when contacting consumers about debts they owe. Generally, these rules are designed to make sure debtors are treated respectfully.

But new communication devices and debt collection practices have raised questions about what should be legal. For example:

• Pre-recorded messages: Many debt collectors have apparently begun leaving pre-recorded messages on voicemail accounts or home answering machines. While these messages have “disclaimers” that indicate a listener should hang up if the name in question is not their own, it’s easy to ignore that instruction and learn about another person’s debt (information that should be private, according to the FDCPA).
• Facebook messages: Some debt collectors have reportedly contacted debtors and their friends and families over social networking sites, which is not explicitly prohibited by the FDCPA (because Facebook wasn’t around when it was made law), but which many insiders argue should be considered “embarrassing media.”
• Text messages and cell phone calls: Other debt collectors are apparently using cell phone contact to reach debtors, a method that has raised the question of usage fees. Regulators are asking whether there should be restrictions on contact that debtors must pay for by the unit.

Proposed Regulations in Some States

As of now, a few states have begun to take action to regulate the new media debt collectors have been using. The Attorney General of New Mexico has reportedly announced that debt collectors must disclose to debtors the expiration dates for debts (that is, when collectors are legally prohibited from attempting to collect them).

In Massachusetts, Attorney General Martha Coakley has released a statement introducing proposed changes to that state’s debt collection rules, which would include:

• Extension of collection rules to apply to new media, including online, text and recorded messages;
• Amendment of the definition of a “household” to take into account use of cell phones and email addresses;
• Extension of rules for primary debt collectors to apply to so-called passive debt collectors (who often buy expired debts cheaply and aggressively attempt to collect on them); and
• Requirement for debt collectors to make a good faith attempt to determine whether a debt is too old to be legally collected.

Even if you don’t live in New Mexico or Massachusetts, you could see changes to debt collection laws and practices where you live in the near future. And, if you suspect that a debt collector has broken existing rules in attempting to contact you, don’t hesitate to contact a lawyer to learn more about your rights.

Posted in Consumer Protection, Legal Info, debt, debt collector | Comments Off

Keep Your Debt Elimination Motivation High

Whether you’ve committed to a Chapter 13 bankruptcy repayment plan or you're paying off debt without help from the bankruptcy court, it's essential that you stay with your plan over the long term – otherwise, you may never get to the payoff of being debt free.

But, because eliminating debt and rebuilding credit can take several years (a Chapter 13 bankruptcy takes three to five years), staying motivated to pay down your debt can be a challenge all its own.

Here are some tips for keeping yourself excited for your mission, adapted from NotMadeofMoney.com.

Stay Pumped to Pay Debt: Break the Whole into Sections

• Work piece by piece: Rather than thinking of your debt in terms of its overwhelming total number, break it into pieces of debt (whether by account, type of debt or some other groups) and focus on eliminating one type at a time. This should keep you from feeling helpless in the face of a large debt total.
• Take time to celebrate small victories: When you meet one of your small financial goals (which can be anything from paying off a certain debt to avoiding some type of costly, detrimental financial behavior) for a set time period, reward yourself and enjoy the reward. Obviously, it's important not to go overboard on this (and risk undoing all the good you've done), but treating yourself to, say, one fancy latte per month will likely help you enjoy that drink much more than if you gulp one every morning.
• Think debt by debt: Most insiders suggest paying the minimum balance on all but one debt (either the one with the highest interest rate, for maximum efficiency, or with the lowest balance, for speedy elimination) and funneling the rest of your spare change into that debt. This way, you'll pick off debts one by one as your work your way down to a debt-free life.
• Remember your long-term goal: Eliminating debt can provide you with financial freedom that you might use in a number of ways – remember to keep in mind what you plan to do once you're unyoked from your debts. Whether you want to travel, give more, work less or do something else, remember that your journey toward debt elimination will help you get there.
• Enlist a helper: Whether you're working toward financial freedom with a spouse or on your own, having an outside source of motivation can be helpful to keeping you on track. We tend to feel more responsible for our actions when someone is holding us accountable for them, for one thing; for another, it's nice to hear how well we're doing from someone else's mouth once in a while. So if you don't already have a debt-elimination buddy, start thinking about who might best motivate you to stay on track.

Posted in Financial Literacy, Personal Finance, consumer debt, debt | Comments Off

Know What to Look for in a Debt Settlement Company

If you’re struggling under what feels like a debt mountain, you’re probably ready to consider a variety of options to ease or eliminate your financial burden. And, if you don’t think bankruptcy is right for you (or if you’re ineligible for bankruptcy because of a recent filing), you may be wondering whether debt settlement could help.

While debt settlement does work for some people, it can be risky to sign on with a debt settlement firm – less-than-scrupulous companies abound and can cheat consumers out of money when they can least afford to lose it.

When Can You Trust a Debt Settlement Firm?

A recent article from WalletPop.com offers some tips for spotting a trustworthy debt settlement company. Here’s a summary.

• Do some background sleuthing: Before you even leave your house to visit a debt settlement firm, use the tools available to you to nose out a trustworthy company in your area. You may want to start with a simple internet search, but be sure to check any company you consider with the Better Business Bureau for its grade (although newer companies may not yet have any useful comments – good or bad – on that site yet). You should also look for consumer comments about the firm to see how others have responded to their services.
• Know what a “reasonable” fee is: If you choose a non-profit debt settlement company, the up-front consultation fee should be $75 or less, according to sources. If the company charges more than that, they’re likely more interested in taking your money than helping you settle your debt woes. And it’s important to note that laws prohibit for-profit firms from charging any up-front fee at all.
• Time your first meeting: Another way to gauge a debt settlement firm is to time your initial meeting with a representative. According to insiders, anything less than an hour should raise a red flag – in order to get a thorough sense of your finances, a representative should take at least 60 minutes to understand your debts and assess your situation. Another bad sign is if the person helping you is distracted or inattentive – your finances require the full attention of the customer service representative, and anything less should signal you to leave.
• Go with your gut: If the debt settlement company or its representative seems to be pushing you hard to sign on, suggests or says that the process of debt settlement will be easy, or acts like the answer to all your problems, you should assume that the situation may be less than ideal. Debt settlement, when it’s done honestly and well, still requires consumers to make financial sacrifices and stay on top of payments – it’s not an easy road out.

Above all, understand that you are the one who will be most affected by whatever happens to your finances, and so you need to take an active role in making sure your finances are on the right path. Use the online resources available to you and follow your instinct – any deal that seems too good to be true most likely is.

Posted in Consumer Protection, Financial Literacy, consumer debt, debt, scams | Comments Off

Tiny, Hidden Credit Report Errors Can Lead to Bankruptcy

The Wall Street Journal recently published a new story entitled Hidden Medical Debt Trips Up Homeowners. The report documented several cases in which small medical bills that had been turned over to collection resulted in a more than 50 point drop in a homeowner's credit score.

In one situation, a homeowner attempted to refinance his mortgage, only to discover that two unpaid medical bills totaling less than $50 had caused his credit score to drop.  As a result of the lowered credit score the refinancing bank demanded over $4,000 in closing costs.

In another situation, less than $500 of medical debt reported to a collection agency disqualified a homeowner from a favorable interest rate, which would have resulted in tens of thousands of extra interest charges.

In many of these situations, the consumer never knew about the unpaid medical debt – the provider simply turned the claim over to a collection agency which immediately reported it to the credit reporting agencies as delinquent debt.

According to the Journal, "otherwise well-qualified borrowers with good loan-to-value ratios and steady employment are increasingly finding it difficult to refinance because of medical billing mistakes marring their credit."

If you or a loved one has been in the hospital, you probably know that a single visit can result in five, ten or even more bills from separate vendors – the hospital, the hospital pharmacist, the anesthesiologist, the ambulance service, etc.  I do not find it surprising at all that a patient would not know about one or more bills.

I think that an important point here has to do with the cascading effect of negative credit.   Even a small late payment on an account can result in a dramatic lowering of your credit score.  Other creditors will receive electronic notice about your lowered credit score and when permitted, they will increase your interest rate, lower your credit limit and increase penalties and fees.

Lenders Often Cause Delinquencies by Changing Terms Unexpectedly

On more than one occasion I have met with a potential bankruptcy client who was forced into Chapter 7 or Chapter 13 because of changed terms, not because of any delinquency.   These changed terms can arise from a tiny delinquency – like the unknown, unpaid medical bill issue discussed in the WSJ story, or for other reasons.  Recently I met with a small business owner who was completely current on his personally guaranteed revolving line of business credit.  His bank was taken over by another bank which conducted an audit and, without warning, the business loan was "called in."

One minute, my client was operating a viable, functioning small business that was current on its obligations – and literally within a matter of days, that business was shut down by a bank for no apparent reason.

The point here: examine your credit reports regularly and challenge even tiny delinquency reports as the damage to your credit will arise from the existence of the delinquency as opposed to the amount of the late payment.  Even small downgrades to your credit score can result in a negative debt snowball.

Posted in Consumer Protection, Credit, Credit Reports, Credit Scores, Credit reporting errors, Discover, FDCPA Claims, General consumer bankruptcy info, a, arise, bank, billing, bills, cases, claim, debt, delinquency, demanded, entitled, hidden, knew, lowered, marring, medical, medical debt and bankruptcy, medical debt and credit reporting problems, mistakes, provider, refinancing, reports, score, simply, small, story, the, tiny, totaling, trips, turned, unpaid | Comments Off

When It’s Time to File for Bankruptcy: How to Know

Bankruptcy protection is often cited as a crucial part of the fabric of American capitalism – with the safety net of bankruptcy available, entrepreneurs and risk-takers can proceed without worrying that following their dreams will have devastating financial consequences.

Recognizing the important role bankruptcy plays in our economy, two bankruptcy analysts have developed a color-coded system to help consumers gauge their level of financial health and help them figure out whether they should be seriously considering a bankruptcy filing to protect their financial future.

Financial Warning Signs that You Might Need Bankruptcy

The various colors in this code, much like those in the code used by the feds to communicate the current level of threat of a terrorist attack, work like this:

• Green zone (no need to file bankruptcy): If you're in this category, you have no real need for bankruptcy protection. You probably make more than you spend, pay your bills on time, have assets and insurance, have no credit card debt and save money regularly.
• Blue zone (financial changes might be needed): Here, you don't quite need bankruptcy protection, but your financial habits, if continued, may lead you to a place where you will. People in this zone may be worried about losing their job, have trouble paying bills in full each month, have credit card debt and secured debt, and may not by able to save money regularly.
• Yellow zone (bankruptcy is an option): At this level, you need to evaluate your situation and consider your debt-relief options, bankruptcy being chief among them. People in the yellow zone are often experiencing some financially difficult life change (like divorce, injury or layoff), have begun to miss payments on both unsecured and secured debts, have few or no assets, are getting calls from debt collectors and may not have insurance. If you're in the yellow zone, you need to take some sort of action, whether that's negotiating with your creditors or consulting with a bankruptcy lawyer.
• Orange zone (bankruptcy should be seriously considered): Here, your debt is getting out of control. People in the orange zone tend to be delinquent (more than 60 days late) on at least one bill, use one credit card to pay off another, owe serious tax or medical debts but cannot afford them, have been out of work more than three months and may have had creditors initiate lawsuits against them. While there are still alternatives to bankruptcy available at this stage, it's generally a good idea to consult with a lawyer to see what the best option for your finances and legal status is.
• Red zone (file for bankruptcy right away): At this stage, you're no longer in a position to negotiate and need the protection of the court to prevent having your assets repossessed, your wages garnished, your home foreclosed or similar actions taken. Many people in this phase are unemployed and may have run out of unemployment benefits. Under these circumstances, filing for bankruptcy is often helpful because it may halt all collection action.

Posted in Bankruptcy, Credit and Bankruptcy, Filing Bankruptcy, Financial Literacy, consumer debt, debt | Comments Off

Seattle Earns Dubious Debtor Distinction

It turns out that Seattle leads the country in a category other than caffeine consumption. According to a survey cited in the Seattle Post-Intelligencer, among the 20 most populated metropolitan areas in the country, Seattle has the highest average amount of consumer debt.

The survey, conducted by the information services company Experian, found that the average Seattle consumer owes $26,646. This figure is almost $2,000 more than the national average debt per consumer of $24,775.

However, the news is not all bad for residents of the Emerald City. The survey also revealed that Seattle consumers have very few late payments and stay below their credit limits. These signs indicate that Seattle consumers are using their credit wisely and maintaining healthy credit scores, despite their high level of borrowing.

According to the survey, Seattle narrowly edged Dallas, which has an average consumer debt of $26,599. According to the Dallas Morning News, Dallas is tied with Miami for the lowest average credit score among its consumers, and the number of missed loan payments is higher than the national average.

Rounding out the top five American cities with high amounts of consumer debt were Denver, Atlanta, and Phoenix. Perhaps surprisingly, the two largest cities in the country finished near the bottom of the list. New York came in at number 17, while Los Angeles consumers had the lowest average debt of large American cities.

In conducting the survey, Experian took samples of consumer credit reports from each of the 20 metropolitan areas. The numbers include items such as credit cards and car loans, but do not take into account mortgage debt, which is often excluded from consumer debt surveys.

Lessons for Consumers

• Late payments are the single biggest factor in lowering credit scores. Dallas consumers’ rate of late payments was nearly 20 percent higher than the national average. This explains the city’s low credit ranking, and shows that making credit payments on time is crucial to maintaining a health credit score.
• A high level of debt is not an insurmountable obstacle. Seattle consumers owe the most money, but also tend to make their payments on time. By using credit responsibly, Seattle consumers have been able to maintain decent credit scores despite their high levels of spending.
• Living in a large city may be expensive, but doesn’t have to result in high amounts of debt or even bankruptcy. The presence of New York and Los Angeles at the bottom of the list suggest that it is possible to have high living expenses but maintain healthy credit.

Additional Resources

Click here to see the entire list of average consumer debt in the largest American cities.

Posted in Bankruptcy, Credit Score, Credit and Bankruptcy, consumer debt, debt | Comments Off

Giant Debt Collector Law Firm Mann, Bracken Out of Business

A number of stories have recently appeared in bankruptcy and consumer rights blogs suggesting that the Atlanta based collection firm Mann, Bracken, LLC has gone out of business.   On his Caveat Emptor blog, Minnesota bankruptcy attorney Sam Glover has written several posts about the Mann, Bracken firm including one on December 22, 2009 stating that the calls to the firm's phone number instructs callers to communicate directly with their creditors.   I called several numbers listed for Mann, Bracken but the calls were answered by a message that "all circuits are busy, try your call again later."

Although based in Atlanta, Mann, Bracken has a national practice and it has apparently been growing by merging with other law firms.   I found a web site called paymbw.com which purports to be a payment gateway for debtors to make electronic check or credit card payments on debts being handled by Mann, Bracken.  This site notes that Mann, Bracken is the successor by merger to Wolpoff & Abramson L.L.P., and Eskanos & Adler P.C., two collection law firms well known to debtor's lawyers.

The domain mbllc.com has a "coming soon" page and the registration information for that domain is private.   I looked up the contact information for the partners.  Douglas Mann's shows him as an inactive lawyer affiliated with Mann, Bracken.  Chris Bracken's registration shows a gmail.com email address, a business address at Mann, Bracken's location, but the space for the law firm information is blank.  Two other partners – Bill Layng and Steve Knezo – are now affiliated with other law firms.

Atlanta TV station WSB sent a crew to the Mann, Bracken offices and found deserted premises along with handwritten placards stating that the firm has closed down.  According to WSB, Mann, Bracken was associated with a large debt collector called Axiant, which is now in Chapter 7.

Based on all the information I can gather, the law firm of Mann, Bracken is no more.  However the demise of this firm does not mean that debts owed to clients of Mann, Bracken or Axiant are no longer collectible.   Apparently another large debt buyer/collector, NCO, has purchased or is about to purchase Axiant's accounts.

If you had a deal with Mann, Bracken to settle your debt, you may find that the underlying creditor or a subsequent collection agency may not honor your deal – so hold on to any paperwork you may have.  As attorney Glover notes on his blog, you should contact your creditor directly if you have previously been dealing with Mann, Bracken.

Posted in Bill Collectors, General consumer bankruptcy info, Georgia Bankruptcy, a, atlanta, axiant, based, bracken, bracken  , called, chris, collection, collection law firm, collector, debt, douglas, firm, including, large, mann, mann bracken, partners  , the | Comments Off