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The Fair Credit Reporting Act “FCRA” and the Bankruptcy Code
The Automatic Stay v. the Bankruptcy Discharge
The Fair Credit Reporting Act “FCRA” and the Bankruptcy Code deal with debt differently and this difference can become confusing for everyone, including experienced bankruptcy attorneys. For instance, the legal status of a debt changes as a bankruptcy moves to conclusion. At the beginning of a bankruptcy the automatic stay stops most creditors seizing assets from the bankruptcy estate’s assets without an order from the Bankruptcy Court. But the debt is still the same as before the bankruptcy was filed. If the case is dismissed the creditor has all the same rights as before the bankruptcy was filed. Reporting the debt to the credit bureaus has raised lots of issues in bankruptcy. Many courts have found there is no liability under the FCRA to report a debt as being in default, at least until the case is discharged.
An order discharging the debt alters the legal nature of the debt and prohibits collection efforts.
Once the order of discharge is entered it “operates as an injunction against the commencement or continuation of an action … to collect, recover or offset any such debt as a personal liability of the debtor.” Therefore, a discharge order (unlike the automatic stay) alters the legal nature of the debt. Many courts have interpreted the FCRA to require credit reporting agencies “CRA” and furnishers to adjust credit reports after an order of discharge, otherwise be liable under the FCRA (not all courts follow this line of thought).
Reorganizations
Plans of reorganization are a key component of Chapter 11 and 13 cases. In order for a reorganization to be successful a plan must be confirmed and completed. The challenge for the courts is to determine how the debts should be reported on a credit report before completion of the plan. The order confirming the plan binds the debtor and creditors to the plan’s provisions, and controls any contracts that existed before the bankruptcy was filed, including the amount to be paid and lien priority. Once the plan is confirmed the United States Supreme Court determined that creditors may not relitigate their treatment under the plan (basically they already had their shot at the apple). Although confirmation binds the parties to the plan’s terms, it does so only as long as the case is active and is subsequently discharged.
If a case is dismissed the debts return to the same position as before the bankruptcy was filed, offset by any monies the creditors received during the case.
Given that the bankruptcy is not completed until discharge this raises the issue of whether a credit report can be determined to be inaccurate or misleading if it discloses the pre-petition debt after the bankruptcy court confirms a plan reducing the amount to be paid on the claim, or if it must report the amount established by the confirmed plan (not yet discharged). You can see the quandary.
The post Discharge vs Automatic Stay and Credit Reporting appeared first on Diane L. Drain - Phoenix Bankruptcy & Foreclosure Attorney.
Most Tenants Facing Foreclosure Now Have Some Protection, at Least for 90 Days
On May 24, 2018 a permanent extension of the “Protecting Tenants at Foreclosure Act” (PTFA) was signed into federal law. The PTFA enables renters whose homes were in foreclosure to remain in their homes for at least 90 days or for the term of their lease, whichever is greater.
The PTFA, enacted in 2009 and originally expired at the end of 2014, was the only federal protection for renters living in foreclosed properties. During the financial crisis, bad faith and fraudulent lending, coupled with falling home prices and high unemployment, resulted in an astronomical high number of foreclosures in the U.S.
Renters lose their homes when the owner of the home they are renting goes into foreclosure.
The impact of these foreclosures was not limited to homeowners, however; renters lose their homes every day when the owner of the home they are renting goes into foreclosure. Unlike homeowners who know that a foreclosure is coming, renters are completely unaware. Yet, they continued to pay rent while the homeowner was not paying their lenders. Many renters can be evicted within a few days of the completion of the foreclosure.
The PTFA gives most renters at least to 90 days’ notice before being required to move after a foreclosure.
Under PTFA, tenants with Section 8 housing choice voucher assistance have additional protections allowing them to retain their Section 8 lease and requiring the successor-in-interest to assume the housing assistance payment contract associated with that lease.
The law applies in cases of both judicial and nonjudicial foreclosures.
The PTFA applies to all foreclosures on all residential properties; traditional one-unit single family homes are covered, as are multi-unit properties. Tenants with lease rights of any kind, including month-to-month leases or leases terminable at will, are protected as long as the tenancy is in effect as of the date of the completion of the foreclosure.
The PTFA applies in all states but does not override more protective state laws. Read more…
For more information about the PTFA, see: https://bit.ly/2L55LbE
Some other articles: Protecting Tenants, Arizona law
The post Tenants Facing Foreclosure Protected by New Federal Law appeared first on Diane L. Drain - Phoenix Bankruptcy & Foreclosure Attorney.
In Tepper v. Amos Financial, LLC, No. 17-2851 (3d Cir. August 7, 2018), the court distinguished the Supreme Court’s restrictive decision in Henson v. Santander Consumer USA, Inc., and held that the defendant, a company whose principal business is the acquisition and collection of debts is a “debt collector” under the Fair Debt Collection Practices Read More
The automatic stay of Bankruptcy Code section 362(a)(1) prohibits: “The commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action of proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the Read More
Here at Shenwick & Associates, we were one of the first law firms to foresee the taxi medallion valuation crisis. And now, we see the potential for disruption to another integral aspect of life in New York City–the hospitality industry, including restaurants and bars.
Starting on New Year’s Eve (January 1, 2019) NYC employers with 11 or more employees will be required to pay a minimum wage of $15/hour. For employers with 10 or fewer employees, the minimum wage of $15/hour goes into effect on Dec. 31, 2019.
In our opinion, the combination of the minimum wage increase with New York City’s already stratospheric commercial rent and operating expenses will have a severe impact on New York City’s restaurants and bars, especially smaller, independent and family–owned establishments resulting in the closure or bankruptcy of these businesses!
We’ve already been contacted by several restaurateurs, who have expressed the following concerns:
1. Their restaurant or bar is breaking even or losing money, and with the coming increase in the minimum wage, should they close their business or file for bankruptcy?
2. Is the principal personally liable under either a guaranty (which makes the principal liable for rent and additional rent for the full term of the lease), a “good guy” guaranty (which makes the principal liable until the business surrenders the premises to the landlord), for money owed to vendors, for sales tax or FICA/FUTA taxes as a “responsible person” or for unpaid wages to employees?
3. Should the entity that owns and operates the restaurant or bar close (“go dark”) or file for bankruptcy or negotiate with their landlord or vendors?
Strategic considerations include:
1. Does the business file for bankruptcy? If so, does it file under chapter 7 (liquidation) or chapter 11 (reorganization)?
2. Should the business simply wind up operations and close (“go dark”) or negotiate with their landlord and vendors?
3. As mentioned above, if there is a good guy guaranty, has the guarantor minimized his or her exposure under the good guy guaranty?
4. If there are three or more years left on the lease, has the principal thought about selling the business or subleasing the space?
5. Should the principal engage in asset protection planning, negotiate with creditors or consider filing for bankruptcy?
At Shenwick & Associates we have a strong background in short sales, workouts, personal and business bankruptcy, asset protection planning and commercial leasing, providing a diverse set of possible strategies and solutions that we can help a restaurant or bar and their principal create or implement.
Our analysis begins with an examination of the businesses’ books and records, including the balance sheet, income statement, lease and tax returns. We also review the principal’s assets, liabilities and after-tax monthly budget. If you or your business need help, please call or email Jim Shenwick at (212) 541-6224 or [email protected].
by Herb Weisbaum
Credit card delinquencies on the rise. Despite a strong economy and low unemployment, Americans are falling behind in paying off their credit card debt.
The delinquency rate on all U.S. credit card loans is 2.47 percent — up from 2.42 percent at the beginning of 2017 and 2.12 percent in the second quarter of 2015, according to the Federal Reserve Bank of St. Louis.
That means more than $23 billion in credit card debt is currently delinquent — 30 or more days overdue — according to a new report from the personal finance website NerdWallet.
While lack of money is the most common reason for missing a payment, forgetting to pay the bill is often the case. For its 2018 Consumer Credit Card Report, NerdWallet surveyed 2,019 U.S. adults and found that:
- 35 percent simply forgot to make the payment.
- 33 percent needed the money to pay for essentials.
- 32 percent needed the money for an unexpected expense.
Kim Palmer, NerdWallet’s credit card expert, finds it “troubling” that so many people — 65 percent of those surveyed — did not pay their bill on time because they didn’t have the money. According to NerdWallet’s most-recent Household Credit Card Debt Study, income growth isn’t keeping up with some of people’s biggest expenses.
Reasons for credit card delinquencies
“People's budgets are really stretched because the cost of certain essentials, like healthcare, food and housing, continue to go up and really put pressure on people's budgets,” Palmer said. “And so, people are turning to credit cards as a way to bridge the gap when they can't afford their monthly bills and then they’re unable to make the payments at the end of the month.”
Nerdwallet’s report found that 25 percent of those who’ve been delinquent on a credit card payment said it was because they prioritized paying off other debt.
People's budgets are really stretched because the cost of certain essentials, like healthcare, food and housing, continue to go up and really put pressure on people's budgets.
Research by the Federal Reserve in 2017 found that when there’s not enough money to cover all monthly bills, credit card bills are more likely than other debt payments — rent or mortgage, car payment, or student loan — to go unpaid or partially unpaid.
The high cost of paying lateMore than one in five cardholders in the survey (21 percent) said they made a delinquent credit card payment sometime in their life. NerdWallet did the math: Using a late payment fee of $27, that’s more than $1.4 billion in penalty payments on a nationwide basis. And that’s on top of the interest charged for carrying a balance.
Adding insult to injury, falling more than 60 days behind can trigger what’s called the “penalty APR” which can be as high as 29.99 percent with some cards. That penalty APR, which makes it more expensive to carry that balance, can last for up to six months before the credit card company reviews your account to see if the rate should be lowered.
Let’s say you carry a balance of $3,000 on a card with a 15 percent interest rate and it takes you 18 months to pay off that balance. The Credit Card Payoff Calculator at Bankrate.com shows total interest will be $368. With a default rate of 29.99 percent, that jumps to $761, more than double the carrying cost.
Missing a payment can also decimate your credit score, because card issuers report delinquent accounts to the credit bureaus.
“The longer your account goes unpaid, the more damage you can do to your credit score and the more effort it will take to bring the account current,” said Bruce McClary, vice president for communications at the National Foundation for Credit Counseling (NFCC). “Once reported, a late payment could cause your credit score to drop more than 100 points in some situations.”
A poor credit score will make the cost of borrowing money more expensive and could result in being rejected for a mortgage or car loan. In some case, it could make it difficult or impossible to rent an apartment.
What you can doAll of these financial repercussions can be avoided with a more proactive approach, including:
- Use automatic bill pay
- Set up email and text reminders of upcoming due dates
- At least make the minimum payment to keep the account from going delinquent
- If your statement comes at the wrong time of month for you, contact the credit card company to see if the statement date can be changed.
When a late payment is unavoidable due to financial hardship, contact the credit card company before the due date to see if they can help you manage the situation. This would also be the time to get some expert guidance from a nonprofit credit counselor. You can find one near you on the NFCC website.
“Silence will only lead to setbacks,” McClary told NBC News BETTER. “Keeping your credit card balances under control and spending within your budget will go a long way toward protecting your credit health and your bottom line.”
Copyright 2018 NBC Universal. All rights reserved.
3 ways to fight a creditor’s bank levy in Tacoma
So, you recently received a notice from your bank that some collection agency has filed a levy on your bank account. What you may not know is that a creditor cannot levy your bank account without a court order or judgment against you and that you must be served notice of the lawsuit. But wait a minute, you say you didn’t know anything about a lawsuit being filed against you? You mean, you were never served with a court summons? Welcome to the underside of debt collection.
There is some guy who works for the collection agency who signed his name on a proof of service, swearing under oath that he served you. We call this a “drive-by service,” where the guy may drive by your house, but no actual service took place. You know that he lied. You know that you were not properly served, but at this point, it doesn’t matter. Your bank account is going to levy and you stand to lose whatever you have on deposit in your bank.
So, what do you do? How do you stop a bank levy?
1. You can file bankruptcy in Tacoma.
Filing for bankruptcy in Tacoma will stop most bank levies. You may even be able to recoup some or all the money that has been taken from you if you immediately file for bankruptcy. An emergency bankruptcy can be filed in a matter of hour in some cases by one of our Tacoma bankruptcy attorneys. If you are able to “exempt” those funds that were levied from your bank account, then the creditor could be forced to return the money to you. A Tacoma bankruptcy attorney will be able to tell you if some, none or all of the funds could be returned after you file bankruptcy in Tacoma.
2. You could contest the lawsuit or the proof of service of summons.
This could be impossible because the creditor’s judgment could be too old to contest. However, if you were not properly served, you could have the judgment set aside. It is a complicated process and it can be costly. You should consult with a Tacoma bankruptcy attorney or civil attorney to find out how to go about doing this.
3. You could change banks in Tacoma or close your account.
In some cases, you cannot file for bankruptcy or the judgment against you cannot be vacated. This likely means whatever was levied from your account cannot be recovered for you. In many cases, the levy will not be enough to satisfy the judgment. This means that every dollar you deposit into the levied account may be at risk for future levies. You can close that account and open a bank account at another bank, but the creditor may be able to locate your new bank account. If that happens, you can bet that your account will be levied again. Another option is to go to all cash. When you get paid, cash your check, pay your bills with money orders or in person with cash. This is not an easy way to live but if you are really on the run from creditors, you may find it necessary. However, at best this is a temporary solution. Eventually, you will need to turn and face your creditors.
If you are facing a bank levy or other financial problems in Tacoma, we encourage you to call us and schedule an appointment with a Tacoma bankruptcy attorney. We can help you avoid or eliminate bank levies and keep you from becoming a member of the financial underground.
The post How to Fight a Bank Levy in Tacoma appeared first on Portland Bankruptcy Attorney | Northwest Debt Relief.
Credit Counseling vs. Bankruptcy in Tacoma
We are frequently asked about credit counseling and debt consolidation services in Tacoma, Washington. Everyone considering filing bankruptcy in Tacoma wants to know if Chapter 7 bankruptcy or credit counseling has more of an impact on your credit and what are the pros and cons of each.
Chapter 7 bankruptcy in Tacoma.
This is designed for people unable to pay their debts. Chapter 7 eliminates most existing unsecured debts.
Pros:
- You wipe out all your unsecured debts in Tacoma. These include credit cards, personal loans, and medical bills.
- Generally, you may be able to keep your home and cars
- You get a fresh start to credit usually six to eight months after you file
- You can usually qualify for home loans in Tacoma two to three years after filing
- It will relieve a lot of financial pressure
Cons:
- The bankruptcy stays on your credit report for the next 10 years
- You may have a hard time getting credit or pay higher interest rates for a while
- It could make it more difficult to get certain jobs in Tacoma
Credit Counseling in Tacoma
Credit counseling is an alternative to bankruptcy. With credit counseling, you make a monthly payment to one company, which in turn pays your creditors.
Pros:
- You may be able to avoid bankruptcy in Tacoma.
- Your bills are consolidated into one payment.
Cons:
- Credit counseling doesn’t work for more than 50% of the people who try it. Most people cannot follow the strict payment plans and budget constraints make it too difficult
- Creditors will still consider you a bad credit risk. Credit counseling will be reported on each account in the repayment plan. Potential creditors see this and will not lend you money
- Credit counseling in Tacoma will take longer for you to re-establish credit because a typical credit counseling re-payment plan in Tacoma will last 3 to 6 years thus, delaying your ability to re-establish credit until your plan has been paid off
- Like bankruptcy in Tacoma, credit counseling may prevent you from getting some jobs
- You might not be able to consolidate all creditors. Some creditors in Tacoma are unwilling to work with credit counseling agencies. In that case, you would pay those creditors the full amount you own them directly. If you cannot do this, you may end up filing bankruptcy anyway
- Your credit score may be affected the entire time you are in credit counseling
- There is a great deal of fraud in credit counseling. Many credit counseling agencies are not properly licensed and often do not follow the rules. Many so-called agencies have taken money from people without paying a dime to creditors and then disappear.
The notion of credit counseling and what it can do for people may sound good, but when you look at how the benefits of credit counseling in Tacoma stacks up against Chapter 7 bankruptcy in Tacoma, Chapter 7 bankruptcy may be the best choice for people with financial problems in Tacoma. Chapter 7 bankruptcy simply gets you back on the road to financial recovery faster. It also wipes out debt that credit counseling cannot, but when you consider the failure rate of credit counseling, Chapter 7 bankruptcy is the best choice for most people facing financial problems in Tacoma.
Contact Us
If you have gone the credit counseling route and it didn’t work for you or if you have looked at your options and think bankruptcy in Tacoma may be the way to go, give our Tacoma bankruptcy lawyers a call.
The post Credit Counseling In Tacoma appeared first on Portland Bankruptcy Attorney | Northwest Debt Relief.
The Eight Circuit Bankruptcy Appellate Panel denied an application seeking to discharge student loans because the debtor voluntarily quit a full-time job eight months prior to filing bankruptcy.
The debtor, Erin Kemp, is a 36-year-old single mom raising a 13-year-old daughter in Arkansas. She obtained a psychology degree in 2010 and for the past 17 years she worked for a bank earning up to $45,000 per year. However, eight months prior to filing bankruptcy she quit her full-time bank job due to problems with depression and anxiety and took a part-time job at Lowe’s earning $13.46 per hour. She supplemented her income by performing home daycare services as well.
The bankruptcy appeals court focused on the fact that the debtor was eligible for a zero-payment Income Based Repayment (IBR) for her student loans and that her financial problems were temporary in nature. The court focused on the following facts:
- The debtor’s medical problems were capable of being treated with medication and until recently the debtor had successfully worked a full time job for nearly two decades.
- Her 13-year-old daughter would attend college in a few years and not require her financial support.
- She voluntarily quit her full time job in favor of lower-paying jobs that offered more schedule flexibility. Thus, the debtor as asking the court to discharge her student loans due to a lifestyle change rather than from an inability to make a payment.
- The debtor withdrew $35,000 from her retirement plan after quitting her job and paid none of it towards the student loans.
- The debtor reported monthly income $100 from her daycare activities but such a statement was based on her taxable income and not on the daycare’s cash flow which was closer to $600/month.
The denial of a student loan discharge in this case is not surprising. Voluntarily quitting full-time work and cashing in a retirement account eight months prior to filing bankruptcy does not rise to the standard of an undue hardship, especially when that hardship is basically self-imposed. Yes, depression and anxiety is a real medical problem, but there was a real chance the debtor would be able to manage her condition and return to full time work in the near future. Debtors who create self-imposed income limits are generally not viewed favorably when it comes to student loan discharge cases.
By Ben Miller
Millions of students will arrive on college campuses soon, and they will share a similar burden: college debt. The typical student borrower will take out $6,600 in a single year, averaging $22,000 in debt by graduation, according to the National Center for Education Statistics.
There are two ways to measure whether borrowers can repay those loans: There’s what the federal government looks at to judge colleges, and then there’s the real story. The latter is coming to light, and it’s not pretty.
Consider the official statistics: Of borrowers who started repaying in 2012, just over 10 percent had defaulted three years later. That’s not too bad — but it’s not the whole story. Federal data never before released shows that the default rate continued climbing to 16 percent over the next two years, after official tracking ended, meaning more than 841,000 borrowers were in default. Nearly as many were severely delinquent or not repaying their loans (for reasons besides going back to school or being in the military). The share of students facing serious struggles rose to 30 percent over all.
Collectively, these borrowers owed over $23 billion, including more than $9 billion in default.
Nationally, those are crisis-level results, and they reveal how colleges are benefiting from billions in financial aid while students are left with debt they cannot repay. The Department of Education recently provided this new data on over 5,000 schools across the country in response to my Freedom of Information Act request.
The new data makes clear that the federal government overlooks early warning signs by focusing solely on default rates over the first three years of repayment. That’s the time period Congress requires the Department of Education to use when calculating default rates.
At that time, about one-quarter of the cohort — or nearly 1.3 million borrowers — were not in default, but were either severely delinquent or not paying their loans. Two years later, many of these borrowers were either still not paying or had defaulted. Nearly 280,000 borrowers defaulted between years three and five.
Federal laws attempting to keep schools accountable are not doing enough to stop loan problems. The law requires that all colleges participating in the student loan program keep their share of borrowers who default below 30 percent for three consecutive years or 40 percent in any single year. We can consider anything above 30 percent to be a “high” default rate. That’s a low bar.
Among the group who started repaying in 2012, just 93 of their colleges had high default rates after three years and 15 were at immediate risk of losing access to aid. Two years later, after the Department of Education stopped tracking results, 636 schools had high default rates.
For-profit institutions have particularly awful results. Five years into repayment, 44 percent of borrowers at these schools faced some type of loan distress, including 25 percent who defaulted. Most students who defaulted between three and five years in repayment attended a for-profit college.
The secret to avoiding accountability? Colleges are aggressively pushing borrowers to use repayment options known as deferments or forbearances that allow borrowers to stop their payments without going into delinquency or defaulting. Nearly 20 percent of borrowers at schools that had high default rates at year five but not at year three used one of these payment-pausing options.
The federal government cannot keep turning a blind eye while almost one-third of student loan borrowers struggle. Fortunately, efforts to rewrite federal higher-education laws present an opportunity to address these shortcomings. This should include losing federal aid if borrowers are not repaying their loans — even if they do not default. Loan performance should also be tracked for at least five years instead of three.
The federal government, states and institutions also need to make significant investments in college affordability to reduce the number of students who need a loan in the first place. Too many borrowers and defaulters are low-income students, the very people who would receive only grant aid under a rational system for college financing. Forcing these students to borrow has turned one of America’s best investments in socioeconomic mobility — college — into a debt trap for far too many.
Copyright 2018 The New York Times Company. All rights reserved.
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