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Jun 2011

Bankruptcy, the automatic stay and debt collector NCO.

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Tuesday, I saw a press release from NCO, one of the largest of the debt collection companies.   While many businesses are slow to add jobs in a recession, NCO is hiring 400 more people for its Rockford IL “Customer Management Contact Center.”  Apparently debt collection is now a growth industry in America.

That same day I got an email from one of my clients, Victor (not his real name).  Victor got called Tuesday by Mr. Balakrishnan of NCO, who wanted to “update his information.”  Victor told Mr. Balakrishnan, “I’ve filed bankruptcy, I don’t want to talk to you.”  Mr. Balakrishnan replied, “I have a very good offer for the settlement of this debt.”

Victor told the debt collector, “you are violating the bankruptcy court order.”  The debt collector replied, “this call is being recorded” and hung up.

I’m glad to know the call was being recorded, because we will ask NCO to produce it when we go in front of the bankruptcy judge for this violation of the “automatic stay.”

The automatic stay is a court order that takes effect automatically when you file bankruptcy.  The stay tells your creditors they have to leave you alone while your case is going on.  (That usually about three months and two weeks.)  Creditors who know about the bankruptcy and still try to collect a debt can be punished by the judge.  The judge can award “punitive damages” to you.  In other words, fine them and give you the fine.

Written notice is not required.  Even if NCO lost the first notice from the bankruptcy court–which was mailed to them on May 19–they violated the stay as soon as Victor told them he filed bankruptcy and they didn’t apologize and hang up.

This call from NCO to “update their records” says to me that they didn’t lose the notice–they knew about the bankruptcy when they called.  They wanted to ask for a payment without exactly asking.  That won’t stand up in court.

We’re seeing this a lot.  A debt collector will call about a debt and is told about the bankruptcy.  Instead of saying, sorry, the collector makes some excuse.

Maybe the collectors records aren’t right; anybody can make a mistake.  But “oops, sorry, my mistake” is what they should say when they are told.  If the collector says “your lawyer filed the wrong bankruptcy” or “you can’t file bankruptcy on us” or “we have a good offer”–we sue.

One of the purposes of bankruptcy is to get relief from the pressure of those phone calls.  We don’t let debt collectors try to dodge around the law.

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Oct 2010

Loan mod papers lost for the third time? Don't take it personally.

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As a Virginia bankruptcy lawyer, I’ve talked to three hundred people who’ve gotten loan modifications.    (Most before they filed bankruptcy, but more and more after.)

Only one of them had his loan mod approved the first time he sent it in.  I met that person yesterday!

Why?  There’s a clue in this article I saw in Wednesday’s New York Times.  It says the people in Chase loan servicing department are known by the rest of the bank as the “Burger King kids.”  The joke is that everybody doing loan mods now was working a year ago at Burger King.

So if it seems like the loan mod people don’t know what they are doing, you’ve got that right.

This is the fault of the banks, not the people.

The banks never expected to need to do this many mods.

Before about February 2008, the banks pretty much never modified mortgages at all.  Even when it would make sense for them, they didn’t.  They didn’t want anyone to to think they would ever modify a mortgage.  “Pay us what we want or we take your house.”  That was their rule.

It was February 2008 that I started to see smaller Virginia banks reaching out to people in bankruptcy, offering to work with them to keep their homes.

Newspapers had been reporting the foreclosure flood since the summer of 2007.  But took until mid 2008 for the light to dawn on the bigger banks.  They finally began to realize that they already had too many foreclosed houses and not enough people making payments.  Over the last two years, that problem has only gotten worse.

(Government sponsored programs like HAMP give incentives to banks to make loan mods.  But the real reason they do it is they’d rather reduce your payment a little than take over another house they can’t sell for half what you owe them.)

The banks hired people into loan modification too slowly to handle the flood.  Even when everyone else saw it coming, the banks didn’t.

The other problem is that loan servicing–working on existing loans and collecting payments–is not how banks made money.

The banks spent “billions of dollars in the good times to build vast mortgage machines that made new loans, bundled them into securities and sold those investments worldwide.”  They never gave much thought to how they were going to handle those loans, because they had already made their money.

It’s a lot more work to figure out how to handle a loan that’s gone bad, than it was to make the loan in the first place.  And there’s a lot less money to be made out of it.  So that’s not where the ambitious people in the bank have gone.

My bankruptcy clients report another problem when they try to get loan modifications.   They get conflicting stories from the loan mod and pre-foreclosure departments at the same bank.   The loan mod people say, be patient, we’ll get to you soon.  But the bank is also saying, your house is three weeks from foreclosure.

(There’s rampant confusion in the foreclosure department, too–staffed, according to today’s Washington Post, by “hair stylists, Wal-Mart clerks, assembly-line workers . . . without formal training.”)

So, if you are taking my advice–before or after bankruptcy–of trying to get a loan modification, expect delays, confusion, and lost paperwork.

All my bankruptcy clients tell the same story.  (Except for this one guy I talked to yesterday, who said for him it worked the first try.)

Don’t take it personally and–if you want to keep your house–don’t give up.

PS  That guy, the one who got a loan mod on the first try, is filing bankruptcy anyway.   The second mortgage wouldn’t work with him.  And the small business he started in 2006 is near collapse.    He decided to rent for a few years, and save money, while he builds up a new business.

PPS  In my first paragraph, I quoted the New York Times dumping on Chase.  I don’t think they are worse than other banks.  In fact, they may be better.  Chase has opened up Home Ownership Centers around the country to help people with the loan mod process.  They have two convenient to Northern Virginia.  One in Loudoun County Virginia and one in DC.   No other bank I know of has any.

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Oct 2010

Filing bankruptcy in Virginia gets harder November 1

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You can thank the bank lobbyists who wrote the 2005 bankruptcy law for this cute trick.   When times get tough, filing bankruptcy gets harder and more expensive.

How’s that?  Eligibility to file bankruptcy is much harder for people who are over the median (average) income in each state.  When times get tough, the average income falls.   That makes eligiblity harder.

Check out these numbers, just released today.  Right now, a family of two in Virginia making less than $64,890 has automatic income eligibility to file Chapter 7 bankruptcy.   November 1, that drops to $62,686.    It’s the same for a family of three.  Right now a three person family making less than $73,887 has income eligibility.  On November 1, that drops to $72,078.

The unfairness to people with big families gets worse.  Right now a family of four is allowed to make $37,443 more than a single person with no kids.  Starting November 1, that drops to $36,102.  The law thinks taking care of kids should get cheaper in a recession.

When I look at that, I get mad all over again at the supposedly pro-family values political party that gave us this law in 2005.

While incomes are falling for average families across Virginia, the banks are doing great.  Earlier this week, JP Morgan Chase announced third quarter profits jumped 23%.

Here’s the complete chart, from the Office of the United States Trustee.  This chart shows how incomes are falling in Virginia for families of two, three, and four people.  Making it harder for people to get their bankruptcies approved.

Family size    Now      Nov 1

1            $48,190  $49,484

2            $64,890  $62,686

3            $73,887  $72,078

4            $85,633  $85,586

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