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21

Jul 2010

How "Avoid Bankruptcy" plan avoids Virginia consumer protection law

Posted by / in Virginia Bankruptcy / 4 comments

After talking with a lady yesterday, we’ll call her Jerri, I went to the website of Greenshield Financial Services. Here’s what they say they do: “Greenshield Financial Services is a Financial Health Management Company serving individuals seeking debt relief or debt help by offering debt settlement programs as an alternative to bankruptcy.”

Jeri had a set up fee for Greenshield Financial Services of $3500–paid as $900 over four months. And then a monthly management fee of $425. A total of over $7000.00 had been paid to these people as their fee to help Jerri with debt settlement.

As a result of their work, two small credit cards had been settled. Jerri saved less than $1000 total. Spending $7000 to save $1000 is not exactly a good alternative to bankruptcy. She figured that out when the sheriff brought around court papers from some of her bigger credit cards, that had not settled their debts through Greenshield.

At first, I thought it was a violation of Virginia law. Virginia law says a debt management program can’t charge more than $75 set up and $60 per month.

Now $3500 is a whole lot more than $75–and $425 per month is more than $60. But Greenshield is not covered by the law.

Here’s how they avoid the law. To be a debt management program under Virginia law, the debt negotiator needs to collect the money from the consumer and pass it on to the creditor. Greenshield works out the settlement, but the creditor take the money directly from the consumer’s account. As long as Greenshield never touches the money, they aren’t covered by the law. So they can charge as much as they can talk people into paying. Which, in Jeri’s case, was a lot.

(And no, she is not likely to avoid bankruptcy.)

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12

Jul 2010

Before bankruptcy: outlaw debt collectors

Posted by / in Before Bankruptcy / 3 comments

People who need  to file bankruptcy are often abused by debt collectors.

CNN Money reported Saturday that complaints against debt collectors to the Federal Trade Commission are up 50% from 2007 to 2009–and up another 15% this year.

“Harassing phone calls, abusive language and physical violence are becoming a bigger part of business as debt collectors struggle to round up money from people who don’t have it,” CNN reported.

People who need  to file bankruptcy sometimes feel too guilty to complain about these illegal threats.  My firm sues five or six debt collectors a month.  Two of three for harassment before bankruptcies are filed.  And another two or three for what they did after bankruptcy.   (There are a handful of lawyers nationally who sue debt collectors a dozen times a month, months after month. )

Most of what we sue on are what the collectors call “technical violations.”  Usually continuing to call after being told to call the bankruptcy lawyer.  Also, sending letters threatening to sue, when they don’t really intend to sue.   (We sometimes see otherwise law-abiding companies make seriously illegal threats when they are talking in Spanish to Spanish-speaking consumers.)

When the consumer is obviously reading from instructions given by his bankruptcy lawyer, most callers know to be careful.

Recently a handful of my bankruptcy clients have gotten threats of immediate arrest.  These are for payday loans that have been sold to outlaw debt collectors.  These outlaws clearly know they are illegal and don’t care.

We sued one of those outfits last falls and got a $10,000 judgment for our client–but there’s no chance to collect it.  (Although they had several US addresses, this outfit may not be in America at all.)

Suing to stop violations only helps when you are suing (mostly) honest people.   Really abusive collectors are just criminals.    Outlaw debt collectors use the telephone to threaten criminal arrest to extort payment.  They violate the Federal extortion statute, 41 USC 875(d).  They can (and should) be imprisoned for two years.

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06

Jul 2010

Before bankruptcy, can I spend down my money?

Posted by / in Virginia Bankruptcy / 1 comment

Suppose, when you are filing bankruptcy in Virginia, you have too much cash.  You can turn it over to the bankruptcy court to divide among the people you owe money to.  Or you can find legal ways to spend it.

(When you file bankruptcy in Virginia, you are only allowed to have $5,000.00 in cash.  That’s about the lowest in the country.  It’s $10,000 if you are over age 65.  Also, your paid for car valued at more than $2,000.00 counts against that limit. )

A lot of people have too much.

Here are some things you can do:

Need to spend down cash? See the dentist

1.   Postponed dental work.  Many people in a tight spot financially haven’t gone back to the dentist to get necessary things taken care of.  You might need three or four thousand dollars worth of dental work.  And they can’t repossess your teeth.

2.  Laser vision correction.  Same as the dentist if you need it.

3. Roth IRA.  Everyone who is working is allowed to fund a Roth IRA–whatever other retirement you have (or don’t have.)   the limit is $5000 per person–$6000 if you are over age 50.  During the January – April 15 (tax deadline) time frame, you can contribute for both the current and the prior year.  Although I cannot give you investment advice, I can saw that I have IRA’s with Fidelity and Vanguard.

4.  Repairs around the house.  If you are planning to keep the house, maybe the gutters need to be replaced, or the a/c unit needs an upgrade.  The court can’t repossess fixtures–things that are attached to the house.

5.  The Virginia College Savings plan.   The 11 USC 541(b)(5) of bankruptcy code protects college saving plan money if it has been in the plan for more two years.  ($5000 one to two years.) But, Virginia law gives an immediate, unlimited exemption for the Virginia College Savings plan.  (The one set up by the state.)  One of the bankruptcy trustees here is challenging that,  so we need to be cautious until the court rules.

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01

Jul 2010

Watch Out for "Avoid Bankruptcy" Scams

Posted by / in Before Bankruptcy / 9 comments

Bankruptcy should be a last resort.    Most people want to look at all the alternatives before they file bankruptcy.  That makes some people easy victims of “avoid bankruptcy” scams.

I’ve talked to three people in the last ten days who sent ten thousand dollars or more to “debt negotiators.” They stopped when the sheriff brought court papers.  At that point, each one realized they had been scammed.  And they realized it was time to talk to a bankruptcy attorney.

Yesterday, I met Linda–not her real name.  This is her story.

When she signed up with this debt negotiator,  she had $98,000 in credit card debts. They were all current.  She had stayed current by living on the credit cards all month, and then her entire paycheck went to make the minimum payments.  She knew this couldn’t go on.

Ten months later, she got court papers for her$20,000 Bank of American credit card.  She had sent $11,119 over the ten months to the debt negotiator, and they had settled two credit cards for her.  One for $629 and one for $2190.   So, she had paid $8300 in legal fees, to get rid of $2819 in debts.  Not a good deal.

There’s a lot of income in Linda’s family, so she may end up in a Chapter 13 bankruptcy.

She is prepared for the worst case, which is this.  She may have to pay the bankruptcy court $300 per month for five years and have to pay me $3323.  That’s $21,323 to get rid of debts that now (with late fees) are over $110,000.   That’s a good deal.

Best case would be a chapter 7 bankruptcy.  Again about $3400 in legal fees, and the whole $110,000 would be wiped out at once.  That’s really a bargain.  If she had seen a bankruptcy attorney when she first contacted the scammers instead, she would have been an easy chapter 7.  Why is that?  What messes up her income eligibility is the new part time job her husband took on the weekends to try to make the payments.  Without that job, eligibility would have been fine.

I’d like to go after these debt negotiators for false advertising and get that money back.  (At this point it would go to the bankruptcy court to pay a little to the credit cards–but that was what Linda was trying to do with it.)  When I checked, I saw how careful they are to avoid any claim of false advertising.  Look at this:

“Some companies “promise” results and advertise exceptional settlements as commonplace. Legal Helpers Debt Resolution is different; we make no promises and will not guarantee you we can negotiate your debts to a certain percentage. We are experienced attorneys and trained legal advocates and adhere to the following minimum performance standard: If we do not reduce your debt by at least 35% of what you owe, we will refund your fees for settling that particular debt and still resolve the debt on your behalf.”

If you read that carefully–they are bragging that they “make no promises” and “will not guarantee.”  Well, they are telling the truth about that.  So its hard to make a false advertising case against someone who says they promise nothing.

I don’t know what to do.  These outfits have loads of money to spend on advertising, because they charge so much and do so little.   The best I can do is warn you.  If it seems too good to be true, it isn’t true.

My recommendation, if you want to try to avoid bankruptcy and work out lower payments, is Money Management International. They know what the credit card companies will agree to, because basically they were set up by the credit card companies. And they will try to give you an accurate estimate of what they can get your payment, including their fee, down to.

There are a number of other companies that are honest and do the same thing.  The National Foundation for Credit Counselling certifies counselors who a trained and tested on being able to help people, rather than scam them.

People who say they can do better than an NFCC member, in nearly every case, are lying.  What if you talk to Money Management or another reputable credit counselor and they cannot give you the help you need?  Then it’s time to talk to a bankruptcy attorney.

PS.  Just was sent this link to a Government Accounting Office study of these “avoid bankruptcy” outfits.  Thanks to Robert Brandt, a bankruptcy attorney in Alexandria VA, who saw my comments and passed on the study.

PS May 15, 2015

Thomas Macey and Jeffrey Aleman, the two lawyers behind Legal Helpers Debt Resolution, were suspended from the practice of law, by the Illinois Supreme Court, yesterday.   US Justice Department lawyers, who are also chasing Macey and Aleman, said, we’re not done with them, yet.

PPS  March 18, 2016

The Consumer Financial Protection Bureau won $40 million in fines, against Morgan Drexen, one of the biggest debt settlement operations.  They were also ordered to refund $133 million to the consumers they scammed.  You can read about that, here.  It’s not clear how much they will be able to collect.  This shows the CFPB trying to shut down the worst of these scammers.

Also, this week, we collected $1500 from Global Client Solutions.  Global handles the payments for nearly all of the hundreds of debt settlement operations.  They are one of six defendants we are suing on behalf of one of our clients, named Cary.  So far we haven’t heard form the other five.  They are due in court in mid April.  Cary got scammed out of $1133.  We’ve gotten $750 back so far (we got the other $750 for doing the work.)  Virginia law gives her triple damages, so we’re trying to get to $3400.

PPS Federal Trade Commission Shuts Down Some More Scams

The Federal Trade Commission shut down another set of these debt settlement scammers today.  Here are the details.

 


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25

Jun 2010

After bankruptcy, how soon can I get approved for a new mortgage?

Posted by / in After Bankruptcy / 3 comments

Yesterday the mortgage giant Fannie Mae, now owned the the federal taxpayers, announced a new policy on qualifying for a new mortage, after you lose your house in bankruptcy, foreclosure, or short sale.

They say they want to discourage people who “just walk away” from their mortgages, particularly in states, like California, where the mortgage company cannot come after you for the money.  (Under Virginia law, they can.)

So Fannie Mae now won’t back a mortgage for someone who gave up a house in foreclosure until seven years have passed from the foreclosure date.   They call this a “Seven-Year Lockout Policy for Strategic Defaulters”

Now, there is an exception that I’m calling the loan mod/extenuating circumstances exception.  The seven year lockout does not apply to people who can show the foreclosure was caused by “extenuating circumstances.”  That’s not defined, but I think it would certainly include unemployment, divorce, and probably reduced hours or loss of bonus or commission during the recession.  If you are giving up your house, and want to buy again soon, keeping proof of that would be important.

The seven year lock out also does not apply  to people who tried to get a loan mod.   “We’re taking these steps to highlight the importance of working with your servicer,” said Terence Edwards, executive vice president.

Only a three year waiting period applies to people who tried to get a loan mod and to people who had extenuating circumstances.  (I’m not totally clear whether that means you have to do both, or if either one is enough.)

If you shortsale the house, or do a deed in lieu, the waiting period is only two years.  (This is one of the very few benefits I see in doing a shortsale. September 7, 2012 Washington Post had a good article on the big damage a shortsale does to your credit score.  You can read that here.)

Lots of people think bankruptcy is the worst thing you can do–those people are wrong.  Fannie Mae regulations require only a two year waiting period after the bankruptcy–again if the bankruptcy was caused by extenuating circumstances.   (Again, it’s important to keep a file documenting loss of income or whatever caused the problem.)

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17

Jun 2010

After bankruptcy mortgage loan modification saves house

Posted by / in After Bankruptcy / 6 comments

Got an email this morning from Bill and Brenda (not their real names) letting me know they had gotten approved for their mortgage loan modification.

They first came to talk to me about filing bankruptcy in Virginia in November 2008. They really wanted to keep their house, but at that point their income was really low.  Bill was paid by commission, and it had gotten really slow during the worst of the panic.

They couldn’t get approved for a loan modification, because the mortgage company thought couldn’t afford any house payment at all.

So, the mortgage company set a foreclosure sale date on May 15.   Bill filed bankruptcy on May 14–to take care of his credit cards and stop the foreclosure.

They applied again for a loan mod, but got no where.

A new foreclosure sale was set for October 2, after the mortgage company got permission to foreclose from his bankruptcy judge. We filed Brenda’s bankruptcy on October 1, just in time to stop them again.  (The bankruptcy also took care of her credit cards at that point, too.)

By the time the mortgage company got permission again to foreclose, Bill’s income had improved.   This time the mortgage company would consider a loan mod.

And yesterday the loan mod was approved. That was twice bankruptcies were filed within two days of scheduled foreclosures, and now they have saved the house.  Bill and Brenda’s hard work staying in touch with the mortgage company was one reason this worked.  Good timing on the bankruptcies made it possible.   Commissions getting back to normal on Bill’s job helped a lot, too.

It doesn’t always work out that well, but when it does, I’m really happy.  Bill and Brenda really are, too.

I’ve seen several clients get mortgage loan modification offers after bankruptcy when they couldn’t get one before.   This is the one I’m happiest about today.

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