Archive for the ‘Fair Debt Collection’ Category

The Automatic Stay, a.k.a., You Can Answer Your Phone Again

Wednesday, June 8th, 2011

One of the main reasons that people file bankruptcy is something called the “automatic stay.” The automatic stay is called that because that is what it is: (1) it goes into effect automatically upon the filing of a bankruptcy petition and (2) it operates as a “stay,” or stops, efforts to collect against a debtor. The automatic stay is quite different from most other areas of law. In most areas of law, if you want a stay or an injunction, you have to make a significant showing as to why the stay is necessary. Not in bankruptcy. In bankruptcy, you just file the case and the stay goes into effect.

So what happens if a creditor violates the automatic stay? Let’s say a creditor disregards the automatic stay and continues a lawsuit against a debtor after the bankruptcy is filed. What penalties are there? A willful disregard of the automatic stay can result in the creditor being liable for actual damages, attorneys fees, and in appropriate cases, punitive damages. So, creditors have good reason to be very cautious about violating the automatic stay.

Unfortunately, they are not always as cautious as they should be. When that happens, it is important to have an attorney that is willing to sue the creditor for violation of the automatic stay. It is also important to remember that automatic stay violations have to be proven by evidence. So, if you think a creditor is violating the automatic stay, you should start keeping track of each detail regarding that violation. This would include (1) writing down details regarding each phone contact, (2) keeping any written communication, including the envelope used to send the communication, and (3) documenting any damages that occur as a result of the violation.

Posted in Automatic Stay, Bankruptcy, Chapter 13, Chapter 7, Fair Debt Collection | Comments Off

FTC Bans Upfront Fees by Debt Negotiators

Friday, July 30th, 2010

The FTC enacted a new rule, effective October 27, 2010, that will ban debt negotiators from collecting an advance fee before the debt has been negotiated.

This is a serious problem, as I have commented before on this blog. It has been said that the business of most debt negotiation companies is akin to a Ponzi scheme, because it essentially requires failure of the debt negotiation plan for the debt negotiation company to be most profitable. Most of these companies require payment of almost all of the fee upfront. So, for example, the total debt might be $40,000, monthly payment for 36 months might be $500, and the debt negotiation fee might be $4,500. But almost all of that fee would be taken in the first 9 months and then the debt negotiation would start. By that time, at least one of the creditors will have sued and the plan will fall apart. Most of the time the debtor will end up filing bankruptcy, having obtained no real benefit from the debt negotiation plan.

In addition, the rule will provide how much of the fee can be collected for each debt that is settled:

To ensure that debt relief providers do not front-load their fees if a
consumer has enrolled multiple debts in one debt relief program, the
Final Rule specifies how debt relief providers can collect their fee
for each settled debt. First, the provider’s fee for a single debt must
be in proportion to the total fee that would be charged if all of the
debts had been settled. Alternatively, if the provider bases its fee on
the percentage of what the consumer saves as result of using its
services, the percentage charged must be the same for each of the
consumer’s debts.

I do not think that the current business model used by most of the debt negotiation companies out there will work with these rules. So, we will either see a lot of companies get out of the business or they will be using a different business model, one that actually serves the clients. That being said, I would not be surprised to see a lot of companies try to operate while ignoring this rule.

Posted in Credit Issues, Debt Settlement, Fair Debt Collection, Fresno Bankruptcy | Comments Off

Sue up or Shut up!

Wednesday, November 1st, 2006

Have you ever received a letter threatening to sue to collect $388? Those fortunate souls who are unfamiliar with the court system might believe someone would actually sue to collect $388. But it is just not worth it and debt collectors know it. Here’s an interesting article from Time regarding debt collectors who threatened to sue even when they knew suit was unlikely.

A class action was brought against the debt collectors alleging violation of the Fair Debt Collection Practices Act (“FDCPA”). The FDCPA prohibits debt collectors from making false or misleading statements in attempting to collect a debt. The debt collectors’ letter stated that failure to pay the debt “could” result in a lawsuit. Thus, they claimed, the letters did not speak of an imminent lawsuit and did not violate the FDCPA. The District Court agreed with this reasoning and dismissed the claims. The Third Circuit Court of Appeals, however, did not agree and reversed the District Court, holding that the District Court must use a “least sophisticated debtor” standard of review in determining whether the statements were misleading.

Posted in Fair Debt Collection | Comments Off

Payday Loan Companies Prey on Military Personnel

Friday, August 11th, 2006

Here is an interesting article on a new report issued by the Department of Defense finding that payday loan companies are taking advantage of military personnel.

These companies generally prey on more than just military personnel. I often have people come into my office and tell me they took out a $300 loan that will result in $350 being taken out of a paycheck in 2 weeks. That’s over 400% interest. One other thing that bothers me is that the payday loan people often tell my clients “you can’t file bankruptcy on a payday loan.” This is completely false. First, payday loans are not exempt from the bankrputcy process. Second, the whole idea of filing bankruptcy “on” a debt is one of the bankruptcy myths. You have to list ALL of your debts in a bankruptcy.

Posted in Credit Issues, Fair Debt Collection | 1 Comment »