Supreme Court Says Being Listed as a Terrorist is ‘No harm.’

Posted by Robert Weed / in Blog, Weekly Posts /

Supreme Court Says Being Listed as a Terrorist is ‘No harm.’

Last Friday, in a case called TransUnion v Ramirez, the Supreme Court said the Fair Credit Reporting Act cannot give you the right to sue TransUnion for putting your name on their OFAC terrorist warning list. Led by Justice Brent Kavanaugh, a 5 to 4 majority held that people have no right to sue unless they can prove TransUnion actually showed someone the list with your name. TransUnion just putting you on the list isn’t enough.

Justice Clarence Thomas, considered the court’s most conservative Justice, strongly disagreed.  He said that the law as written clearly covered TransUnion’s OFAC warning list.  Justice Thomas often says it’s the job of the courts to read and apply the law–not re-write it.  He said the court was re-writing a law they didn’t like.

Here’s the Rest of the OFAC Story

Besides the credit report you know about, TransUnion keeps and sells an “OFAC warning list.” OFAC stands for Office of Foreign Asset Control. It’s the Treasury Department list of terrorists, international drug kingpins, illegal arms smugglers, and other threats to national security.  People can’t have have money in an American bank or own any property in America if they are on that list.

TransUnion claims they matched that Treasury Department list with their list of Americans who have credit reports. That’s the TransUnion OFAC warning list.

 A guy named Sergio Ramirez found out he was on the TransUnion OFAC warning list when he went to a buy a new Nissan in 2011.  The finance manager told him that he couldn’t buy a car. He couldn’t buy a car because “he was a terrorist.”  (The dealership then turned around and sold the car to Ramirez’s wife.) 

Ramirez knew wasn’t a terrorist or arms dealer. So, he sued.

The Ramirez trial lasted six days. Turned out that TransUnion had misidentified 8,165 people, falsely labeling ordinary consumers as “threats to national security.”

The jury agreed TransUnion was in the wrong. They awarded $7337.30 to each person on the list. $60 million total. (Do you think the $7337.30 was too high? The jury found TransUnion had been sued for this exact same thing way back in 2005, and did almost nothing to fix the problem.) 

No Harm, no Foul

The Supreme Court said only 1853 people out of the 8165 had the right to sue. Those 1853 people could prove that TransUnion had sent out their OFAC warning when those people applied for credit. (The trial only looked at a seven month period.)  The others didn’t apply for credit during those seven months.  So they had no right to sue.  “No…harm,” said Justice Brent Kavanagh, no foul.

Justice Thomas hit the ceiling. 

“TransUnion generated credit reports that erroneously

flagged many law-abiding people as potential terrorists and

drug traffickers… Yet despite Congress’ judgment

that such misdeeds deserve redress, the majority decides

that TransUnion’s actions are so insignificant that

the Constitution prohibits consumers from vindicating

their rights in federal court.”

 

A Business Built on Lies

The three liberal justices went on to point out one other angle. TransUnion was sending out false information because they made money. TransUnion couldn’t prove that anybody among the 8165 people in their OFAC warning list was really on the State Department’s official OFAC list!  (Would any actual terrorist or wanted drug kingpin come to America to open a credit card or buy a car? Would they do it in their own name?) 

TransUnion was making money selling a list that was totally inaccurate!  Here’s what the 9th Circuit said: “TransUnion’s misconduct was repeated and willful. TransUnion used name-only OFAC searches for more than a decade, resulting in thousands of false positives and not a single known actual match identified.” 951 F.3d 1008, 1036. Not s single known actual match.

According to the liberal judges, the TransUnion OFAC warning list was business built on lies.

Two Ways This Affects You After Bankruptcy

The rule that Justice Kavanaugh laid down here goes beyond TransUnion and OFAC. Justice Kavanaugh said, and the Supreme Court majority agreed, that just because Congress says you have a consumer right does not mean you can sue to enforce it. You can’t sue somebody who might violate your rights; they have to actually do it first.

That obviously applies when you, like Mr. Ramirez, need to correct credit report mistakes.

Improving your credit score is one of the important five ways bankruptcy gives you a fresh start.  That’s why I tell everybody to check your credit report after the bankruptcy discharge. Making it harder to sue the credit bureaus doesn’t help you make the most of your new start.

(After-bankruptcy credit reports are now usually right–they didn’t used to be.  Because they are usually right, you have to dispute wrong info at least twice, before you can sue to have it corrected. Now, you probably also need to wait until you’ve applied for credit and been turned down. And even then, how can you prove you were turned down because of the error on your report, instead of the bad history from before you filed bankruptcy. You can see the problem.)

Stopping creditor harassment

Stopping creditor harassment is another way bankruptcy give you a new start. But it doesn’t always work as it should.

Just this past week, Zarah got a hate letter from a debt collector, threatening to file court papers on a debt that was cleared by her bankruptcy. That’s an obvious violation of the bankruptcy law. But are we allowed to do anything about it? Did Justice Kavanaugh just say we can’t complain about the threat? Do we have to wait until they actually do send her court papers?

Some judges do not want to be bothered by “insignificant” consumer complaints. Most businesses don’t want to be sued.

So, when you and I try to defend your rights, the credit bureaus or debt collectors can just say, there’s “no harm.”  They can use Justice Kavanaugh to tell you the door to the courthouse is locked.                         

                                                                                                                                                                                                                       

 

Credit scores after bankruptcy are close to national average, in just three years

Posted by Robert Weed / in After Bankruptcy, Blog, Weekly Posts /

I just finished a survey of people who filed bankruptcy with me three years ago. Here’s one big thing I found out: credit scores three years after bankruptcy are almost the national average.  

Right about half of the people who filed bankruptcy with me three years ago have a score above 670. A 670 score is considered “good” by Experian.  That’s a little less than the population as a whole, where 60% of people are above that 670 score. 

Some people will be surprised that credit scores after bankruptcy are that high. 

There’s an urban legend that you have to go for seven years with bad credit after bankruptcy.  People tell me all the time they expect to go seven years with bad credit. Other people wonder if there credit score will drop below 400.  

Have you heard anything like that?  It’s not true. 

Besides this survey of people who filed bankruptcy with me, I can point you to two studies by the Federal Reserve.  The Federal Reserve Bank of New York found that “the individuals who go bankrupt experience a sharp boost in their credit score after bankruptcy.” And, the Philadelphia Federal Reserve found that people with a before bankruptcy 540 can expect an after bankruptcy credit score of around 620.

Debt settlement scammers, nosy family members, and some financial gurus will want you to think filing bankruptcy ruins your credit.  But, none of them will put it in writing, because it’s just not true.

I’m surprised the credit scores after bankruptcy aren’t higher.

I think nearly everybody can get their credit scores above 670 three years after bankruptcy.

The answer is in another question from my survey. My survey asked people if they got a new credit card in the first year after the bankruptcy. And 43% said, “No.”  That’s a problem.

People tell me, when we go to the bankruptcy hearing together, “I never want to see another credit card.” But, if you want a good credit score after bankruptcy, you have to.

Bankruptcy freezes your old bad credit, it doesn’t erase it. So you need to build good credit on top of it. 

That means you need to go out and get a credit card.  (You’ll get some offers in the mail, but you can also internet search ‘credit scores for bad credit.’) Charge gasoline every month; pay it in full every month.  In that way, within six months you’ll get several more good offers; use each card once a month and pay them in full.  Each week use a different credit card to charge your gasoline, and pay them all in full.  You want to get credit cards with higher credit limits, but you want to keep your actual balances low.

Summary What Does it All Mean?

If you are considering bankruptcy, don’t believe the urban legends. Three years after bankruptcy, your credit can be almost as good as new.  If you have filed bankruptcy, don’t turn your back on your credit. Carefully build a yourself a good credit score after bankruptcy.

Want to find out more on your after bankruptcy credit score? 

After bankruptcy, check these five websites. 

After bankruptcy, getting your credit report right.  

Mike’s after bankruptcy credit score is 681.

 

 

 

Keep the Car In Chapter 7 Bankruptcy

Posted by Robert Weed / in After Bankruptcy, Weekly Posts /

Keep the Car In Chapter 7 Bankruptcy: What Are your Choices?

When you file Chapter 7 bankruptcy, you are “in the drivers seat” with some choices on how to keep the car.

One choice is to give it back.

One choice is to give it back.  Especially if you have a terrible interest rate on the car—and if you can put your hands on a junker—give them the car back. You are supposed to give the car back six weeks after you file your bankruptcy case. That gives you time to figure out another way to get around.

(Finding another way to get around is NOT going out and financing a car right after the bankruptcy. You’ll find car dealers eager to put you in a car at 24%—that gets you right back into financial trouble. But if you have a friend or family member who can give or lend you a car for a year or longer, you can then find some good financing deals. You can read about Alice, who got a 4.76% a year after bankruptcy. People who have a friend or family member who knows a lot about cars, also have good luck buying a car for cash, through a site like EBay.)

You can keep up the payments and keep it

Except for the special problems with Ford and Credit Unions, you can keep up the payments and keep your car. For most people, this is the best choice. No paperwork is required, you just need to be sure to make the payments on time. If you get late, they won’t call and yell at you. (That would violate the bankruptcy discharge.) They will just come and get the car.

Since they don’t want to violate the bankruptcy law, most car finance companies will stop billing you. You need to pay them on your own. Honda Financial Services has a good set of instructions. And here are sample instructions from USAA. Making the car payment will be like paying the rent—you gotta remember.

You can redeem your car.

If you owe more than your car is worth, but really like your car, you can redeem it. You can keep the car by just paying the book value. (Book value under the 2005 law is what you’d have to pay to buy it.) There are some honest lenders who will finance that straight out of bankruptcy.  One we use is called 722 Redemption. If you know your car is in good shape, this can be the way to go.

But you now have an after bankruptcy car loan. If you pay it, you are building up good credit. If you don’t, you are building up after-bankruptcy bad credit. You really don’t want after-bankruptcy bad credit.    

You can keep up the payments and change your mind later.

The good thing about keeping up the payments is, down the line you can change your mind. Suppose a year later, the car has mechanical trouble. You can give it back without owing anything and without damage to your credit.

Suppose a year from now, your uncle offers you his car. You can give the old one back, without owing anything and without damage to your credit.

Suppose two years from now, your credit union will offer you a car loan at 3.9%. You can give the old one back, without owing anything and without damage to your credit.

People often ask me, how long do I have the option to give the car back? My answer: Until it’s paid for. Once it’s paid for, you can’t give it back.

Is there any paperwork? None. Just call and tell them to come and get it. Or, stop paying and they will come soon enough.

Can I keep the car without making the payments?

The short answer is, No, you can’t keep the car without making the payments.  

At least, you can’t keep the car–unless the car finance company never bothers to come any get it.  Sometimes they never bother. If the car will bring good money at a car auction, they are going to come and pick it up.  But recently, a couple of people have told me nobody ever came and got their cars. Those were cars with about a hundred thousand miles on them–not junkers. But the credit union, in both cases it was a credit union, never picked them up.

So, you might get lucky. 

Can I reaffirm the car loan?

There are reasons why some people need to reaffirm car loans with Ford or with Credit Unions. Except for them, reaffirming a car loan is not a good idea.

The car loan people want you to reaffirm—because it benefits them, not you. When you call, they will tell you your lawyer should have reaffirmed—because it benefits them, not you.

Under the law, the judge will not approve a reaffirmation, unless I sign off that it’s a good idea. 

I don’t think it’s a good idea. So I’m not signing off. So the judge is not approving it. (The judge can, and often does, turn it down even if a lawyer signs off. Which I don’t.) 

I explain more on that, here. 

Filing Bankruptcy and Keeping Your Car with Your Credit Union

Posted by Robert Weed / in Weekly Posts /

The Small Print Says Your Credit Union Can Repossess Your Car If You Are Late on Your Credit Cards.

When you get a car loan from a credit union, you sign in small print that they can repossess your car if you don’t pay your credit cards.  (I have never seen a bank do this; I don’t know why they don’t.)  That would apply to a credit card you already had with the credit union, or one you get later.  This is usually called cross-collateralization. 

Credit Unions really do it, too.  If you get maybe three months behind on your credit card payments with your credit union, they will apply your car loan payments to the credit card, and send the repo man to your house, to pick up the car.

How Does Bankruptcy Change That?

The basic rule of law is that secured debts–debts attached to something like your car–pass through the bankruptcy unaffected.  So the deal may still be the same.  

In my experience, once you file for bankruptcy, the credit unions will usually allow you to just pay the car loan.  (Since the credit card is discharged, applying the car payment to the credit card would violate the bankruptcy discharge.)  But once the car loan is paid for, they won’t send you the title.  That’s because the credit card is still attached to the car and the credit card has not been paid off. So, you never really have a paid for car.

If they want to be mean about it, the credit unions can just pick up the car.  Because under the 2005 bankruptcy law, they are allowed to pick up your car when you file bankruptcy, even if you are current.  (I explain that, here.) I’ve seen Alaska Credit Union and Suncoast Credit Union do that.  (There are probably others that do. There are 7000 different credit unions; I barely know seven.)

The Credit Unions around here will give you a chance to reaffirm the loan.  That means you make a new, after-bankruptcy promise to pay, and they agree to accept it.  When that new promise is paid off, they should send you the title.  (They “should” send you the title. The reaffirmation form, set by law, says nothing about that. I got into a fight with Apple Federal Credit Union on that, once.  Apple, an outfit we like, then agreed to send the title.)

Ordinarily, I do not like to reaffirm car loans, as I explain here.  But you do get something when you reaffirm with the credit union. You get the title when the reaffirmed loan is paid off. So if you want to, I’ll sign your reaffirmation. (I charge $100 for doing the very annoying form.)

Do They Ever Negotiate?

Recently, I had a client who had two car loans with PenFed Credit Union. On one, he was about break even; on the other, he owed $11,000 and the car was only worth $8,000. He told me to tell PenFed, “I won’t reaffirm for more than the car is worth.” So, I crossed out his agreement to pay back $11,000, wrote in $8000, and sent it back to them.  They told me, “We’re not negotiating on the loan; we’re coming to get the car.” “Don’t do that,” my client said, “I’ll sign.”

As your lawyer, I have to sign on your reaffirmation, that I helped you “negotiate” the reaffirmation. I’ve never actually negotiated any change from what the credit unions demanded. They will drop the credit card cross-collateralization; beyond that, they won’t budge.

 

After Bankruptcy: What If I Win the Lottery

Posted by Robert Weed / in Virginia Bankruptcy / 61 comments

People often ask me, what happens after bankruptcy if I . . .

Get a big raise…

Start a business…

Get a big tax refund in future years…

Become a reality star…

Win the lottery…

How does that affect my bankruptcy?

Filing Bankruptcy and Sleeping Better

Posted by Robert Weed / in After Bankruptcy / 1 comment

After filing bankruptcy, people say they sleep better. That’s one of the exciting findings of a new survey, done through SurveyMonkey.com, of those who filed bankruptcy in 2009 and 2008.

In all, 93% said life was better because they filed bankruptcy.  Nearly all, 88%, said better sleep was one of the reasons why.

Bankruptcy and real estate taxes: Counties are desperate

Posted by Robert Weed / in Virginia Bankruptcy / 6 comments

Bankruptcy and real estate taxes:  Counties are desperate

 

Filing bankruptcy gets rid of most of your debts; but it does not necessarily get rid of most of your problems.

For some people, real estate that they already moved out of is a problem.  Filing bankruptcy does not mean the bankruptcy court takes over your house.

Bankruptcy is not a car wash

Posted by Robert Weed / in After Bankruptcy / 4 comments

I don’t take the “car wash” approach to bankruptcy.

Car wash approach?  What’s that?

At the car wash, you drive up, pay them, they run your car through, and you drive off.  The car wash doesn’t care where you have been, or where you’re going.  They don’t care what happens once the car wash is over.

After bankruptcy–getting your credit report right!

Posted by Robert Weed / in After Bankruptcy / 19 comments

Here’s an email I got today from Jennifer.

Jen and Ken filed bankruptcy in February 2010. Because Jen’s bankruptcy does NOT show on her credit report, her credit score is much lower than Ken’s.

( Jennifer and Ken are not their real names.)

“Mr. Weed:

“Our discharge was a one year ago in June 2010. When we tried to buy a car back in December 2010, the Chapter 7 discharge was not on my credit report. I pulled my credit a few days ago and the discharge is still not showing, many accounts are marked as delinquent and my score is terrible. I filed several ‘disputes’ with Equifax but this could take up to 45 days. Why is the discharge not on my credit report? What can I do to fix this?? I am very frustrated that my credit looks terrible. The discharge is showing on Ken’s (husband) and his score is much better.

“Thank you for your help.

Thanks,
Jennifer H”

Jennifer, you are right.

If your bankruptcy is not correctly reported on your credit report, your credit score will stay terrible.  It will seem like forever getting back to good credit.

I spoke on this at the convention of the National Association of Consumer Bankruptcy Attorneys ten years ago.  Back then, seven out of ten people came out of bankruptcy with creditors ignoring the bankruptcy and hitting their credit report.   A couple dozen lawyers around the country have sued them on this a lot.  Now “only” about one person out of three has that problem.

Two of my staff, lawyer Brian McMorrow and paralegal Janet Robertson, spend almost full time fixing people’s credit reports.  (Besides credit bureaus, they also sue debt collectors.)

Here is the link to my instructions on getting your credit reports and getting them to Janet.  Janet has looked at ten thousand credit reports!  She’ll look at yours, write dispute letters–and if the disputes don’t work, Brian will sue.

A dozen times, I’ve seen creditors and credit bureau lawyers come into court and claim that bankruptcy is the reason people have low scores.  Jen and Ken’s example shows that argument is bogus.  After bankruptcy, people keep low scores when they don’t get their credit report right.  Ken has built his score back up–because the bankruptcy shows he cleared his debts.  Jen’s debts are still showing charge off.  That’s why her score is lower.

Jennifer, we’ll get that fixed.  Please follow up with Janet.  If the dispute letters don’t work, we’ll sue.

File bankruptcy? Stop paying? Don’t leave that house!

Posted by Robert Weed / in After Bankruptcy / 405 comments

File bankruptcy? Stop paying? Don’t leave that house!

Here’s a quiz.  You’ve decided to file bankruptcy to get rid of that big mortgage payment.  When is the right time to move out of the house?

1.  When you know you can’t afford it?

2.  When you fall three months behind?

3.  When the bank tells you your house will go to foreclosure?

4.  Right before you file bankruptcy?

5.  Right after you file bankruptcy?

6.  None of the above.

The answer is none of the above.  Leaving the house before you have to, can be a very expensive mistake.  Especially if you have a home owner or condo association.

When you move out–even if you file bankruptcy–you still own the house.  You are responsible.  You are responsible if there’s an accident.  You are responsible for zoning.  You are responsible for paying the association.

The bankruptcy court for sure isn’t paying your home owner association fees.  And, if you aren’t paying the mortgage company, they aren’t paying the association, either.  That leaves you.

Those after bankruptcy association payments are after bankruptcy debts.  That means, they are yours.

I’m seeing people who stop paying and file bankruptcy with me; and four months later the bank has foreclosed them.  I’m also seeing a few people who stopped paying and filed bankruptcy with me in 2009 and the bank still has not foreclosed.

If you are still living there, two years for free (except for the association) is a good thing.  If you move out and pay rent somewhere, two years of  still paying that home owner association–that’s a real headache.

When people talk to me about filing bankruptcy and giving up the house, I tell them, don’t move out!  If you have already moved out, rent it!

Before the crisis mortgage companies were quick to foreclose.  (At least in Virginia, where foreclosures are easy.)  Five months after you stopped paying, you were foreclosed.   In the sixth month, if you hadn’t moved out, you would be evicted.  Filing bankruptcy right before the foreclosure would get you three more months, but that’s all.

That still happens–a lot.  But a lot of times it doesn’t.  There’s no way to predict–except that houses with big association fees often sit much longer.

Some of the reasons foreclosures are slow have been in the news.  The whole loan modification thing; paperwork problems; the fact that the foreclosure lawyers can’t keep up with the volume.

Some delay is just an investment decision by the mortgage companies.

Suppose there are thirty houses in a little neighborhood and ten of those had mortgages with a bank I’ll call Bank of the Galaxy.  Two of those ten have already filed bankruptcy and gone to foreclosure.  Galaxy fixed one up and sold it; the other is sitting empty.  Seven are current; and the last one is yours–you just filed bankruptcy and you are five months behind.

You and your eight neighbors owe $225,000 on the mortgage and the last house Galaxy fixed up and actually sold went for $110,000.  The best offer they have on the one sitting empty was $101,000 and they figure if they have to sell your house too they’d be lucky to get $95,000.

Well, $95,000 is better than nothing, right?  Not necessarily.  Galaxy is worried about your seven neighbors who are still paying.  Those families ask themselves, every month or maybe every week, why are we still paying a $225,000 mortgage on a $110,000 house?

When your house sells for $95,000, Bank of the Galaxy figures one of your seven neighbors will say, that’s it!  That neighbor stops paying, files bankruptcy, and now they have another house on their hands.

Bank of the Galaxy would rather have you sit in your house, for a while, then tell everyone in the neighborhood that the houses they thought were worth $110,000 have now dropped down to $95,000.  (Here’s a scary article about how foreclosures have knocked three TRILLION dollars off the vlaues of people in the neighborhood.)

Now I said at the beginning, you should not move out until there has been a foreclosure.  As your bankruptcy lawyer, that’s easy for me to say; it’s harder for you to do.  Because you need to have a place to live lined up.

Nobody much has built either houses or apartments in the last few years.  So rents are high, and places to rent are scarce.  And it is harder to rent if you have bad credit or have a bankruptcy on your credit report.  You need to have a place to live lined up.   But if you panic and move out before you have to, you could end up paying the association on an empty house for another six months or a year.

 

Update:  After filing bankruptcy don’t leave that house

I’m writing in Falls Church Virginia in March 2014–our fifth snow storm this year.  Stephanie (not her real name) emailed me that she has taken a job next school year teaching in the U. S. Virgin Islands.  Doesn’t pay that well, but the weather is great.

You probably don’t have a job offer in the Islands.  But here’s how Stephanie’s story affects you.

Stephanie filed Chapter 7 bankruptcy with me to stop a foreclosure in August 2010.  She’s lived in her house in Ashburn for three and a half years, without paying either the first or second mortgage.  Now that’s very unusual.  But it makes my point.  Until they throw you out, don’t leave that house.

Cary Ann: Don’t leave that house.

Cary Ann filed bankruptcy with me in August 2013.  She immediately stopped making mortgage payments. Four years later, in August 2017, her mortgage company approved her for a “short sale.”

As part of that short sale, they gave her a $10,000 relocation bonus.  So after her Chapter 7 bankruptcy in 2013, Cary Ann lived in the house for four years without making a house payment. And then got $10,000 reward for moving out!

This is very rare; very rare. But it makes my point. Just because you stopped paying and filed bankruptcy, that does NOT mean your mortgage company is going to quickly foreclose on your house. Usually they do, but sometimes they don’t. My advice, and I know this can be hard to do in reality, be ready to move out, but don’t leave that house.