Common Mistakes Made by Bankruptcy Filers and Their Attorneys - #8

  8. Laziness can lead to disaster for bankruptcy filers.

We all have a lazy streak in us. It's just human nature. We want to get a job done with the least amount of effort. The attorney, who may have filed hundreds or even thousands of bankruptcies, begins to see them as routine or fitting into a common mold. So he begins to assume facts or take the word of the client rather than confirm them on his own. To do a bankruptcy correctly takes a lot of time and effort. Many times it may seem like a thorough review of every pay stub, bank statement, loan document or tax return is  a waste of time, but often this diligent scrutiny pays off and a serious problem can be dealt with rather than left to chance. 

Clients are lazy too. They hate to dig back through their records, if they even have any, to get the information needed to properly fill out the bankruptcy schedules. They often figure that if they don't have a record of it, nobody else will, so they can forget about it. Unfortunately, it doesn't work that way. The debtor has an obligation to fill out the schedules completely and the burden is on him to find the records if he doesn't have them himself. This means requesting records from the bank, credit card company or the IRS. 

I am amazed at the looks clients give me when I tell them I need a complete list of all their personal property along with a fair assessment of the market value of each. They often just stare at me like I have told them they have to travel to the moon for their 341 meeting. In actuality preparing a personal property inventory shouldn't take more than an hour or two and is a handy thing to have around anyway if you ever have a fire or other casualty loss. 

Another priceless look on a client's face is when you hand him his completed petition and schedules and ask him to review them carefully. Of course, the completed petition, schedules, statement of financial affairs, matrix, and means test can be several inches thick. The reality is most clients won't have the patience to read every question and then review his answer to for accuracy and completeness. This means the attorney must sit with the client and read every question out loud to make sure he understands them and has answered them correctly.

Clients may also be reluctant to ask questions because he really doesn't want to know the answer if it means he will have to do more work or disclose things he'd rather not deal with. He mistakenly believes his ignorance will be an excuse if the facts are later discovered. In this case the attorney must observe the client carefully so he can pick up on the signs of possible omissions that might come back to haunt both of them. 

Attorneys and clients are often tired and frustrated with the complexity of a bankruptcy filing and there is often a persistent urge to ignore possible irregularities or unwanted complexities. These urges must be resisted.

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Consumers Need to Monitor Their Credit After Bankruptcy

It is a common belief that bankruptcy ruins a consumer's credit, but that's not necessarily true. The fresh start consumers are searching for when they file bankruptcy can apply to their credit too. When a consumer files bankruptcy all of his existing debt should be reported as "discharged in bankruptcy" and "balance -0-." If that actually happens, filing bankruptcy gives the consumer a clean slate. Sure, the bankruptcy is a negative, but its impact on the consumer's credit score will diminish in time. This gives the consumer an opportunity to re-establish their credit fairly quickly--often in six months to a year. Sure, a consumer won't have perfect credit with a bankruptcy on his record but his credit score will often be high enough to get car loan, rent an apartment or even refinance a home at market interest rates.

 

Unfortunately, this won't happen automatically. Creditors often do not report the bankruptcy to the credit bureaus, Experian, Transunion, and Equifax, correctly which will prevent the credit score from recovering the way it should. This is why is imperative for consumers to monitor their credit after bankruptcy. This can be done with a credit monitoring service or simply by going to AnnualCreditReport.com and doing it themselves.

For our clients it is part of our service. We help them get copies of the credit reports and then review them to be sure the reporting is correct. If it turns out to be wrong we get it corrected and do our best to make the offending creditors pay our fees. Either way, our client's never pay us a dime out of pocket.

For information on how to obtain your credit reports follow this link or, if you would like our assistance in getting a fresh start on your credit, visit our Website.

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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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Fair Credit Reporting Act Protects Creditors As Much As Consumers

Although you would think the Fair Credit Reporting Act was written to protect consumers, it also has provisions that protect creditors. One specific requirement that insulates creditors, at least under federal law, from liability exposure, is the requirement that consumers dispute erroneous items on their credit reports and give the offending creditor 30 days to confirm or correct the reporting. This may seem fair at first glance, but what if the erroneous reporting was intentional or resulted from gross negligence, which is often the case. Why should creditors be insulated from liability when they cause a consumer to lose an opportunity to buy a house or a car? Why should consumers have to endure the humiliation of a credit denial without recourse when a creditor makes an obvious mistake? Why should creditors get a free pass when they injure a consumer? It doesn’t make sense. There is no doubt the credit industry lobbied long and hard for this provision in the FCRA. Luckily there are state laws that don’t recognize this requirement to dispute erroneous credit before action can be taken against the offending creditor.
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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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