HOW TO IMPROVE YOUR CREDIT SCORE AFTER BANKRUPTCY

HOW TO IMPROVE YOUR CREDIT SCORE

1. Review Your Reports Annually: This may seem obvious but most consumers don’t look at their credit reports until they are declined for credit or are alerted by a third party of a problem. Be proactive. Go to http://annualcreditreport.com each year and get your FREE copy of your credit reports from Experian, Equifax and TransUnion. Be sure and download them in PDF format so you can save them on your computer and, if you live in Texas and want us to review them for you, forward them to us by email. Having them in electronic format is much easier than printing them out and mailing or faxing them to us. Once we get them we will store them on our server for later use if need be. If you lose your copies we will still have copies we can send you. And remember, your credit review is always free at Manchee & Manchee, P.C. For more information go to our website.

Mortgage Servicing Rights: A Cash-Cow for Servicers But A Nightmare for Consumers.

 



A recent trend in the mortgage lending industry is the sale by banks and mortgage companies of the lucrative servicing rights on the loans in their portfolios. Special servicers like Nationstar and Ocwen are taking over the collection of mortgage payments, processing of modifications and the foreclosure and collection of delinquent accounts. This is probably a positive development  as  the banks and mortgage companies have been doing a horrible job at it.

 

Unfortunately, the assignment of servicing rights on a mortgage loan can cause the consumer much grief. I can't count the number of times that a client has complained that they were current on their mortgage until the servicing rights were transferred and they suddenly had to make payments to another company. Invariably in the transition a payment would get lost or delayed and then the collection letters would start, late charges applied and suddenly a perfectly good loan was in default.

 

A Chapter 13 bankruptcy is often the only way to cure a loan that is in default. Those who do not qualify for Chapter 13 must file Chapter 7 and reaffirm the debt or surrender their homes and get a discharge of the mortgage debt. These filers who surrender their homes, however, should carefully monitor their credit after their discharge as the original lender, the original servicer and the successor servicers quite often will continue to report the account to the credit bureaus. And successor servicers will often act like the loan is still collectable. With all these assignments it is not unusual to find  the original lender or servicer and the successor servicer reporting to the credit bureaus on the same loan and pulling credit reports when there is no longer any account relationship. This inaccurate reporting can significantly delay the recovery of a filer's credit score.

 

So, if you get a notice in the mail that the servicing rights on your home mortgage are being assigned to a new company be wary, monitor your credit reports carefully and if you find something that doesn't look right, seek professional help..

 

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Beware of Short Sale Scams after Filing Bankruptcy

 

Today I learned of yet another scam being perpetrated on unsuspecting consumers after they file for bankruptcy. When a consumer surrenders their home or rental property in bankruptcy and the mortgage debt is discharged that should be the end of it, right? . . No. . .Unfortunately, until the lender forecloses the owner of the property still faces liability for property taxes, homeowner association dues and possibly for injury to third parties who come on the property for one reason or other. Since the debtor no longer has insurance on the property this can be a sticky issue.

 

To avoid this unwanted liability exposure consumers often try to arrange a short sale so the title will be transferred out of the consumer's name, thereby ending this liability exposure. A short sale is when someone buys the property but the lender accepts less than the full amount due to release its security interest. It sounds good but it is actually a perilous venture for the consumer to participate in.

 

First of all, the property owner isn't likely to get any compensation for his time and effort, so why bother? Sure it's good for closure and could stop further liability exposure, if I works, but rarely will the lender accept substantially less than the full balance owed on the note. Most of the time a short sale will be an exercise in futility.

 

Normally when a consumer surrenders property in bankruptcy it will become an asset of the bankruptcy estate to be administered by the trustee. In most cases the lender will have a security interest in the property so the trustee will abandon his interest in it, but what happens if the property is leased out and the lender doesn't foreclose for two or three years? The consumer is not entitled to the rent since he surrendered the property so it technically belongs to the estate.  But what if the trustee has abandoned the asset?

 

This happens fairly often so some ingenious scam-artists have emerged to take advantage of the situation. What they do is contact the debtor representing that they have someone interested in the property and ask if they can list it. The debtor is desperate to get rid of the property and the mortgage lender has suggested they would consider a short sale, so he agrees. What he doesn't realize is the scam artist doesn't intend to sell the property and pay off the mortgage, but only to exploit it until the mortgage company forecloses. This is done by renting out the property, collecting the rents for months or even years, and pocketing the money until the property is foreclosed.

 

The danger to the debtor/consumer is that by listing the property for sale and authorizing the realtor to rent out the property, the mortgage lender can assert that the debt is no longer discharged because the debtor has revoked his surrender. This becomes particularly important if a debtor tries to enforce his discharge or sue for FCRA violations. Another area of concern is that the Trustee may come back and want the rents collected on the property even though the debtor never got them. Since the debtor signed the listing agreement thereby inadvertently authorizing the property to be rented out, he may be held liable to the mortgage company or the trustee for the rents that were paid.

 

So, it is important for those consumer/debtors who have surrendered real property in bankruptcy to move out of the property promptly and have no further contact with the property or the mortgage company. That way there can never be any claim the debt has been revived or reinstated after the discharge. It's also a good idea to send the lender a certified letter telling it that the debtor does not want to get statements, calls, or other communications from the lender in the future, except what is absolutely required for foreclosure. And if a realtor calls, refer him to the lender.

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Buy Now, Pay Later; A Ticking Time Bomb:

The other day I called a client to advise her that upon reviewing her credit reports I had discovered that one of her former creditors was pulling her credit reports almost every month. I explained that since she had filed bankruptcy and she no longer owed this creditor anything, that they didn't have the right to pull her credit reports. But when I explained that she could sue them for violating the FCRA and for invasion of privacy, she responded that since she had allowed herself to get in a financial mess, that she deserved any fallout that resulted from it.

 

Hearing this I just shook my head in frustration. What my client didn't realize was that she had been targeted and lured into debt by dozens of banks and lenders of every sort who were making obscene profits off her and millions of other Americans every year. And this didn't happen by accident. Every year these banks and lenders spent millions of dollars in advertising making consumers believe they could live in luxury now by paying for it later. The key to the American Dream is good credit, they insisted.

They knew, however, that with so much credit extended to consumers who couldn't afford it, that there would be a significant default rate. So, they set up and funded organizations whose sole purpose was to assist consumers in budgeting and personal finance to enable them to lower their standard of living enough to keep paying their huge debt run up by living high above their means. The later of "buy now, pay later" had come and it had brought with it financial ruin. 

 

These banks and other lenders are very concerned about consumers paying their debts and honoring their commitments, but when it comes to obeying consumer protection laws it's a different story. While they claim to be meticulously following the law, the truth is they are always searching for loopholes or ignoring these laws altogether hoping not to get caught. And I have yet to find a lender who felt the least bit guilty about violating the FCRA or a bankruptcy discharge injunction.

 

I have found, however, that most consumers don't want to file bankruptcy and only do it as a last resort. The buy-now-pay-later mentality that has been ingrained in us all is a ticking time bomb that will eventually go off.  It makes consumers vulnerable to misfortune.  Sickness, unemployment or business failure just happen and consumers rarely have any control over these unfortunate events.

When the time bomb explodes bankruptcy is the only sane option. Unfortunately, many consumers file for divorce, turn to drugs or alcohol or even suicide. They consider their life a failure and give up on the future. So, there is no shame in filing bankruptcy and consumers should never hesitate to file when the bomb goes off. And after the dust settles and they get their fresh start after bankruptcy, they should never let guilt stop them from enforcing their right to privacy and fair credit reporting. Banks and other lenders are not above the law, no matter how rich and powerful they have become by fostering a consumer dependency on credit.

 

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Creditors Can’t Seem To Stop Illegally Accessing Credit Reports

It is a perplexing phenomenon but some creditors can’t stop illegally pulling consumers’ credit reports even after they are caught doing it. On numerous occasions we have sued a creditor for illegally accessing our client’s credit reports after their debt was discharged in bankruptcy. Once the debt is discharged they have no legitimate reason to be pulling them, yet sometimes before the ink on the settlement agreement is dry, they start pulling the credit reports again. In a few cases we have had to sue them three times before they finally stop. And it’s not because the penalties are small. Damages can run $500 to $1500 per illegal pull, plus actual damages, costs and attorney’s fees. If anybody has an explanation, let me know.

 

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Crime Scene - Creditors Often Intentionally Misreport the Bankruptcy Discharge

 

A common problem for consumers who have surrendered their homes or rental property in bankruptcy is that their lenders or mortgage servicers often ignore the bankruptcy discharge and attempt to collect the mortgage deficiency. This illegal collection activity may take the form of statements, collection letters, notices of forced insurance placement, escrow reconciliations, modification offers, etc. The correspondence will say that it is for informational purposes only and to disregard it if the consumer has been through bankruptcy, but the statements usually demand the payment of money and provide an envelope to remit payment. Of course, these lenders and services hope the consumer will write a check and send it in even though they have no obligation to do so.

  

A worse problem is when the lender or mortgage servicer fails to update a consumer's credit report to show that the debt has been discharged in bankruptcy or report the debt as collectible when it is not. Although it is a crime in Texas to knowingly furnish false information to a credit bureau, the statute is rarely enforced by prosecutors. This results in the consumer not only suffering from the effects of the bankruptcy on his credit but also a delinquent mortgage. When a potential lender pulls the consumer's credit report it will appear that the mortgage has been reaffirmed, is past due, that the full balance is still owed. This could result in a consumer being denied credit in the future or, if credit is granted, having to pay a higher interest rate, and certainly will preclude getting new mortgage financing.

  

For some reason mortgage lenders and servicers have a difficult time shutting down their collection efforts even after they are told by the consumer or their attorneys to cease and desist. If this happens litigation may be necessary to enforce a consumer's rights.

 

Consumers who experience continued collection activity by lenders should keep all correspondence and emails and keep a log of all phone calls as these may be needed as evidence should litigation be necessary. It is also advisable to periodically review their credit reports to be sure the mortgage debt is being correctly reported.

 

It is expensive for lenders to ignore the bankruptcy discharge, the Telephone Consumer Protection Act (TCPA) or the dictates of the Fair Credit Reporting Act (FCRA). I'm sure you have seen the huge settlements these lenders and servicers have been forced to pay by government regulators over the past year and doesn't include the millions in civil damages they must have paid to settle private suits, yet the abuses continue. The only conclusion that can be drawn from this is that these lenders and servicers must be making a lot of money by violating the law.

 

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How Creditors Collect Discharged Debt

We all know that when a debt is discharged in bankruptcy that’s the end of it, right? Think again. Creditors have a sack full of tricks to get consumers to pay debts that they don’t have any legal obligation to pay. In fact, there is an entire industry of debt buyers out there that most people don’t even know about. I’m not talking about the collection agencies, but companies and trusts that do nothing but buy and sell debt—some of it discharged. Obviously if they are buying the debt they intend to collect it. Below are a few of the ways it’s done.

1) Closing on a house or car. When your bankruptcy is over you will eventually need to finance a new car or buy a home. When you go to apply for a loan your loan officer will pull your credit and may tell you that you don’t qualify—unless you can pull up your credit score a few points. They suggest you contact some of your creditors that are negatively reporting on your credit report and settle the debt. You protest that the debt has been discharged but they just shrug. So, you take their advice, contact the creditors and pay off some of your discharged debt. What you were not told was the negative reporting should not have been on your credit report in the first place.

2) Several months after you bankruptcy discharge comes through you start receiving telephone calls or letters from a company you don’t recognize. You think perhaps you didn’t list them on your bankruptcy and are still liable for the debt or the collector says this debt isn’t discharged by the bankruptcy. It gets ugly from there on and you end up settling with them. What they don’t tell you is that they bought the debt from a creditor who was listed in the bankruptcy or that, in a no asset case which is the norm, an unlisted debt is still usually discharged.

3) After your bankruptcy is over you continue to pay an auto loan or home mortgage, although you don’t formally reaffirm that debt. Later on you get behind on the payments and the car is repossessed or the house foreclosed. Months later a collection agency comes along and tries to collect the deficiency. They tell you or you assume that you still owe the debt since you continued to pay on it after the bankruptcy is over. What they don’t tell you is that the debt is still discharged and usually not collectible. The creditors sole remedy, in most cases, is to take back their collateral and that’s it.

4) After your bankruptcy is filed some of your creditors will quit updating your credit report so they don’t have to report that their debt has been discharged. They hope you will voluntarily pay them later to improve your credit score. What you should know is that this trick called “parking an account” and you can dispute the account and make them update it without paying them a nickel.

 

These are just a few of the ways creditors will try to collect a debt that legally isn't collectible. They are very resourceful and will do just about anything if they think they can get away with it. That's why we decided to practice in this area. We believe everyone who filed bankruptcy to get a fresh start should get what was promised them.

 

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Millions of Americans Will Seek A Fresh Start, But Will They Get It?

With lingering unemployment and the inevitable casualties of our credit driven economy, millions of Americans will be forced into bankruptcy over the next few years. They will be looking for a discharge of their credit card debts, medical bills, and mortgage deficiencies and the fresh start the bankruptcy code promises.

 

Unfortunately, even if they successfully complete their bankruptcy filing and their debts have been discharged doesn't mean the fight against predatory lenders is over. Many creditors intentionally misreport people's credit after filing bankruptcy and some will even continue trying to collect the discharged debt. You would think there would be someone in the government making sure creditors obeyed the bankruptcy discharge and the Fair Credit Reporting Act, but that's not generally the case. That task is largely left to the debtors themselves, which means most often nothing is done and the predatory creditor is allowed to continue to ruin the lives of innocent Americans.

 

We have all witnessed lender greed and corporate excess during the current economic meltdown and it's time we put an end to them. Fortunately there are a myriad of laws available to stop this type of abuse by the credit industry. The first is a contempt action in the bankruptcy court, the second are federal actions under Fair Credit Reporting Act (FCRA) and/or the Fair Debt Collection Practices Act (FDCPA), and the third are state court actions for defamation, unreasonable collection or violation of local fair collection laws.

 

Unfortunately, these laws are not utilized often enough to stop this type of abuse. Two of the reasons for this are ignorance on the part of consumers and residual guilt from the bankruptcy filing. They don't know what their rights are after bankruptcy and because they feel a little guilty over not paying their debts, they are not inclined to take action against the lender whose debt has just been discharged. What they don't know is that their creditors haven't necessarily given up getting paid and sometimes won't quit until forced to do so.

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Mortgage Lenders and Servicers Out of Control?

Mortgage Contracts Allow Creditors to Monitor Credit

Today I reviewed a husband and wife’s credit reports and was shocked to see what their mortgage servicer was doing to them. Over five years ago disaster struck this middle-aged couple, an illness and loss of employment forced them to file bankruptcy. They couldn’t afford their house payments so they surrendered their home in the bankruptcy, moved out, the debt was discharged, so they waited patiently for the lender to foreclose. The property was soon posted for foreclosure but for some unknown reason the foreclosure didn’t go through and hasn’t to this day.

     

Once the debt was discharged the lender no longer had a right to monitor or review the consumer's credit reports since there was no longer a debtor-creditor relationship. About a year later the mortgage servicer contacted the couple several times trying to get them to apply for a modification, do a short sale or give them a deed in lieu of foreclosure. The couple cooperated at first but when a short sale was offered to them it was rejected. The lender knew the couple was not qualified for a modification since they had vacated the property and the debt had been discharged. After the rejection the couple notified the lender in writing that they were fed up and would no longer participate in a short sale or deed in lieu of foreclosure and told them not to contact them in any manner in the future. The letter worked for a couple years and then suddenly the letters, statements, and phone calls began again.

  

When the couple came to us to see what could be done to stop the harassment we pulled their credit reports and were aghast to find out that in 2012 and 2013 the mortgage servicer had pulled their credit reports over 39 times without their consent and without a permissible purpose! It’s hard to believe that some of our leading financial institutions would be a party to such blatant invasions of privacy, but we see it far too often, not only with this servicer but with many others as well. Since the debt had been discharged and was uncollectible, the only conclusions we can draw are that the mortgage servicer doesn’t have the ability to control its automatic collection programs, it has no respect for their customer’s right to privacy, or both. Fortunately, there is a remedy for this flagrant violation of the law, the Fair Credit Reporting Act (FCRA).

 

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Reporting to the Credit Bureaus Is Debt Collection Activity

The courts have held that credit reporting is debt collection activity and this makes sense as the credit bureaus were established for one simply reason, creditors wanted to make sure that the money then lent would be repaid. The credit bureaus have two functions. First to make sure the money their members lend goes to people who are likely to pay it back. Secondly, if the debt isn’t repaid there is an effective way to force the debtor to pay it back. Since having good credit is critical today for home ownership, to rent an apartment, to get a car or finance large consumer items, most people will do just about anything to keep their credit clean. The reality is depriving someone of good credit is a more effective collection technique that dunning letters, harassing phone calls, or even threat of litigation. This is particularly true in Texas where the generous exempt property laws make collecting from the average citizen a hopeless endeavor. So, when creditor report on their customers after they file bankruptcy they must comply with the Fair Credit Reporting Act and it is imperative for consumers who file bankruptcy to make sure their creditors follow the dictates of the FCRA so their credit will come back as quickly as possible

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Don't Let Finances Destroy Your Marriage.

One of the most common refrains I hear from my bankruptcy clients is: "Why did I wait so long to file?" The problem is most people are optimistic and believe they will be able to turn things around. They hate to admit failure and don’t want to be saddled with the stigma of bankruptcy. So, they suffer unbearable stress and pain, year after year, struggling to make ends meet until their situation becomes unbearable. Few marriages can survive this trauma and as a result families are split apart.

 

The fact is, in our credit driven economy, bankruptcy is inevitable for a lot of consumers. A lost job, illness, business failure, or weakness for all the alluring products and services that are dangled out in front of us each day, can leave a consumer deeply in debt with no way out. In this situation, absent a rich uncle or a lottery win, these consumers will eventually have to face bankruptcy. I’m not saying consumers should take filing bankruptcy lightly, but if there is no realistic way to avoid it then sooner is better than later.

 

This was brought home to me early on in my career when I got a call from a widow of a man who had committed suicide because of his business failure. We put the business in chapter 11 and the man's brother turned it around in six months. The man had taken his life needlessly. So, it's always better to face the inevitable and file bankruptcy before the marriage is destroyed and family relationships irrevocably injured.

 

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