Considering a Debt Settlement Company? Here are Some Tips

If you are considering hiring a debt settlement company, you should consider the decision carefully.  I have considerable experience working with debt settlement companies in my debtor defense practice.  I must say that my view of these for profit debt settlement companies is not particularly positive.  Sadly, many of my clients have paid thousands of dollars to a debt settlement company only to have a lawsuit filed by a creditor who is not receiving payments filed against them.  And, in most cases, we have no defense to raise against the lawsuit.  The only alternative at this point for many clients is to file a Chapter 13 bankruptcy if they own property or a Chapter 7 if they don't.  I once had a client who owned real estate with a value of approximately $150,000 who had two judgments against him for approximately $25,000 while working with a debt settlement company.  Even though he was on Social Security disability, he had to file a Chapter 13 bankruptcy to protect his real estate, which could have been seized and sold to satisfy the judgments.  Below are some thoughts that may help you in deciding whether to hire a debt settlement company.

Some of your creditors may also refuse to work with the debt settlement company you choose. In many cases, the debt settlement company will be unable to settle all of your debts.

Debt settlement companies often claim they can negotiate with your creditors to reduce the amount you owe. However, before working with a debt settlement company, you should remember: Debt settlement companies often charge expensive fees. Debt settlement companies typically encourage you to stop paying your credit card bills. If you stop paying your bills, you will incur late fees, penalty interest and other charges, and creditors will likely step up their collection efforts against you. Unless the debt settlement company settles all or most of your debts, the built up penalties and fees on the unsettled debts may wipe out any savings the debt settlement company achieves on the debts it settles. Using debt settlement services can have a negative impact on your credit score and your ability to get credit in the future.

You could owe taxes on debt that is forgiven. If a portion of your debt is forgiven by the creditor, it could be counted as taxable income on your federal income taxes. You may want to consult a tax advisor or tax attorney to learn how forgiven debt affects your federal income tax.

You could end up further in debt than when you started. Most debt settlement companies will ask you to stop paying your debts in order to get creditors to negotiate and to collect the funds required for a settlement. This can have a negative effect on your credit score and may result in the creditor or debt collector filing a lawsuit while you are collecting settlement funds.  I see this happen frequently in my practice. And if you stop making payments on a credit card, late fees and interest will be added to the debt each month. If you exceed your credit limit, additional fees and charges may apply. This can cause your original debt to increase. 

Don't do business with a debt settlement company if it: (1) Charges any fees before it settles your debts; (2) Touts a "new government program" to bail out personal credit card debt; (3) Guarantees it can make your debt go away; (4) Tells you to stop communicating with your creditors; (5) Tells you it can stop debt collection calls and lawsuits; or (6) Guarantees that your unsecured debts can be paid off.

If you do business with a for-profit debt relief company, the company may tell you to put money in a dedicated bank account, which will be managed by a third party. You may be charged fees for using this account.

Consider as an alternative to a debt settlement company consulting with a non-profit, consumer credit counseling service. These organizations will attempt to work with you and your creditors to develop a debt management plan that you can afford, and that can help get you out of debt. They usually will also help you develop a budget and provide other financial counseling.

Also, you may want to consider consulting a bankruptcy attorney, who may be able to provide you with your options under the law. Some bankruptcy attorneys  will speak to you initially free of charge (we don't charge for an initial consultation).

In conclusion, if you are considering hiring a debt settlement company, think the decision through and consider your options before signing up.

www.debt-relief-law.com

(502) 245-9100

Stop Foreclosure

     Early in this decade home foreclosure was a raging epidemic.  With the improving economy, the foreclosure epidemic went away… or did it?  In 2016 one in 2505 mortgages in Kentucky was in foreclosure, and one in 1036 mortgages in Indiana was in foreclosure.  On March 4, 2017 Zillow listed 5037 foreclosed Kentucky homes and 9685 foreclosed Indiana homes for sale.   In the first quarter of 2016 70% of loans in foreclosure were originated prior to 2009 even though these loans accounted for only 30% of outstanding loans. 
      As of February 2017, the first mortgage default rate nationwide was 0.72% (7.2 loans per 1000), and the second mortgage default rate nationwide was 0.48% (4.8 loans per 1000).  The trend for both first and second mortgage defaults increased from fall 2016 according to the S&P/Experian indices.
     While there may be a lower percentage of defaults compared to the height of the recession, the statistics above clearly show that many residents of Kentucky and Indiana are facing the prospect of losing their homes.  The sad fact is that many of these folks will lose their home unnecessarily.
     When people fall behind on their mortgage payments, either first or second mortgage, they suffer a feeling of helplessness.  Since they did not have sufficient income to meet their obligations, they often feel that there is no way to ever catch up.  However, the Bankruptcy Code provides a potential source of relief for those who are facing a possible foreclosure.
     Chapter 13 of the Bankruptcy Code allows persons who are behind on their mortgage to place the amount they are behind in a plan to repay their debts over a period of 36 to 60 months.  And, if they have a second mortgage but no equity in their home, the second mortgage can be “stripped off” and treated as any other debt.
     Regular mortgage payments are made outside the Chapter 13 plan.  If the person fails to make the required payments, the mortgage holder may ask the court to allow it to move forward with foreclosure.
     Suppose a person has a $200,000 first mortgage, but the home is only worth $275,000.  Suppose also this person has a second mortgage of $50,000.  Since there is no equity in the home to secure the second mortgage, it can be stripped off and treated as any other unsecured debt.  These debt are paid back at less than 100%, sometimes much less, and when the Chapter 13 plan is completed and the court enters the discharge order, the second mortgage is erased.  But, if the person fails to complete the plan payments and the case is dismissed, the second mortgage is not stripped off.

     Stripping off the second mortgage only works when there is no equity in the home to secure the second mortgage.  For example, if a home has a first mortgage of $200,000 and a value of $300,000 with a second mortgage of $75,000, then there is $100,000 to secure the second mortgage.  But, if the first and second mortgages exceed $300,000, the second mortgage can still be stripped off.
     A person facing foreclosure needs to consider whether she can afford to keep the home.  If it it is a tight financial situation, then perhaps Chapter 13 is not the best choice.  An experienced bankruptcy attorney can certainly provide guidance in this regard.

www.debt-relief-law.com

$49.9 Million TCPA Settlement Approved

The United States District Court for the Northern District of Illinois granted final approval of a $49.9 million Telephone Consumer Protection Act class action settlement against US Coachways, Inc on November 9. 

The plaintiffs filed the original Complaint against US Coachways on July 29, 2014, alleging that the motor coach leasing company sent out thousands of unlawful text messages to whom they hoped were potential customers in violation of the TCPA. The lead plaintiff allegedly received more than 20 unsolicited text message advertisements.   

The class consists of “all persons within the United States who received one or more text advertisements on behalf of US Coachways, Inc. at any time in the four years prior to the filing of the Complaint continuing through the date of the Settlement Agreement.”  There were no requests for exclusion and no objections from the class, which consists of more than 85,000 individuals. 

US Coachways cannot fund the settlement and tendered a claim for coverage to its insurer for defense and indemnity, but the insurance company denied coverage.  US Coachways has now  assigned its rights against the insurer to Plaintiff and the class, and agreed to contribute $50,000 which was applied toward the cost of notice to the class.  Plaintiff and his counsel will next pursue an action against the insurer to collect on the $49.9 million judgment.

henry-legal.com   866-279-9721

Supreme Court to Decide if Filing Proof of Claim in Bankruptcy Violates FDCPA

The Consumer Financial Protection Bureau has filed an amicus brief in the U.S. Supreme Court in support of the respondent/consumer in Midland Funding, LLC v. Aleida Johnson, a decision of the Eleventh Circuit that held Midland’s filing of an accurate proof of claim in the consumer’s bankruptcy case on a time-barred debt violated the FDCPA.

In its brief, the CFPB argues that the Supreme Court should reject Midland’s arguments that the filing of a proof of claim that is accurate (i.e. provides correct information about an unpaid debt) but is for a debt that is time-barred does not violate the FDCPA, and even if the filing does violate the FDCPA, the Bankruptcy Code (Code) would preclude such application of the FDCPA.  According to the CFPB, nothing in the Code allows a creditor to legitimately file a proof of claim that it knows is subject to disallowance under the Code because it is time-barred.  The CFPB also argues that because a debt collector implicitly represents that it has a good faith basis to believe its claim is enforceable in bankruptcy when it files a proof of claim, the filing is misleading and unfair in violation of the FDCPA when the collector knows the claim is time-barred and therefore unenforceable in bankruptcy.

With respect to Midland’s preclusion argument, the CFPB argues that Code does not preclude an FDCPA action based on the filing of a proof of claim for a time-barred debt.  According to the CFPB, treating Midland’s alleged conduct as an FDCPA violation would not penalize Midland for conduct the Code authorizes and would not otherwise create any conflict between the FDCPA and the Code.

henry-legal.com   866-279-9721

Manually Dialed Call May Violate TCPA

Generally, the Telephone Consumer Protection Act (TCPA) applies to calls using an autodialer, but the landscape has changed following the decision in Nelson v. Santander Consumer USA, Inc., 931 F. Supp. 2d 919 (W.D. Wis. 2013).  The plaintiff in this case alleged that Santander called her cell phone more than 1,000 times and left over 100 pre-recorded messages over the course of a year using an autodialer, in an attempt to collect an outstanding debt on two vehicles.  The Court granted the plaintiff’s summary judgment motion, finding that the defendant violated the TCPA and awarding the plaintiff $571,000.

The court found that it was sufficient that the telephone equipment used by the defendant had the capacity to produce, store and call telephone numbers.  Specifically, the Court found that in making these calls, Santander used the Aspect telephony system, a computer telephone software system that routes and places inbound and outbound calls. Aspect has the capacity to (1) store telephone numbers and then call them; and (2) perform “predictive dialing” and “preview dialing.”

Predictive dialing is where the system times the dialing of numbers using an algorithm to predict when an agent will become available to receive the next call. To facilitate that method of dialing, Santander created lists of customer telephone numbers to be called on a particular day. Preview dialing is where an employee chooses a telephone number by clicking on a computer screen and the system calls it.

Santander argued that the calls to the plaintiff were made by a live person using the preview dialing function of the Aspect telephony system, which it claimed are not autodialed calls within the meaning of the TCPA.  The Court disagreed, relying on the FCC’s expansive interpretation of the term “automatic telephone dialing system” in finding that “the question is not how the defendant made a particular call, but whether the system it used had the ‘capacity’ to make the automated call.”  

So, if you receive a call from a telemarketer or debt collector to your cell phone, it is most likely that regardless of whether a human punched in the numbers, the call would fit within the definition of an autodialed call under the TCPA.

www.henry-legal.com

Supreme Court Rules that Offer of Judgment Does not Moot Class Action

On January 20, 2016, the Supreme Court issued its decision in Campbell-Ewald Co. v. Gomez. Six of the Justices, for differing reasons, held that an unaccepted offer of complete relief does not in and of itself deprive a court of Article III jurisdiction by mooting a plaintiff’s claim.  The Court did, however, leave the door open to find that a fully funded offer of judgment could moot a potential class action by depriving the court of jurisdiction.

The Majority Opinion

Justice Ginsburg's majority opinion adopted the reasoning of Justice Kagan’s dissent in Genesis HealthCare Corp. v. Symczyk, reasoning that, under the language of Rule 68(b) and “basic principles of contract law,” an unaccepted offer of judgment, like an unaccepted offer to contract, is a legal nullity that “creates no lasting right or obligation” and has “no continuing efficacy.” The fact that the offer was unaccepted was critical to the majority’s reasoning because it meant that the plaintiff’s claim “stood wholly unsatisfied.” The opinion noted several times that the plaintiff “gained no entitlement to the relief” previously offered and had not received the relief previously sought, and thus retained a personal stake in the outcome of the litigation. See Campbell-Ewald v. Gomez, No. 14-857, slip op. at 8-12 (Jan. 20, 2016).

This is a norrow opinion, however.  It does not speak to a situation where a defendant makes an offer of judgment that completely satisfies all of the plaintiff's demands and then make a payment to satisfiy the offer.

A Fair Opportunity to Show Class Certification is Warranted

The court noted that “a would-be class representative with a live claim must be accorded a fair opportunity to show that certification is warranted.”  The Court went on to analogize an unaccepted offer of judgment to an unaccepted settlement offer, finding that as is the case of an unaccepted settlement offer, and unaccepted offer of judgment could not kick a plaintiff out of court.

Going Forward

It will be interesting going forward to see how defendants react to this ruling.  I predict we will begin to see offers of judgment with payment either accompanying them or paid into court.  We most certainly will see the issue of wheter such payment moots a claim litigated in near future.

henry-legal.com   866-279-9721

5 Mistakes Consumers Make When Dealing with Debt Collectors

Debt collectors have a seemingly unending bag of tricks when trying to get payment from consumers.  Most consumers, on the other hand, have little if any experience dealing with debt collectors.  Generally, consumers commonly make one or more of 5 mistakes when confronted by a debt collector.  These include (1) Failing to Get Debt Validation; (2) Failing to Find Out When the Last Payment on the Debt was Made: (3) Agreeing to a Payment Plan; (4) Not Registering Their Cell Phone on the National Do Not Call Registry: and (5) Not Seeking Legal Counsel.

1.  Failing to Get Debt Validation

Getting debt validation is almost always a good idea.  It is possible that the debt may not be yours.  In addition you may not recall the debt or the original creditor.  The debt collector may also be trying to recover unlawful interest.  The list goes on and on.

2.  Failing to Find Out When the Last Payment on the Debt was Made

Finding out when the last payment on the debt was made is critical because this tells us when the statute of limitations clock started ticking.  For instance, in Kentucky the statute of limitations is 5 years from the date of the last payment (default), and in Tennessee the SOL is 6 years.  Statutes of limitations vary from state-to-state, but nearly all run from the date of the last payment.

If the statute of limitations has expired, then the debt collector cannot file suit to recover the debt, and if it does, it violates the Fair Debt Collection Practices Act.

3.  Agreeing to a Payment Plan

Many times a debt collector will seem willing to work with a consumer to establish a payment plan.  Often, this is because the statute of limitations has expired, and when the consumer enters into a payment agreement with the debt collector, the SOL is reset.  Then if the consumer defaults on the payment plan, the debt collector can sue on the entire debt.

4.  Not Registering Their Cell Phone on the National Do Not Call Registry

If a consumer registers his cell phone on the National Do Not Call Registry and a debt collector calls, the debt collector has violated the Telephone Consumer Protection Act and the Fair Debt Collection Practices Act.  The statutory damages under the TCPA are $500 to $1500 per call.  And, the statutory damages under the FDCPA are up to $1000 or actual damages plus attorney fees.

5.  Not Seeking Legal Counsel

Most, if not all, consumer lawyers do not charge for an initial consultation,  So, why not take advantage if you think your rights under the TCPA or the FDCPA have been violated?

Debt collectors have a range of tricks and tactics to separate consumers from their money.  Be smart and don't make the 5 common mistakes above.

www.debt-relief-law.com

866-279-9721