One of the more common questions that is asked by potential clients is whether student loans are dischargable in a bankruptcy. Many people have minimal other debt, but have large student loan balances and are looking to bankruptcy as a potential solution. Unfortunately, student loans are rarely dischargable.
Prior to 1998, student loans could be discharged in a bankruptcy, so long as the student loan debt had been in active pay status for over seven years. However, the law was changed and now a Debtor must show that the student loans are a "hardship". While the term "hardship" may seem like a relatively low standard wherein the Debtor must show that the student loan is an encumbrance to paying other recurring expenses, such as food or a mortgage payment, that is simply not the case. In order to show that an actual hardship is occurring to the extent that student loans would be dischargable, the Debtor must show that the student loan debt is preventing him or her from providing a minimal living standard for the Debtor and his or her dependents. In plain English, the Debtor needs to show that he or she is unable to work or otherwise obtain any income, and that the prospect for obtaining the ability to work or otherwise generate income in the future is non-existent because of a permanent mental or physical disability. Therefore, it is nearly impossible to discharge student loan debt in a bankruptcy. This rule holds true regardless of whether the student loans are public or private.
This does not mean that bankruptcy cannot be a solution to a problem with student loan debt. For example, a Debtor with past due balances can file a Chapter 13 bankruptcy to reorganize his or her debt and provide a mechanism to catch back up. Even if a borrower is not behind on the student loan, a Chapter 13 may lower the monthly payment for the next five (5) years. This may allow the sought after "breathing room".
It should be noted that school tuition debt is dischargable in bankruptcy. Therefore, it is important to know the nature of a school related debt before making a decision as to whether bankruptcy can be a solution to student debt problems.
Seth W. Diamond is an attorney at Laura Margulies & Associates, LLC. in Rockville, Maryland. His firm represents individuals and companies in bankruptcy and litigation matters in Maryland and the District of Columbia. For more information about bankruptcy and the services offered by his firm, please feel free to visit the firm's website. If you would like to schedule an appointment to discuss bankruptcy with an attorney, call 301-816-1600, or click here.
Sunday, March 7, 2010
Thursday, February 11, 2010
Capitol Hill Meeting
On January 27, 2010, I spent the day in Washington, D.C. at Capitol Hill lobbying Congress on bankruptcy matters. I was one of 80 lawyers from NACBA, National Association of Consumer Bankruptcy Attorneys, lobbying that day. I met with representatives from Senator Barbara Mikulski's office, Congressman Chris Van Hollen, Congressman John Sarbanes, Congresswoman Donna Edwards and Congresswoman Eleanor Holmes Norton offices. Each person I met was very receptive and expressed an interest in the subject.
I had never been to Congress before and it was very impressive. The members of Congress I visited are located in three different buildings all connected by underground passageways. The buildings themselves are very old and have very small elevators. The Senate and House of Representative have offices that lie on opposite sides of the Capitol building. There is an underground subway that takes people between the various Congressional offices that used to be available for the public, but now can be only used by the a private individual if he or she is accompanied by a member of a Congressional staff. Because I was on my own, I walked outside from the House of Representatives offices to the Senate offices. The area around the Capitol is cut off from traffic and only approved vehicles are permitted. As a result, there is little traffic. However, there are many policemen present. Some are walking around and others are guarding the sites with heavy machine guns with their hands on the trigger.
The day before we met our representatives, several members of NACBA gave us lessons on lobbying. We were taught the protocols and given hints on how to present our issues most effectively. Although there is no specific bill pending in Congress regarding bankruptcy, there are matters that may come up that could effect our clients. For example, Congress may consider having a Mortgage Borrowers Bill of Rights. This would involve making the mortgage lenders send their borrowers statements each time they charge a fee to their account. In a Chapter 13 case, I have seen mortgage lenders charge borrowers for late fees on payments that were not late, inspection fees, appraisal fees, legal fees and other charges that could be considered "junk fees" that were not disclosed to the borrower until after they paid off their five-year Chapter 13 plan.
Laura J. Margulies is a principal in the firm of Laura Margulies & Associates, LLC. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia.
I had never been to Congress before and it was very impressive. The members of Congress I visited are located in three different buildings all connected by underground passageways. The buildings themselves are very old and have very small elevators. The Senate and House of Representative have offices that lie on opposite sides of the Capitol building. There is an underground subway that takes people between the various Congressional offices that used to be available for the public, but now can be only used by the a private individual if he or she is accompanied by a member of a Congressional staff. Because I was on my own, I walked outside from the House of Representatives offices to the Senate offices. The area around the Capitol is cut off from traffic and only approved vehicles are permitted. As a result, there is little traffic. However, there are many policemen present. Some are walking around and others are guarding the sites with heavy machine guns with their hands on the trigger.
The day before we met our representatives, several members of NACBA gave us lessons on lobbying. We were taught the protocols and given hints on how to present our issues most effectively. Although there is no specific bill pending in Congress regarding bankruptcy, there are matters that may come up that could effect our clients. For example, Congress may consider having a Mortgage Borrowers Bill of Rights. This would involve making the mortgage lenders send their borrowers statements each time they charge a fee to their account. In a Chapter 13 case, I have seen mortgage lenders charge borrowers for late fees on payments that were not late, inspection fees, appraisal fees, legal fees and other charges that could be considered "junk fees" that were not disclosed to the borrower until after they paid off their five-year Chapter 13 plan.
Laura J. Margulies is a principal in the firm of Laura Margulies & Associates, LLC. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia.
Wednesday, January 20, 2010
Be Careful In Choosing A Bankruptcy Attorney
When choosing a bankruptcy attorney, one must be very cautious and make certain that the person is licensed to practice in the federal court and has the experience to properly assist you throughout the case. The recent case of Attorney Grievance Commission of Maryland v. Robaton, (Md. 11/16/09), is a good example of what can go wrong if you hire the wrong lawyer. The first clue of Mr. Robaton’s inadequacy was when he told his client that he needed to file the bankruptcy documents himself, as Robaton was not equipped to file them electronically with the court. He did represent the client at the meeting of creditors, but failed to appear at the confirmation hearing. At the confirmation hearing, the bankruptcy judge discovered that Mr. Robaton’s federal bar membership had expired and as a result, he was not admitted to the federal court and could not represent clients in federal court. Mr. Robaton was sanctioned with an indefinite suspension from the practice of law.
There have been unscrupulous attorneys who have been retained by clients to file bankruptcy on their behalf in order to stop a foreclosure, who only file an emergency petition and never follow up with their clients to file the rest of the paperwork. They also do not appear at the meeting of creditors or other court hearings. These debtors’ cases get dismissed, and then, if they want to file again, they need to open another case, pay another filing fee and attorney fee and are subject to the limitations of the automatic stay.
Because of the economic downturn, bankruptcy filings have increased. Attorneys with little or no experience in the field are filing cases in bankruptcy court. While some of these new attorneys attend educational seminars to learn the law, there are others who are filing cases without the knowledge of all that bankruptcy entails. Some of my clients have come to my office after their case were filed by one of these attorneys because the Trustee in their case advised them that their Schedules, Statement of Financial Affairs and/or Plan were not completed properly. It usually takes me longer to undo the mistakes than complete the papers from scratch. This delays the process for the client and prolongs the case.
Laura J. Margulies is a principal in the firm of Laura Margulies & Associates, LLC. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia.
There have been unscrupulous attorneys who have been retained by clients to file bankruptcy on their behalf in order to stop a foreclosure, who only file an emergency petition and never follow up with their clients to file the rest of the paperwork. They also do not appear at the meeting of creditors or other court hearings. These debtors’ cases get dismissed, and then, if they want to file again, they need to open another case, pay another filing fee and attorney fee and are subject to the limitations of the automatic stay.
Because of the economic downturn, bankruptcy filings have increased. Attorneys with little or no experience in the field are filing cases in bankruptcy court. While some of these new attorneys attend educational seminars to learn the law, there are others who are filing cases without the knowledge of all that bankruptcy entails. Some of my clients have come to my office after their case were filed by one of these attorneys because the Trustee in their case advised them that their Schedules, Statement of Financial Affairs and/or Plan were not completed properly. It usually takes me longer to undo the mistakes than complete the papers from scratch. This delays the process for the client and prolongs the case.
Laura J. Margulies is a principal in the firm of Laura Margulies & Associates, LLC. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia.
Sunday, December 13, 2009
Can bankruptcy lower my car payment?
When most people buy a car, they are "upside down" in the vehicle the second they drive it off the lot. "Upside down" means that the owner owes more for the vehicle than it is worth. When a financial hardship occurs, a large car payment on a vehicle that is worth far less than what is owed can feel like an anchor. Bankruptcy may offer options to assist a debtor out of this situation.
In a Chapter 7 bankruptcy, the owner has two options. He or she could keep the vehicle (and the payment) or the owner could surrender the vehicle with no further obligation on the lien, due to the bankruptcy discharge. This can seem like a hard choice because the Debtor often needs the vehicle as a primary source of transportation. Debtor may feel as though he or she will not qualify to finance a more modest vehicle. However, in today's car market, we are finding that our clients are qualifying for car loans as long as they can show an income source to repay the loan.
In a Chapter 13 bankruptcy there is a third option. The Debtor may choose to have the value of the loan reduced through what is commonly referred to as "cramdown". In order to qualify for cramdown, the car must have either been purchased more than 910 days prior to the bankruptcy filing, or the loan must be over 910 days old. There are other circumstances where cramdown may be allowed, such as certain cases where the vehicle is not a primary vehicle used for household purposes. The attorney for the Debtor will file a Motion to Value Collateral, seeking to reduce the amount owed to the actual value of the vehicle. The interest rate on the loan can also be reduced to a more reasonable interest rate.
In my experience, most of these Motions are resolved between the attorney for the Debtor and the attorney for the lender. However, when these Motions must have a Hearing in front of the Judge, there is sometimes an evidentiary issue because there is a need to have a live person in Court to testify as to the retail value of the vehicle, in order to prove the case. Therefore, I strongly recommend that any person who intends to take advantage of cramdown consider this necessity and make sure there is a qualified person who is willing to come to Court for this purpose before the Motion to Value is filed.
Seth W. Diamond is an attorney at Laura Margulies & Associates, LLC. in Rockville, Maryland. His firm represents individuals and companies in bankruptcy and litigation matters in Maryland and the District of Columbia. For more information about bankruptcy and the services offered by his firm, please feel free to visit the firm's website. If you would like to schedule an appointment to discuss bankruptcy with an attorney, call 301-816-1600, or click here.
Tuesday, November 24, 2009
WARNING-FRAUDULENT DEBT REPAIR ORGANIZATIONS
People who are looking to obtain a loan are often desperate to have a good credit rating so that they can qualify for a lower interest rate. They may fall prey to companies that promise to “clean up” their credit report. These companies generally will charge a fee before any service is performed. Once they get the fee, the company may challenge everything negative that is on the person’s credit report. The reporting agencies have 30 days to investigate the claims. If they do not hear back from the creditors within the 30 days, the challenged items may be removed. However, the creditors will eventually get back to the reporting agencies and when they do, the negative comments will be put back on the report. At that point all the money that was spent to clean up the report will have been wasted.
Credit repair companies are regulated by The Federal Trade Commission (“FTC”). The FTC has issued rules and regulations that provide, among other things, that credit repair companies cannot collect any money from their customers until they have fully performed the services that they have promised to provide the customer. They must also provide each customer with certain disclosures and a enter into a written contract. Below is a copy of some of the regulations that govern credit repair companies.
The FTC has filed suit against several companies for violation the Credit Repair Organization Act. It has recently settled lawsuits it filed against Successful Credit Service Corporation, Lee Harrison Credit Restoration and the companies’ principals on charges that they falsely claimed they could clean up consumers’ credit reports and collected up-front fees for their services in violation of federal law. Successful Credit Service will need to pay $8.3 million and the amount for Lee Harrison is almost $2.5 million.
Clients often ask me if I can repair their credit. They hear advertisements on the radio or see ads on TV and believe the companies that offer these services are credible. I always advise them not to waste their money. Nothing that is accurate on the report can be removed. If there is something on the report that is not accurate, the client can write to the reporting agency him or herself and ask that it be removed.
By: Laura J. Margulies
CREDIT REPAIR ORGANIZATIONS(1)
SEC. 2451. REGULATION OF CREDIT REPAIR ORGANIZATIONS.
Title IV of the Consumer Credit Protection Act (Public Law 90-321, 82 Stat. 164)
SEC. 404. PROHIBITED PRACTICES.(7)
(a) In General.--No person may--
(1) make any statement, or counsel or advise any consumer to make any statement, which is untrue or misleading (or which, upon the exercise of reasonable care, should be known by the credit repair organization, officer, employee, agent, or other person to be untrue or misleading) with respect to any consumer's credit worthiness, credit standing, or credit capacity to-- (A) any consumer reporting agency (as defined in section 603(f) of this Act);(8) or
(B) any person--
(I) who has extended credit to the consumer; or
(ii) to whom the consumer has applied or is applying for an extension of credit;
(2) make any statement, or counsel or advise any consumer to make any statement, the intended effect of which is to alter the consumer's identification to prevent the display of the consumer's credit record, history, or rating for the purpose of concealing adverse information that is accurate and not obsolete to--
(A) any consumer reporting agency;
(B) any person--
(I) who has extended credit to the consumer; or (ii) to whom the consumer has applied or is applying for an extension of credit;
(3) make or use any untrue or misleading representation of the services of the credit repair organization; or
(4) engage, directly or indirectly, in any act, practice, or course of business that constitutes or results in the commission of, or an attempt to commit, a fraud or deception on any person in connection with the offer or sale of the services of the credit repair organization.
(b) Payment in Advance.--No credit repair organization may charge or receive any money or other valuable consideration for the performance of any service which the credit repair organization has agreed to perform for any consumer before such service is fully performed.
SEC. 405. DISCLOSURES.(9)
(a) Disclosure Required.--Any credit repair organization shall provide any consumer with the following written statement before any contract or agreement between the consumer and the credit repair organization is executed:
'Consumer Credit File Rights Under State and Federal Law
You have a right to dispute inaccurate information in your credit report by contacting the credit bureau directly. However, neither you nor any ''credit repair'' company or credit repair organization has the right to have accurate, current, and verifiable information removed from your credit report. The credit bureau must remove accurate, negative information from your report only if it is over 7 years old. Bankruptcy information can be reported for 10 years.
You have a right to obtain a copy of your credit report from a credit bureau. You may be charged a reasonable fee. There is no fee, however, if you have been turned down for credit, employment, insurance, or a rental dwelling because of information in your credit report within the preceding 60 days. The credit bureau must provide someone to help you interpret the information in your credit file. You are entitled to receive a free copy of your credit report if you are unemployed and intend to apply for employment in the next 60 days, if you are a recipient of public welfare assistance, or if you have reason to believe that there is inaccurate information in your credit report due to fraud.
You have a right to sue a credit repair organization that violates the Credit Repair Organization Act. This law prohibits deceptive practices by credit repair organizations.
You have the right to cancel your contract with any credit repair organization for any reason within 3 business days from the date you signed it.
Credit bureaus are required to follow reasonable procedures to ensure that the information they report is accurate. However, mistakes may occur.
You may, on your own, notify a credit bureau in writing that you dispute the accuracy of information in your credit file. The credit bureau must then reinvestigate and modify or remove inaccurate or incomplete information. The credit bureau may not charge any fee for this service. Any pertinent information and copies of all documents you have concerning an error should be given to the credit bureau.
If the credit bureau's reinvestigation does not resolve the dispute to your satisfaction, you may send a brief statement to the credit bureau, to be kept in your file, explaining why you think the record is inaccurate. The credit bureau must include a summary of your statement about disputed information with any report it issues about you.
The Federal Trade Commission regulates credit bureaus and credit repair organizations. For more information contact:
The Public Reference Branch
Federal Trade Commission
Washington, D.C. 20580'.
(b) Separate Statement Requirement.--The written statement required under this section shall be provided as a document which is separate from any written contract or other agreement between the credit repair organization and the consumer or any other written material provided to the consumer.
©) Retention of Compliance Records.--
(1) In general.--The credit repair organization shall maintain a copy of the statement signed by the consumer acknowledging receipt of the statement.
(2) Maintenance for 2 years.--The copy of any consumer's statement shall be maintained in the organization's files for 2 years after the date on which the statement is signed by the consumer.
SEC. 406. CREDIT REPAIR ORGANIZATIONS CONTRACTS.(10)
(a) Written Contracts Required.--No services may be provided by any credit repair organization for any consumer--
(1) unless a written and dated contract (for the purchase of such services) which meets the requirements of subsection
(b) has been signed by the consumer; or
(2) before the end of the 3-business-day period beginning on the date the contract is signed.
(b) Terms and Conditions of Contract.--No contract referred to in subsection
(a) meets the requirements of this subsection unless such contract includes (in writing)--
(1) the terms and conditions of payment, including the total amount of all payments to be made by the consumer to the credit repair organization or to any other person;
(2) a full and detailed description of the services to be performed by the credit repair organization for the consumer, including--
(A) all guarantees of performance; and
(B) an estimate of-- (I) the date by which the performance of the services (to be performed by the credit repair organization or any other person) will be complete; or (ii) the length of the period necessary to perform such services;
(3) the credit repair organization's name and principal business address; and
(4) a conspicuous statement in bold face type, in immediate proximity to the space reserved for the consumer's signature on the contract, which reads as follows: 'You may cancel this contract without penalty or obligation at any time before midnight of the 3rd business day after the date on which you signed the contract. See the attached notice of cancellation form for an explanation of this right.'.
SEC. 407. RIGHT TO CANCEL CONTRACT.(11)
(a) In General. -- Any consumer may cancel any contract with any credit repair organization without penalty or obligation by notifying the credit repair organization of the consumer's intention to do so at any time before midnight of the 3rd business day which begins after the date on which the contract or agreement between the consumer and the credit repair organization is executed or would, but for this subsection, become enforceable against the parties.
(b) Cancellation Form and Other Information. -- Each contract shall be accompanied by a form, in duplicate, which has the heading 'Notice of Cancellation' and contains in bold face type the following statement:
'You may cancel this contract, without any penalty or obligation, at any time before midnight of the 3rd day which begins after the date the contract is signed by you.
To cancel this contract, mail or deliver a signed, dated copy of this cancellation notice, or any other written notice to (name of credit repair organization) at (address of credit repair organization) before midnight on (date)
I hereby cancel this transaction,
( date )
( purchaser's signature ).'.
©) Consumer Copy of Contract Required.--Any consumer who enters into any contract with any credit repair organization shall be given, by the organization--
(1) a copy of the completed contract and the disclosure statement required under section 405; and (2) a copy of any other document the credit repair organization requires the consumer to sign, at the time the contract or the other document is signed.
SEC. 408. NONCOMPLIANCE WITH THIS TITLE.(12)
(a) Consumer Waivers Invalid.--Any waiver by any consumer of any protection provided by or any right of the consumer under this title--
(1) shall be treated as void; and
(2) may not be enforced by any Federal or State court or any other person.
(b) Attempt To Obtain Waiver.--Any attempt by any person to obtain a waiver from any consumer of any protection provided by or any right of the consumer under this title shall be treated as a violation of this title.
©) Contracts Not in Compliance.--Any contract for services which does not comply with the applicable provisions of this title--
(1) shall be treated as void; and
(2) may not be enforced by any Federal or State court or any other person.
SEC. 409. CIVIL LIABILITY.(13)
(a) Liability Established.--Any person who fails to comply with any provision of this title with respect to any other person shall be liable to such person in an amount equal to the sum of the amounts determined under each of the following paragraphs:
(1) Actual damages.--The greater of--
(A) the amount of any actual damage sustained by such person as a result of such failure; or
(B) any amount paid by the person to the credit repair organization.
(2) Punitive damages.--
(A) Individual actions.--In the case of any action by an individual, such additional amount as the court may allow.
(B) Class actions.--In the case of a class action, the sum of--
(I) the aggregate of the amount which the court may allow for each named plaintiff; and
(ii) the aggregate of the amount which the court may allow for each other class member, without regard to any minimum individual recovery.
(3) Attorneys' fees.--In the case of any successful action to enforce any liability under paragraph (1) or (2), the costs of the action, together with reasonable attorneys' fees.
(b) Factors to Be Considered in Awarding Punitive Damages.--In determining the amount of any liability of any credit repair organization under subsection (a)(2), the court shall consider, among other relevant factors--
(1) the frequency and persistence of noncompliance by the credit repair organization;
(2) the nature of the noncompliance;
(3) the extent to which such noncompliance was intentional; and
(4) in the case of any class action, the number of consumers adversely affected.
SEC. 410. ADMINISTRATIVE ENFORCEMENT.(14)
(a) In General.--Compliance with the requirements imposed under this title with respect to credit repair organizations shall be enforced under the Federal Trade Commission Act by the Federal Trade Commission.
(b) Violations of This Title Treated as Violations of Federal Trade Commission Act.--
Laura J. Margulies is a principal in the firm of Laura Margulies & Associates, LLC. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia.
Wednesday, November 11, 2009
The Codebtor Stay
One of the little known facts about bankruptcy is the existence of the "codebtor stay". In most cases, when a bankruptcy is filed a "stay" is put into place. That means most proceedings against a Debtor's property must freeze in time and no further action can be taken against the property, so long as the stay is in effect.
In a Chapter 13 case, this stay will generally extend to codebtors. This is important because it means that a person who files a Chapter 13 may be able to protect co-signers of loans, without the co-signer having to file a bankruptcy. For example, if a person can no longer make payments on a loan that was co-signed for by a relative, but it was understood that the relative will not be the one making payments, that person can protect the co-signer from collection efforts and lawsuits by filing a Chapter 13 bankruptcy. There is no need for the co-signer to file an additional bankruptcy to obtain the benefits of the stay. The stay will be in effect so long as the case is open. However, the protection will stop if the Court grants relief from the stay, or there is a balance remaining after the Debtor completes the Plan.
There are two basic requirements for the co-debtor stay to be in effect. First, it must be a "consumer debt", meaning car payments, mortgage payments, credit cards, etc. Second, the co-signer must be an individual and not a corporate entity.
We have had many cases where a client comes to us because they have defaulted on a loan and the lender is seeking recovery against a co-signer, who only co-signed in an effort to assist the client. This is a very unfair situation because the co-signer was simply trying to help somebody and never thought he or she would be subject to collection efforts or, worse yet, a lawsuit. Employing the co-debtor stay is a good way to protect people who were just trying to lend a hand.
Seth W. Diamond is an attorney at Laura Margulies & Associates, LLC. in Rockville, Maryland. His firm represents individuals and companies in bankruptcy and litigation matters in Maryland and the District of Columbia. For more information about bankruptcy and the services offered by his firm, please feel free to visit the firm's website. If you would like to schedule an appointment to discuss bankruptcy with an attorney, call 301-816-1600, or click here.
In a Chapter 13 case, this stay will generally extend to codebtors. This is important because it means that a person who files a Chapter 13 may be able to protect co-signers of loans, without the co-signer having to file a bankruptcy. For example, if a person can no longer make payments on a loan that was co-signed for by a relative, but it was understood that the relative will not be the one making payments, that person can protect the co-signer from collection efforts and lawsuits by filing a Chapter 13 bankruptcy. There is no need for the co-signer to file an additional bankruptcy to obtain the benefits of the stay. The stay will be in effect so long as the case is open. However, the protection will stop if the Court grants relief from the stay, or there is a balance remaining after the Debtor completes the Plan.
There are two basic requirements for the co-debtor stay to be in effect. First, it must be a "consumer debt", meaning car payments, mortgage payments, credit cards, etc. Second, the co-signer must be an individual and not a corporate entity.
We have had many cases where a client comes to us because they have defaulted on a loan and the lender is seeking recovery against a co-signer, who only co-signed in an effort to assist the client. This is a very unfair situation because the co-signer was simply trying to help somebody and never thought he or she would be subject to collection efforts or, worse yet, a lawsuit. Employing the co-debtor stay is a good way to protect people who were just trying to lend a hand.
Seth W. Diamond is an attorney at Laura Margulies & Associates, LLC. in Rockville, Maryland. His firm represents individuals and companies in bankruptcy and litigation matters in Maryland and the District of Columbia. For more information about bankruptcy and the services offered by his firm, please feel free to visit the firm's website. If you would like to schedule an appointment to discuss bankruptcy with an attorney, call 301-816-1600, or click here.
Wednesday, November 4, 2009
Mortgage Lender Sanctioned for Charging Excessive Unexplained Fees
Once a debtor files for Chapter 13 bankruptcy, the mortgage lender must adjust its records so that the next payment due after the filing of the case is applied to that month’s payment and not to any previous month. All the pre-petition arrears that the debtor may owe the mortgage lender are being paid by the Chapter 13 Trustee through the plan. In order to receive payment by the Trustee, the lender must file a proof of claim in the debtor’s bankruptcy case. The claim will advise the court of the balance due on the loan as well as the amount of pre-petition arrears.
In the recent case of Fleming v. National City Mortgage, (In re Fleming), from the Bankruptcy Court in the Southern District of Ohio, the mortgage lender had filed a proof of claim in the debtors’ case. Two years later the debtors attempted to refinance their loan but were unable to do so because the payoff figure given to them was $7,688 higher than the amount shown on the lender’s proof of claim. This was despite the fact that they were current on their mortgage payments. A year later they again attempted to refinance. This time the payoff figure was $8,653 higher than the amount shown on its proof of claim. The largest single item on the payoff figure was a charge for $21,420 in foreclosure costs. The proof of claim indicated an amount for foreclosure costs of less than $3,000. The debtors filed an adversary proceeding against the lender to determine the exact amount of what was owed on the loan.
Instead of answering the question of what was owed, the lender engaged in litigation and discovery tactics that increased the costs to obtain the answers. The court found that the debtors would never be able to match the defendant’s financial resources and would inevitably have to abandon the cause and their home. The court entered a default judgment against the lender as the “only viable recourse to avoid such an unjust result.” The court then ordered the lender to amend its records so that the amount due conforms with the Chapter 13 Trustee’s records, that it correct the debtors’ credit reports and also pay the debtors their attorneys fees and costs incurred in pursing the case.
I am involved in litigation against mortgage lenders in the bankruptcy court in my state for similar problems. The mortgage lenders’ tactics are the same in my cases as they were in the Ohio case. Getting the lenders to answer discovery requests in a straightforward manner has been almost impossible. It has taken multiple hearings in one of my cases for the lender to answer basic questions. I only hope the judges in my state will be as bold as the judge in Ohio.
Laura J. Margulies is a principal in the firm of Laura Margulies & Associates, LLC. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia.
In the recent case of Fleming v. National City Mortgage, (In re Fleming), from the Bankruptcy Court in the Southern District of Ohio, the mortgage lender had filed a proof of claim in the debtors’ case. Two years later the debtors attempted to refinance their loan but were unable to do so because the payoff figure given to them was $7,688 higher than the amount shown on the lender’s proof of claim. This was despite the fact that they were current on their mortgage payments. A year later they again attempted to refinance. This time the payoff figure was $8,653 higher than the amount shown on its proof of claim. The largest single item on the payoff figure was a charge for $21,420 in foreclosure costs. The proof of claim indicated an amount for foreclosure costs of less than $3,000. The debtors filed an adversary proceeding against the lender to determine the exact amount of what was owed on the loan.
Instead of answering the question of what was owed, the lender engaged in litigation and discovery tactics that increased the costs to obtain the answers. The court found that the debtors would never be able to match the defendant’s financial resources and would inevitably have to abandon the cause and their home. The court entered a default judgment against the lender as the “only viable recourse to avoid such an unjust result.” The court then ordered the lender to amend its records so that the amount due conforms with the Chapter 13 Trustee’s records, that it correct the debtors’ credit reports and also pay the debtors their attorneys fees and costs incurred in pursing the case.
I am involved in litigation against mortgage lenders in the bankruptcy court in my state for similar problems. The mortgage lenders’ tactics are the same in my cases as they were in the Ohio case. Getting the lenders to answer discovery requests in a straightforward manner has been almost impossible. It has taken multiple hearings in one of my cases for the lender to answer basic questions. I only hope the judges in my state will be as bold as the judge in Ohio.
Laura J. Margulies is a principal in the firm of Laura Margulies & Associates, LLC. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia.
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