The Florida Bankruptcy Law Blog

Redressing Debt Collection Abuses In Bankruptcy Court

Some people file bankruptcy mainly to end what they consider to be harassment by debt collectors. Enthusiastic and aggressive bill collectors often use collection tactics that violate protections afforded debtors by the federal Fair Debt Collection Practices Act. Sometimes a bankruptcy will tell their bankruptcy attorney about repeated overly aggressive and illegal debt collection actions which helped drive the client to consider filing bankruptcy. I have been asked several times whether my clients can sue creditors for unfair debt collection as part of their Chapte7  bankruptcy action. 

I have never instituted a FDCPA complaint as part of a Chapter 7 case. For one, I think any recovery for pre-filing collection violations would go to the Chapter 7 trustee to be distributed among creditors. Second, even if my clients recover part of their claim- for example if the recovery was more than enough to pay all their creditors- few of my clients are able and willing to incur the added expense of the lawsuit. 

A trustee could sue a creditor on a debtor’s behalf to assert a pre-filing FDCPA claim. Based on court decisions I’ve seen this type of suit would be considered a “non-core” proceeding because the cause of action did not arise under the Bankruptcy Code, but instead, is based upon non-bankruptcy statutes. Non-core cases could have an effect on the bankruptcy case, but they can also exist outside of bankruptcy.

A bankruptcy court can hear and decide a non-core FDCPA claim because they are related to the bankruptcy case. But, the bankruptcy court cannot enter the final judgment without the parties’ consent in advance. Absent consent, the bankruptcy court’s findings and legal conclusions would constitute a recommendation to the federal district court which would have jurisdiction to enter judgment. 

Responding To Debt Collectors

Often people call me and ask me to help them deal with creditors calling to collect money. I always explain that handling collection calls is not legal work, and they will waste money paying attorneys to respond to collection calls.

So, how do you handle bill collectors. I read a good blog post on the subject by Michigan bankruptcy attorney Kurt O'Keefe. Mr. O'Keefe's article provides practical suggestions of things to do and things to avoid when you are the target of debt collection.

 

Credit Card Negotiations In The Life Of Your Credit Card Account: Why Don't They Negotiate Balances?

Before filing bankruptcy many people try to negotiate settlements with their credit card companies and find that their creditors are not willing to reduce loan balances. Some debtors hire debt negotiation or debt consolidation companies and find that these companies cannot significantly reduce balances. Other debtors avoid bankruptcy by negotiating very favorable settlements with credit card collectors. So, why do some creditors negotiate debtor’s account balances while other creditors refuse any meaningful settlement? What are the creditors thinking?

One of my personal friends is a successful investor who currently is purchasing blocks of credit card debts. He and his partners recently purchased $10,000,000 face amount of defaulted credit card accounts. He purchased the accounts at a deep discount. My friend knows the credit card business well; he described the life of a typical credit card account in default.

Debtors' Revenge: Debtor Can Seek Sanction Against Creditors That Fail to Dissolve Bank Garnishment Following Bankruptcy Filing

As soon as you file bankruptcy an "automatic stay" legally goes into effect which prohibits creditors from taking any action to collect a debt. If a creditor has served a writ of garnishment against your bank account the garnishment action and collection of money from your bank account is stayed by the bankruptcy. In the past, creditors would stop taking additional action to seize bank money pursuant to a garnishment upon the debtor filing bankruptcy but the creditor also would do nothing on its own initiative to cancel or dissolve the garnishment. If the account had money exempt in the bankruptcy the debtor would have to pursue legal action within his bankruptcy case to dissolve the creditor’s garnishment.

Bankruptcies filed after bank garnishment is common because the garnishment of the debtor’s accounts often precipitates bankruptcy. There have been some bankruptcy cases which have placed upon the creditor an obligation to take affirmative steps to release any garnishments on accounts, or levies on automobiles(not repossessions), upon the debtor’s filing a bankruptcy petition. The cases state that if the creditor fails to take such affirmative action against its own garnishment the bankruptcy court can and will impose sanctions against the creditor.

Should You Hire Debt Agency To Settle Card Debts?

Do I file bankruptcy, or do I hire a debt settlement company and try to work it out with my creditors? That’s a question many people ask themselves when they find themselves overwhelmed with credit card debt. Often, people who call or e-mail be about a possible Chapter 7 bankruptcy asked me if I think they should try to use a debt settlement company to help them settle with their creditors.

I saw an interesting blog post about debt collection firms written by another bankruptcy attorney. He states that paying a debt settlement agency to negotiate debts is usually not worth the cost, and there are some pitfalls in debt settlements which are not problems in bankruptcy.

 I agree with this blog post; I find that settlement agencies usually do not solve the peoples’ debt problems once they are seriously behind on their credit card debt. Understand that whether you should negotiate with your creditors, and how you should negotiate with your creditors, is not a legal issue and certainly not a bankruptcy law issue. Carefully consider the issues in the blog article before you hire a debt settlement agency. post

Responding To Initial Letters From Debt Collection Companies Prior To Bankruptcy

I found an interesting post on attorney Jonathan Stein’s "California Debt Collection Blog." (http://www.californiadebtblog.com/). Mr. Stein’s post responded to questions from clients about demand letters from his client’s creditors. People had asked Mr. Stein how they should respond to the first letter they receive from any debt collection. My bankruptcy clients frequently asked me what to do with debt collection letters between the time they retain me and the time we file their bankruptcy petition. I do not practice consumer law and have no experience representing people against debt collectors. I do not respond to my client’s creditors other than preparing bankruptcy petition. Mr. Stein suggests that debtors respond to initial debt collection letters by sending the creditor a letter which serves to suspend for a significant time further debt collection activity pursuant to the Fair Debt Collection Practices Act.

Mortgage Companies Refusing Loan Modification To Some Chapter 7 Debtors

There was an article in the newspaper today concerning the increasing number of mortgage modifications for troubled homeowners. I have received inquires from some of my bankruptcy clients who are attempting to modify their home mortgage after filing Chapter 7 bankruptcy. These former bankruptcy debtors complain that the lender told them they could not modify their mortgage because, "the mortgage was not included in the bankruptcy." Initially, I could not understand what these people were trying to say because all bankruptcy petitions must include all unsecured and secured debts, including mortgages the debtor intends to modify for an exempt home they intend to retain. A call to one of the lender’s legal departments clarified the issue.

Its Becoming Harder To Get Car Loan After Chapter 7 Bankruptcy

Its more difficult for anyone to get credit today, and its particularly becoming more difficult to get credit after filing bankruptcy. I had a conversation yesterday with a man who manages a large car dealership. He has been in the car business for over 20 years. He said that before the banking crisis banks would give car loans to people within two years after they had filed Chapter 7 bankruptcy if they had average or better credit scores. Now, lenders are not considering car loans until at least three years after bankruptcy. Good credit scores are insufficient. Car lenders are also examining debt/income ratios, and they are denying car loans to people if it looks like they have again, after bankruptcy, taken on more debt than they should or could afford.

Don't Allow A Mortgage Lender To Invade Your Bank Accounts To Pay Past-Due Payments

People often are driven to file bankruptcy after a creditor has successfully seized their money. Many banks want the borrower to maintain bank accounts as a condition of getting a home mortgage Often prospective bankruptcy clients tell me they have to file bankruptcy because their bank has taken money out of the debtor’s bank account when the debtor missed one or two mortgage payments owed to the same bank.. People usually complain that the mortgage bank has "garnished" their bank accounts.

Company Recommended To Help With Mortgage Workouts

People facing foreclosure occasionally asks me whether they should hire an attorney or a nonlegal company to help them negotiate mortgage modification. I explain that most attorneys, including myself, do not do that type of work and that negotiating a mortgage settlement is primarily not a legal matter. I also tell them that most clients report that hiring a private company to assist with mortgage workouts is not worth the money charged; most firms charge a significant fee up front. For the first time last week I spoke with bankruptcy clients who have a very favorable experience working with a company that assisted them with a mortgage workout.