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I recently met a client who first learned that she had been sued when she received a post card in the mail from the court indicating that a default judgment had been entered against her.  Frequently I meet clients who first learn of a judgment when their paychecks or bank accounts become garnished.  “How can they garnish me when I never had a chance to go to court!” is the common complaint.
Over 90% of all collection lawsuits result in a default judgment.  Most folks just figure they owe the debt and chose not to contest the lawsuit, even if the amounts are wrong.  However, a big reason for default judgments is that the defendant moved and the lawsuit summons was served at an old address.  So, when the Sheriff cannot serve the lawsuit because the has defendant moved the Sheriff will typically file a report with the court that says “attempted to deliver, defendant not found at this address, unable to deliver summons.”  The Sheriff typically does not report that the defendant has moved to another address, he just reports that the defendant could not be served.
The Problem of Alternate Service: 
 So, what does the creditor do when they cannot serve summons to the defendant at his or her last known address? They file a Motion for Alternate Service.  Under this procedure, the Sheriff will go back to the last known address and tape a copy of the summons to the door and the creditor will also send a copy by regular U.S. mail.    Now that is all fine and dandy if the defendant actually lives there, but what good is this when the defendant has moved?  Of course, the defendant who no longer lives at the former address never gets a copy of the lawsuit and consequently does not file a written response with the Court.  The result?   Yes, the creditor gets a default judgment since no written response was filed with the court and garnishments soon follow.

A recent client reported that the Sheriff actually served notice on her 10 year old daughter who then failed to give it to her mother.  Service on a ten year old?  Can they really do that?

The Solution: Motion to Vacate Default Judgment:
If a creditor has not properly notified you of a lawsuit and obtained a default judgment as a result, the corrective action is to file a Motion to Vacate the default judgment.  The Nebraska court system provides a standard form.  Here is a better form.  It is important to tell the court why the service was ineffective (i.e., you moved or you were on vacation or the person who accepted service did not give you a copy ,etc.).  A recent client reported that the Sheriff actually served notice on her 10 year old daughter who then failed to give it to her mother.  Service on a ten year old?  Can they really do that?  Actually, that notice was somewhat questionable, but the creditor got a default judgment anyway.   
The practice of allowing creditors to obtain default judgments by alternate service is especially troubling when the same creditor has been calling the debtor at work on a regular basis.  Why didn’t the creditor have summons served at work when residential service was note made?  A typical motion for alternate services states the following:  “The Plaintiff shows and affirms to the Court that the Defendant cannot be served by reasonable diligence by one of the following methods of service:  Personal service, residence service or certified mail service, and as a result moves the Court to allow the use of an alternate method of service as provided by statute.”  I would argue that Reasonable Diligence requires at at least one attempt to serve at work, especially if the debt collector has been calling their work, and that failure to make such an effort could be viewed as a violation of the Fair Debt Collection Practices Act.
Image courtesy Flickr and David Singleton.

Texas entrepreneur Samuel Wyly has filed for bankruptcy on Sunday, stating he does not own the assets to pay roughly $400 million in penalties for an overseas fraud scheme.
According to the Chapter 11 petition, Wyly stated he had assets and debt between $100 million and $500 million. He attributed his debt to the “massive costs of investigations and then litigation” by the Securities and Exchange Commission.
“While the debtor has substantial assets, he does not have the ability to pay the full amount of all asserted claims at the present time,” according to the filing.
A New York judge ruled last month that Wyly, 80, and the estate of his late brother, Charles, must forfeit up $187.7 million plus interest. In May, a civil jury found they were involved in a 13-year fraud scheme in which they used offshore trusts and subsidiaries to conceal stock sales.
It is believed the Wylys accrued upwards of $550 million in untaxed earnings through their system, which lasted over a decade.
The SEC is listed as Wyly’s second greatest creditor, with a claim of $198.1 million, according to court documents. Wyly listed the Internal Revenue Service as his biggest creditor, with disputed debts “unknown.”
Depending on how interest is calculated, the total payment owed by Wyly and his late brother’s estate will fall between $300 million and $400 million.
The Wylys created, grew and sold numerous companies since the 1960s. Their most noted companies include Sterling Software and Michael’s craft stores, which were both sold for $4 billion and $6 billion, respectively.
The SEC stated the Wylys used profits from secret stock sales in several of their companies to purchase real estate in Aspen, Colorado, a horse farm in Texas, jewelry and art. The brothers were also major donors to many Republican candidates and politicians.
In 2010, Wyly appeared on Forbes’ list of the 400 richest Americans, with an estimated new worth of $1 billion.
Outside of the filing papers, there is no official statement on the Wyly bankruptcy at this time.
The post Wyly Bankruptcy: Tycoon Owes $400 Million appeared first on The Bankruptcy Blog.

In the modern era, debt is not a simple matter between you and your creditors.  Anyone who has ever rented an apartment, applied for a credit card, or tried to set up payments on a new car knows that credit scores play a significant role in determining whether you will be able to obtain credit.  For those who have had financial difficulties, this can be frightening, especially if those difficulties have resulted in bankruptcy.  Bankruptcies can remain on your credit report for up to ten years, and a bankruptcy will affect your credit score as well.  But you can take steps after your bankruptcy to improve your credit—all is not lost forever.
Of course, when you go through a bankruptcy, you should have a licensed attorney by your side to make sure that your interests are protected and that all of your debts are properly handled.  When you go through the process with your attorney, you can discuss your specific situation and how you should move forward after bankruptcy.
However, a report by USA Today discusses some common strategies to improve your credit.  These strategies are all part of the “conventional wisdom” on improving your credit, but they should be discussed with an attorney before making any decisions.  The strategies include:

• Opening a new credit card;
• Checking your credit score online; and
• Taking on a new loan to improve your mix of accounts.

Opening a New Credit Card
For people whose financial problems were at least in part due to excessive credit card use, this may not be the best method for improving credit.  Building up more debt can just create a cycle of problems.  This can also be a poor strategy if the only credit card you can obtain comes with annual fees.  You do not want to have to pay a fee just to keep the card open.
But, if your bankruptcy, like many, was due to a one time catastrophic event, like a medical crisis, and that crisis has passed, you may consider this strategy.  A large part of your credit score is affected by what is called your “credit utilization ratio.”  Basically, this is the amount of credit you are using on your credit cards compared to the total amount of credit available to you.  Taking out a new card and not using it can improve this ratio, and thus improve your credit.
Checking Your Credit Score Online
Immediately following a bankruptcy you should have a crystal clear picture of your financial situation.  But over time, this will change.  In order to make sure you are getting credit for all of your responsible bill paying and not being wrongfully blamed for financial mistakes, you will want to check your full credit report annually.  Credit reports, especially free ones, do not necessarily include your FICO credit score.  The FICO score is what most lenders will look at to determine your credit.  Until recently, you had to pay to get this score.  However, now some lenders and some credit card companies are providing your score for free on your monthly statement.  So if you are in the market for a new credit card, you may want to shop for one with this specific benefit.  There are online companies that offer so-called free credit scores, but many of them come with a whole host of strings attached, and wind up costing more than they are worth. Others provide their own proprietary credit scores, not the official FICO score.
Taking on a New Loan to Improve Your Mix of Accounts
A very small portion of your credit score comes from the types of accounts you have on your report.  This leads some people to take out loans that they don’t really need to improve their credit rating.  This is generally not a good idea unless you are able to get a fee-free loan at zero percent interest, which is extremely unlikely for anyone, let alone someone who had gone through bankruptcy.
Ultimately, the obstacles faced after bankruptcy can be difficult to navigate alone. For help with any bankruptcy-related issues though, the attorneys at the Law Offices of Stephen B. Kass, PC are prepared to help.
Related Posts
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Consumer Credit Counseling
What is a Credit Card Judgement?
 
Photo Credit: Sean MacEntee cc
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Would allowing private students to be discharged in bankruptcy really solve the problem?
The CFPB (as well as just about anyone else who thinks about student loans on a regular basis) recognizes that the private student loan market is a lion’s den for students who need to borrow for higher education.
The loans come with higher interest rates, offer none of the programs for income-based repayment or forgiveness of their federally-guaranteed counterparts, and, consequently, suffer a higher rate of default.
Student borrowers, meanwhile, are faced with an ever-increasing cycle of collection activities culminating in lawsuits, judgments and enforcement mechanisms such as wage garnishment and bank account levies.
What’s to be done?
One recommendation set forth by the CFPB is that Congress amend the bankruptcy code to allow borrowers to discharge their student debts without the need for a separate judicial determination.
But the consumer watchdog stops short of recommending an across-the-board discharge of private student loans. After all, the agency recognizes that the big banks aren’t going to let that slide without a major fight.
Instead, the CPFB suggests that private student loan lenders be offered a choice – offer flexible repayment options or face discharge of the debt in bankruptcy.
In some ways, this attempt to force a project akin to the loss mitigation procedures offered for mortgage claims in some areas (most notably the program created in New York City, which works quite well) is interesting and possibly of great value.
Bringing the lenders to the proverbial table will allow student borrowers to level the playing field, something not currently possible in large measure because private student loans are securitized.
Just try to get someone on the phone with decision-making powers when it comes to a private student loan. The only way to do it is to wait until the lender sues you – at least then you’ll be able to get a lawyer who represents the securitized trust on the line.
When the story circulated on Twitter, Wes Huffman, director of research and communications at Washington Partners, stated that, “[a]llowing private loans to be discharged would be minimal to no help to borrowers. It is a co-signed world.”
And in a single tweet, Huffman nailed it. The white elephant that’s been standing in the middle of the room the whole time.
All across the country are millions of parents, grandparents, uncles, aunts, and friends who cosigned for someone else’s private student loans. Those loans are given partially on the basis of credit score and ability to pay, and students routinely turn to others as guarantors and cosignors.
When the student finishes school and is unable to get a job that pays enough to repay the loans, the cosignor is left holding the bag. The student is struggling to pay the rent each month on a barista’s salary, so he or she is less likely to be concerned with the negative impact of nonpayment on a credit score.
The cosignor, on the other hand, has more to protect. We’re talking about wages, real estate, bank accounts, and a need to maintain a good credit score in order to finance future purchases.
Now you see why discharging a private student loan in bankruptcy is a problem. Even if the borrower gets relief, there’s no protection for the cosignor.
Perhaps what we need to do is not only bring this new loss mitigation and dischargeability procedure into bankruptcy court, but require that such procedures expand and extend the effect of the modification or discharge to coborrowers much in the way that the community discharge protects married couples in community property states.
Such expansion would help not only coborrowers of private student loans, but those who are jointly obligated on other unsecured debts as well. Credit cards and personal loans, to say nothing of mortgages and car loans, carry the same risks in bankruptcy – the person who files for bankruptcy gets the benefit, the coborrower is left holding the bag.
It’s time for consumer protection laws to reflect the dynamics of today’s cosigned world.