Wiping out a mortgage entirely in Chapter 13 bankruptcy?  I’d never seen it happen before.  That is, until a few weeks ago when I got Judge Robert D. Drain of the U.S. Bankruptcy Court, Southern District of New York to rule that a mortgage loan and arrears should be wiped out in a Chapter 13 Bankruptcy case in White Plains.

You can read some of the coverage of the case in the New York Times by clicking here.

The Chapter 13 bankruptcy was filed to stop a foreclosure and attempt to have the mortgage modified. When a lender wants to get paid through the bankruptcy, it is required to file a proof of claim and attach to that claim all documentation required to prove that in fact the lender is the real owner of the loan and that it has its documents all in order.

If A Mortgage Lender Wants To Get Paid, They Must Prove They Own The Mortgage And Hold The Note

The lender in the White Plains Chapter 13 bankruptcy case (PHH Mortgage) could not prove that they were the owner of the mortgage.  We get them every chance to prove that they owned the loan – in fact, we did everything we could short of begging for documents.  At every turn, however, the lawyers dug themselves into a deeper hole.

The case is far from over, and the lender appears to be appealing the court decision. However, as it now stands, the lender has no claim in the bankruptcy court and the time in which a lender can file a claim has expired.  In other words, PHH Mortgage will never collect a dime from my client through bankruptcy court.

This does not necessarily mean that my client has a house for free. There are numerous legal barriers left in this case. It certainly does mean that the lender has a huge problem.

For those of you who have mortgages, mortgage arrears, perhaps a subprime mortgage with high interest rates, a house which is worth less than you owe, there is hope. Bankruptcy attorneys must take a good, long and hard look at any mortgage in the bankruptcy setting or in the state foreclosure setting to:

1. MAKE SURE THE BANK HAS THE RIGHT DOCUMENTS (they seldom do in my opinion)
2. STOP THE COURTS FROM RUBBER-STAMPING EVERY BANK’S CLAIM IN BANKRUPTCY COURT OR IN STATE FORECLOSURE COURT.

This is often easier said than done. First, studies have shown that almost 98% of claims by creditors in bankruptcy are NOT SCRUTINIZED. That means under the current rules, that the claim is considered good regardless of lack or proof or phoney documentation UNLESS BROUGHT TO THE ATTENTION OF THE JUDGE.

It is up to you and your bankruptcy lawyer to closely review all claims in bankruptcy court or foreclosure court.  From there, you can start to put together a plan to protect your rights.

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There has been an ongoing problem with bank overdraft fees, particularly on debit cards.

In general, if you charge more on your debit card than you maintain as a balance in your account, the banks pay the charge but bill you as much as $35 for the overdraft protection. The fee will be the same even if your charge was only $5 over your balance in the account.

As if that isn’t bad enough, the banks are lumping together your charges for the day, and debit the LARGEST CHARGE FIRST against your balance. Why would they do that: simply because the largest charge was more likely to of putt your balance into the negative and then ALL THE OTHER CHARGES became overdraft with fees for each one.

That’s right: you go over your balance by $5 and then your next 10 charges may become overdrafts incurring as much as $335 fees on a $5 overdraft.,

Seems unfair? Of course it is unfair and there has been a public outcry and movement in Congress to stop these type of charges, especially when the individual did not even give permission to allow overdraft charges.

This practice has paid the banks BILLIONS OF DOLLARS.

Recently, Chase and Bank of America decided to revise their policies a step ahead of legislation that likely would have forced a change. These banks announced the other day that they would stop the nasty habit of debiting the largest expenditure of the day first, lower or eliminate overdraft fees and allow customers to CHOOSE OR OPT OUT OF OVERDRAFT PROTECTION.

What a revolutionary idea: allowing customers to choose whether to be excessivley billed!

Now, all this has not happened yet. Chase says that changes will take place early next year, but Bank of America says it will allow customers to turn off overdraft ability starting Oct. 19 of this year.

A few days later, Wells Fargo announced that they too would reduce overdraft fees.

Isn’t it amazing how these banks came to the rescue of their customers just after introduction of legislation? Senator Christopher Dodd 1 week prior to the banks’ announcements, introduced his bill to crack down on overdraft fees!

But BEWARE: OVERDRAFT FEES ARE STILL OUT THERE AND YOU MAY NOT EVEN KNOW HAVE AUTHORIZED IT!

Call your bank to check whether you may be the next victem of this insidious bank practice!

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This is the first in a series of articles discussing PRE-PAID CREDIT CARDS.

Article I will help define and recognize exactly what Pre-Paid Credit Cards are and what they consist of.

Article II will discuss the numerous problems consumers like yourself may encounter with these Pre-Paid Credit Cards, many of which are hidden from the consumer.

Article III will discuss Solutions and Trends concerning Pre-Paid Credit Cards

ARTICLE I: WHAT ARE PRE-PAID CREDIT CARDS AND WHERE DO THEY COME FROM

Pre-Paid Credit Cards are everywhere and easy to get. Why? Because they are everywhere and anyone can buy one. You don’t need credit, a job or common sense. All you need is cash. That is why you see them in every pharmacy, supermarket, convenience store and just about any store that can stock them.

They come in denominations of $25, $50, $100 and even as high as $500. Usually, they are re-loadable with cash at most stores that carry the cards. And, you do not need a bank account. That is very important, because many consumers in debt have either closed their bank accounts, or their bank accounts have been closed by the bank, or are afraid to leave any money in an account that may be restrained by a creditor.

So, what you have is a huge demand from consumers who feel they need a credit card, but have no ability to obtain one other than by paying for a Pre-Paid Credit Card. And, there is no risk on the part of the business selling the card since it is paid in cash, in full up front.

Let’s take a look at where these cards come from. There are 2 major groups selling these cards:

1. Major institutions such as Mastercard, with names such as the Millennium Advantage Prepaid Mastercard, MiCard Prepaid Mastercard and the Silver Mastercard.

2. Others: a host of companies over the last 10 years have started offering such cards simply by opening their doors and selling to retailers.

SO WHAT’S THE PROBLEM?

THERE IS VERY LITTLE REGULATION IN THIS INDUSTRY!

That’s right. If you thought that credit cards trample over consumers after reading some of my prior articles, you have seen nothing yet.

Article II of this series will reveal the fees and expenses included in these Pre-Paid Credit Cards.

HINT: DON’T BUY ANY UNTIL YOU READ PART II AND III OF THIS SERIES.

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Congress passed the Credit Card Accountability, Responsibility and Disclosure Act last May. There is a ton of good consumer protection clauses in this Act, including:

1. Restrictions on arbitrarily raising interest rates;
2. Restrictions on Universal default (that is when your credit card company penalizes you for being late with ANOTHER credit card company;
3. Charging interest on debts already paid.

So, there are lots of new protections for the consumer! That’s good, right?

SO WHAT’S THE PROBLEM?

The problem is that Congress (in its wisdom) gave the credit card companies 15 months before the majority of the new rules go into affect.

Now I have a question for you: would your credit card company/bank take advantage of the 15 month delay in the new rules?

YOU BETCHA!

A new study just came out revealing that the banks have raised interest rates 20% in the first half of this year when in fact the cost of lending has decreased!

This should come as no suprise since consumer advocates warned that if you give the credit card companies/banks time, they would exploit that time and rip-off the consumer. What else did they expect?

New York Congresswoman Carolyn Maloney and Massachusetts Congressman Barney Frank have introduced legislation to move up the February deadline to December 1 of this year. The banks are screaming bloody murder so this must be a good idea.

The moral of this article is: watch your credit card terms very closely. The credit card companies and banks are not your friends.

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This is the 3rd article in a series of 3 articles discussing Credit Scores. The first article discussed the definition of credit scores and understanding how they come about and the second article discussed Myths and Facts in understanding credit scores.

This article will discuss tips that you can use to help maintain, increase or protect your credit scores.

TIP # 1: DON’T FORMALLY CLOSE AN ACCOUNT

In a prior article we talked about the benefits of maintaining long standing accounts and how it is reflected on your credit scores. The longer the better. It is better for your credit score to allow a creditor to close your account for inactivity than for you to close the account yourself. This means that even if you are not using the account, allow it to stay open until the creditor closes it.

TIP # 2: TALK TO THE CREDITOR IF YOU ARE LATE ON A PAYMENT

If you fall behind or miss a payment, call the creditor to explain and ask the creditor to reduce or waive the late fee and NOT report the matter to the credit bureaus. Just making the payment may not be enough. Call and plead and there is a good chance that they will not report the missd payment if you have been a good customer.

TIP # 3: DO NOT USE YOUR CREDIT CARDS FOR EVERY SMALL PURCHASE

Many people are in the habit of using their credit cards for coffee, take out food and whatever. And, some people use the credit cards just to build up reward points. STOP! Your credit score is partially based upon how much debt you have compared to the amount of credit available and you may be lowering your credit score by excessive usage even though you are paying in full each month.

TIP # 4: KEEP YOUR CREDIT DEBT LESS THAN 1/2 OF YOUR CREDIT LIMIT

Just like Tip # 3, keeping your credit use to less than half your available credit will limit any negative impact on your credit score.

TIP # 5: ASK WHETHER YOUR CREDIT SCORE WILL BE CHECKED

Whenever you open a new bank account or apply for credit, there may be a “hard-inquiry” on your credit report. Too many of these hard inquiries during a short period of time can negatively affect your credit score. “Soft inquiries” by ongoing creditors is generally not a problem. And, multiple inquiries by creditors during a short period of time, such as when you are shopping for a car, are also not a problem. So, when you are talking to a banker, insurance sales person or any other type of possible purchase, ask whether they are going to check your credit and save those inquiries for when you are seriously shopping.

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I receive a ton of calls from sons and daughters whose elderly parents are being harassed by collection agencies for debts. Many times these debts are old and the parent does not remember whether it is a legitimate debt or not. Many times the debt has been sold at least once and is owned by a collector and mom or dad have no clue what the collector is trying to collect or who they represent.

More importantly, your parent is scared and intimidated by the telephone calls as well as the accusations and, in many cases, lies.

So what do you do when your parent is in debt and scared?

1. Try to get a true picture of your parent’s finances. Are there a lot of debts out there? Check their credit reports to see the real picture. This will help determine a strategy and help determine whether the debt in question is in fact a legitimate debt.
2. Determine whether you parents have any unprotected assets under the exemption laws in your area. For instance, you can review exemption laws on this website by searching for Chapter 7 and exemptions. Once you have determined the financial picture, have checked the legitimacy of the debt as best you can, and determined whether there are unprotected assets, you are ready to examine the best course of action, which is step three.
3. If you find that the debt may not be legitimate, or is stale, past the statute of limitations, you should consult an attorney to contact the collection agency demanding proof that the debt can still be acted on.

• If you find that the debt is legitimate, but it appears to be the only debt out there, you may want to consider a settlement IN WRITING with the creditor.
• If you find that there is a lot of debt out there, and limited assets other than retirement funds, you may want to discuss a bankruptcy filing with a consumer bankruptcy attorney.

There are many instances, however, where my office does not recommend the filing of a bankruptcy for the elderly, especially when there are no assets to protect.

WHY? Because social security and pension benefits are generally exempt from bank restraint or any other action by general creditors. In other words, if mom or dad simply have social security and/or pension deposited into their bank account AND NO OTHER FUNDS ARE DEPOSITED IN THAT ACCOUNT, it is more than likely that a general creditor cannot touch the funds.

So, the question then becomes: if you are no longer worried about mom or dad losing their funds deposited in a bank account, would there be any reason to file a bankruptcy?

THE ANSWER: Yes and No.

Yes, if the creditors are driving your mom or dad crazy with phone calls, etc. and it is worth having these scary calls stopped.

No, if mom or day are just worried about their bank account and could care less about the phone calls.

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Most individuals filing bankruptcy are in financial distress. Finally, you decide that you need to seek professional help or at least a consultation with a consumer bankruptcy attorney. You explore the positives and negatives of filing bankruptcy, decide that it is the right path for you and ask: what will the bankruptcy cost me?

The attorney quotes you an attorney’s fee and disbursements for filing fee, credit counselling and debtor education, and you stare at the attorney and ask:

Where am I supposed to get that kind of money and when do I have to pay it?

Let’s deal with the “where do I get the money” first:

If you are filing a bankruptcy you are generally advised to stop making any payments against your credit cards, bank loans, past due medical bills, etc. You are advised to continue payments for any asset that you are keeping, such as a car, house, pension loans, rent, etc. This should immediately begin to free up money that you were otherwise paying creditors.

For those who are not working, or for those who have already ceased all payments to creditors, some individuals need to turn to relatives or friends for partial or full payment of the fees and disbursements required in a bankruptcy.

Now let’s deal with payment plans:

Most bankruptcy law offices offer payment plans. Generally a bankruptcy takes 4-6 weeks to prepare and the payments can be spread over that period. Or, additional time can be afforded for payment when requested early on in the preparation of the bankruptcy petition.

And, there are differences in payments required for Chapter 7 and Chapter 13 petitions.

In Chapter 7, your lawyer cannot collect any money from the client against fees or disbursements after the filing of the bankruptcy. It is prohibited by law. Therefore, all fees and disbursments must be paid prior to the filing of the petition.

In a Chapter 13, which is a wage earners plan where payments of part or all of the debts are paid through the court, a portion of the fee can be put into the chapter 13 plan payment making it easier on the client to expedite the filing of the bankruptcy petition.

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When a potential client calls my office for the initial consultation, the individual is provided an appointment for the initial free consultation and informed what documents would be required for a useful consultation, such as pay stubs, tax returns and valuations and debts on real estate. The purpose of requesting such documentation is to allow the attorney conducting the consultation to examine the overall financial picture of the potential client.

At the consultation, questions are asked to further define all of the assets and debts of the potential client and to determine if there are any potential problem areas which need additional exploration.

Depending upon the responses at the consultation, the attorney will generally look for the following potential problem areas:

1. Recent usage of credit cards/balance transfers/cash advances;
2. Transfer of property to a 3rd party without adequate consideration;
3. Assets which may have too much value to protect in a Chapter 7 bankrutpcy possibly requiring a Chapter 13 filing;
4. Household income which is too high to file a Chapter 7 petition (most clients have a good laugh at that one);
5. Re-payment of a debt to a friend or relative;
6. Personal injury lawsuit pending, or the right to bring such lawsuit (this does not stop a bankruptcy filing, but there are restrictions involved);
7. Prior bankruptcy filings which may or may not be a factor;
8. A debt which may be non-dischargeable, such as student loans, alimony, child support and some income taxes. This topic is dealt with under “non-dischargeable debts” elsewhere on this website);
9. Debts fraudulantly incurred.

After analysis of all of the above factors, your attorney is generally ready to make a determination and recommendation including the following:

A. Is bankruptcy a good option for you?
B. Which type of bankruptcy is available under the particular cirumstances and what are the advantages and disadvantages of each type of bankruptcy?
C. What are the costs?
D. What are the procedures and what happens next.

In the event you decide to move forward and retain the office, a retainer agreement is prepared and a deposit is paid. You leave the office with instructions concerning which documents to return with and an expense budget to fill-out.

In addition, you are instructed how to deal with and what to tell creditors when they call.

On occassion, particular financial circumstance of the potential client requires additional information or documentation not available at the initial consultation to property determine and recommend a course of action.

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The 2005 Bankruptcy Reform Act added requirements for debtors seeking to file any bankruptcy petition. One of the requirements is the completion of a credit counseling course within 180 days of the filing of a bankruptcy petition. Normally, this course is completed online at the direction of your bankruptcy attorney who will download the counseling certificate with the bankruptcy petition.

The counselling session can also be done by telephone and in various languages. It is very important to remember that if you file a bankruptcy petition without filing the credit counseling certification, YOUR BANKRUPTCY PETITION WILL BE DISMISSED – PERIOD!

The credit counseling is supposed to help you analyze the steps you can take to better your financial situation. It is the opinion of this law office that such counselling would only be effective BEFORE an individual finds it necessary to seek bankruptcy relief. In fact, financial education and counseling should be required in high school and college – well before the creditors are knocking on your door!

Generally, the cost of credit conselling is $50 per household. There are circumstances where a credit counseling agency can waive the fee due to extreme financial hardship but it is on a case by case basis.

The counseling session lasts around 45 minutes. At the end of the session it is required that the client call the counseling session to review the information required. This telephone call lasts approximately 5 minutes.

Credit counseling is just another step that you MUST complete before filing a bankruptcy. I have not seen a single case where the court would waive the credit counseling certificate for one of my clients.

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In our last report, I helped explain how a credit score is formulated and what factors are used to calculate your credit score. In this article, I will help explain what the credit score means to you and talk about some of the myths and truths concerning credit scores.

NEGATIVE INFORMATION STAYS ON MY CREDIT REPORT FOR ONLY 7 YEARS. True of False?

ANSWER: The answer is yes and no. Yes, for bad or negative info on your report, including late payments. Negative information should be removed after 7 years. No, for good information. Most positive information can stay on your credit reports forever, such as good payment history and length that a healthy account has been open.

I RELY ON THE CREDIT SCORE REPORT I GOT FOR FREE? True or False?

ANSWER: False: The credit score you receive for free will not be your FICO score. Howver, if you diligently check your reports once a year through AnnualCreditReport.com, you will at least see if there is any negative or incorrect entries on your Experian, Equifax and Transunion reports that need your attention. You can receive your FICO scores from MyFico.com for $15.95 per report from Transunion and Equifax. Experian, however, does not participate in this service.

I PAID LATE BUT I AM UP TO DATE NOW. MY CREDIT SCORE IS OK, RIGHT? True or False?

ANSWER: False. The damage is done if reported to the credit bureaus, despite the fact that you have caught up and are not behind in your payments. Most creditors will wait 30 days before reporting a late payment, but once reported, the negative report factors into the most important item in your credit score. Approximately 1/3 of your credit score is based upon timely payments.

I PAY MY CREDIT CARDS IN FULL EACH AND EVERY MONTH. MY CREDIT HAS GOT TO BE GOOD, RIGHT? True or False?

ANSWER: FALSE. The fact that you pay in full every month means that the creditors will not report negative activity to the credit bureaus. However, it is NOT reported that you pay in full each month. In fact, the credit bureaus have no idea what your payment history is, except as reported. Still, it is a good idea for your financial health to pay in full each month.

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