Feeling Guilty About Filing Bankruptcy? Don't!

Bankruptcy Filers Are Often Victims of Our Credit Driven Economy 

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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Does Bankruptcy Ruin Your Credit

DOES BANKRUPTCY RUIN YOUR CREDIT?

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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Some Creditors Can't Stop Illegally Pulling 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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Proving Mental Anguish Damages

If a bankruptcy filer prevails in a claim under the Fair Credit Reporting Act or in an adversary proceeding for a violation of the automatic stay or discharge injunction the most likely damages sought will be for mental anguish. After all a debtor expects to get a fresh start from their bankruptcy and when creditors continue to harass them after they have been granted a discharge, it is quite traumatic. So, it is important for bankruptcy filers, who are victims of abusive creditors, to keep a diary of the mental anguish they suffer on account of the unlawful actions of these creditors. This will allow the victim to testify in deposition or at trial fully and completely as to the suffering they have endured. And simply being upset or angry won’t cut it. To prove serious mental anguish damages a plaintiff must show physical symptoms like headache, insomnia, depression, nervousness, marital strife, or lack of concentration that effects their job or enjoyment of life. It isn’t necessary to have expert medical testimony to prove mental anguish but to convince a judge or jury that they have suffered serious mental anguish will require convincing testimony, so the more details, including dates, times and circumstances that can be provided the better.

 

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Creditors Sometimes Assign Discharged Debt to A Collection Agency

Recently I worked on a petition against a Colorado collection agency that called our client six times afrer receiving the account from the orignal creditor who was listed in their chapter 13 bankruptcy.  This is a blatant violation of the automatic stay and/or discharge injjunction. In this instance the case was later converted to chapter 7 so it was a discharge violation. Then, to make matters worse, the collection agency assigns the case to an attorney for collection, yet another violation.

How does something like this happen? Is it intentional or simply negligence? The excuse we almost always get from collection agencies is that they had no knowledge of the bankruptcy because the creditor who sold or assigned the account didn't tell them about it. Unfortunately for the collection agencies, ignorance of the bankruptcy is no excuse. When they try to collect a debt that is no longer collectable they violate the Texas Unfair Debt Collection Act and if they report it to a credit bureau they can be guilty of liable as well.. It is irrelevant whether they knew about the bankruptcy or not.

What is fairly clear is that when the original creditor gets the conversion and discharge notices it will not pass on those notices to the current holder of the debt. I think this is a matter of logistics. The original creditors simply have too many accounts that have been assigned for collection or sold and have no mechanism in place to forward notices from the bankruptcy court.

So, the consumer loses and has to suffer through the mental anguish that always results from taking nasty phone calls and/or receiving collection letters from attorneys long after the debt is discharged.  Lucky there is a remedy to the consumer.

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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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Reporting to Credit Bureaus is Debt Colection 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 are engaging in debt collection activity and must comply not only with the discharge injunction but with the Fair Credit Reporting Act. This makes it wise 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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The Bankruptcy Court Won't Enforce Your Discharge Unless You Ask It To.

One of the important benefits of filing bankruptcy is the automatic stay that immediately stops creditors from trying to collect debts included in the bankruptcy. This is a court order that prohibits creditors from calling the debtor, sending out statements or demand letters, filing suit or taking any other action to collect the debt that was owed on the date of filing.

After the case has been administered the automatic stay is replaced by the discharge injunction which is another court order that prohibits creditors from trying to collect the discharged debt. This means once a debt is discharged creditors supposedly cannot take any action to try to collect that debt.

Despite these injunctions, creditors may still try to collect the debt in violation of the court's order. If that happens, a debtor may have a private cause of action in the bankruptcy court against the offending creditor. But the bankruptcy court will not enforce the stay or discharge unless the debtor asks it to by way of an adversary proceeding. So, to protect their rights a debtor should hire legal counsel as soon as they discover there has been a violation.

In the meantime, all statements, collection letters,  credit reports, or emails should be saved and telephone calls documented to be used as evidence later on. Unfortunately, many bankruptcy attorneys don't handle anything but the bankruptcy filing itself. That is why we do that type of work almost exclusively. We want to make sure every bankruptcy filer gets the fresh start they were promised.

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Why Don't Lenders Foreclose In a Timely Manner?

One of the great mysteries of the mortgage industry is why lenders take so long to foreclose when a debt is discharged in bankruptcy. You would think the moment the automatic stay was lifted the lender would want to dispose of its collateral as quickly as possible and move on, but the reality is that lenders often take months if not years to follow through with a foreclosure.

Bankruptcy attorneys speculate a lot about the cause of such delays and some of the most popular theories are (1) inability to deliver good title due to title problems caused by the frequent buying and selling mortgage loans, (2) investors not wanting to take a loss when the market value of the collateral is less than the balance on the loan, (3) there are more delinquent loans than the lenders and servers can effectively handle, (4) they hope that the mortgagor can be induced to cure the default and reaffirm the obligation, and/or (5) they are somehow profiting by not foreclosing.

I have ran into several situations where the lender could not prove they owned a loan. In fact our firm is involved in a case like that right now, but even after a two year battle in district court to validate the lender’s title to the loan, a year has gone by and still no foreclosure. The idea that a bad real estate market made lenders reluctant to foreclose seems logical on its face, but now that the real estate market has turned around in Texas I still don’t see lenders speeding up their foreclosures. It is true that the number of delinquent home loans are at record levels and that the lenders and servicers are just overwhelmed. This seems like a reasonable explanation except that in the three years since the real estate market cratered, you would think the major lenders and servicers would have got their act together and start moving their foreclosures along faster, but I haven’t seen that happening. That leaves us with the final two possibilities which I believe explain what is happening.

First, lenders and servicers are delaying foreclosure to give them more time to lure or trick their customers in bankruptcy into paying the discharged debt. And, secondly, the servicers are delaying because they are somehow making money by holding onto the property. But, whatever the reason, these delays in foreclosing are causing grievous injury to debtors whose debts have been discharged and sorely want to get the fresh start they were promised, but can’t do it with the liability exposure of a vacant house still in their name hanging over their heads.  

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FCRA Not Always Consumer Friendly

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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