Creditors Confused by Chapter 13 and Consumers Suffer

Creditors have a difficult time properly reporting a chapter 7 bankruptcy to the credit bureaus. Whether it’s anger or resentment over having to write off the debt, ignorance or incompetence is anybody’s guess. The proper reporting of a discharged debt is to report the account as “closed,” the balance at “zero” and some mention of the bankruptcy. Sometimes it is shown as “included in bankruptcy” or “chapter 7 bankruptcy.” Rarely do creditors state that the debt has been “discharged in bankruptcy” even though that would be the most accurate way to report it. The fact is creditors are vindictive and if there is anyway to legally hurt a consumer coming out of bankruptcy, they’ll do it. So, it is important for consumers to review their credit reports three or four months after discharge to be sure the chapter 7 debt has been properly reported.

It is even worse with a Chapter 13. A lot of creditors don’t understand how a chapter 13 works and they tend to either treat it like a Chapter 7 or they just freeze the account and quit reporting it because they know they will eventually be paid all or a portion of their debt. The proper way to report the debt is to show the account as “Open,”state that it is included in a “Chapter 13 bankruptcy and report any changes that occur if payments are made by the Chapter 13 Trustee. But, rarely do creditors properly report a chapter 13 bankruptcy to a credit bureau and when the discharge order is finally signed three to five years later, its often ignored.

There is a lot of chapter 13 debt that is sold to debt buyers and by the time the debt is discharged it may have changed hands several times and the odds of the holder of the debt getting notice of the discharge is slim. So, long after the bankruptcy was filed it is common for consumers to suddenly get phone calls and letters trying to collect a discharged debt. Or, the consumer will have credit denied and discover it was because debts that were discharged in bankruptcy have suddenly appeared on his credit report.

Our firm offers a free discharge compliance review including an examination of your credit reports. For more information check out our website at http://mancheelawfirm.com/. You have nothing to lose but your bad credit.

Creditors Often Fail to Pass on Bankruptcy Notices to Collection Agencies

Today I'm working 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.

Can Bad Credit Be A Good Thing?

Excerpt from Go Broke, Die Rich 

From the day you are born you are indoctrinated on how important credit is to everyone. You're told over and over again that good credit is the secret to financial success and happiness in life. You're barraged with advertisements for all the expensive luxury items you can buy right now on credit and nearly everyone takes the bait.

You get a house you can't afford, a luxury car you don't need, and run up a half-dozen credit cards to the hilt. Before you know it you're a slave to the system. You’ve stepped into the credit trap. Most of your hard-earned money is going to banks and mortgage companies in interest payments. You pay and pay and pay, yet the balance you owe never goes down. For many the joy is soon gone—happiness is replaced with constant worry and depression.

Yes, from the day we are born, each and every one of us have been carefully manipulated into becoming slaves. That’s right, carefully programmed robots who go to work everyday and then religiously send seventy to eighty percent of our wealth to our masters, the big corporate giants of Wall Street and the government bureaucrats in Washington.

Think about it. From the day you are born you're told that good credit is your ticket to the American dream. You can have all the luxuries and modern conveniences of life on credit. Why wait, they say, when you can have it right now.

Millions of Americans, including myself, have been victimized by this credit conspiracy. The lure of easy money is so tantalizing that few can resist it. I started my own law practice with a two-thousand dollar cash advance on my American Express card. I tried to get conventional financing but had no collateral, so I was summarily turned down. Over the years I continued to finance my small business with high-interest credit card debt that the average entrepreneur would have no prayer of ever paying off.

A lot of small business are started and financed with credit cards each year this same way. A few will be successful and pay off this high-cost debt, but most will eventually perish because of it. Eventually the burden of the minimum monthly payments will get so heavy that the business will collapse.

Credit cards are very handy and useful for travel and to make it easy to keep track of business expenses. But they shouldn’t be used for financing your business or covering your negative cash flow at home. If you are using credit cards for this purpose you need to stop immediately and take a close look at the business. Find out what is wrong and correct it, but don’t keep digging a hole that will eventually swallow you and your small business.

So, now you’ve been warned, but will you do anything about it? Probably not. Credit cards are addictive just like cigarettes and booze. They provide immediate pleasure and allow you to fulfill your dreams. In your mind you’ve got everything under control. You tell yourself that you can stop using your credit cards whenever you want. So, why don’t you?

What makes credit cards so dangerous is that, unlike booze, there is no immediate hangover to make you regret you your actions. The consequences of your indiscretions with your credit card are deferred for months or years. For awhile you can manage to make the minimum payments without too much struggle, but eventually all the minimum payments add up and you find yourself overwhelmed.

The use of credit cards defies logic. Why would anyone pay 29% interest, late fees, over the limit penalties, and an annual membership fee, when the bank won’t pay you 2% if you buy a CD. It’s ludicrous. But when I point it out to clients they just shrug. It’s like their minds don’t compute when it comes to credit cards. Armed with a pocket full of plastic gods they become mindless zombies who have no idea what they are doing.

I could understand it if they were desperate. Many of my bankruptcy clients over the years have turned to pawn loans, payday loans, title loans, or other legalized loan shark operations. Without giving it a second thought sign a note that provides or sometimes over 900% interest. What’s ridiculous is that the Truth-In-Lending disclosure is right there staring them in the face and they still sign on the dotted line. When you absolutely have to have money people will do whatever it takes no matter what the consequences are to get it.

But people with credit cards half the time don’t need what they are buying. They are not desperate people who are buying food, clothing or gasoline to get to work. They are buying gifts they can’t afford to give, luxury items they could do without or booze and cigarettes that will eventually kill them. Nor are these people stupid. They are just as often college graduates as high school dropouts. The common threat among them is materialism and a lack of common sense. They like fancy cars, good food, designer clothing, the latest in technology and large well furnished homes. If they can’t have all these things they are unhappy.

So, what is the answer to the credit card addict? Fortunately, it’s an addiction that can be easily ended. All you have to do is quit paying the credit cards. When you do this they soon will lose their magic and you will never buy something you don’t need ever again. Even better your credit score will crater so you won’t be able to get new credit cards to replace the ones you have lost.

Of course, the downside of this solution is having to deal with all the angry collection agents who will start hounding you for payments on the now dead cards. They will threaten you will all kinds of horrible things like lawsuits, liens, garnishments, attachments, and even criminal prosecution. Of course, they can’t legally do any of this, but they will do their best to make you believe it will happen very soon if you don’t send them money. It may become so bad you will have to file bankruptcy just to get some peace, but bankruptcy is the worst thing for the credit addict.

That’s right because as long as your credit is bad you will have no choice but to go straight. But once you file bankruptcy your credit will rebound quicker than you’d ever thought possible and then you’ll be right back where you started with a pocket full of plastic gods.

So, rather than going through all of that, the better move for the credit addict is to simply cut up all the credit cards and pay them off as quickly as possible. This will be painful and require a lot of sacrifice, but it will be well worth it as it will free you from the financial shackles that have bound you from the moment you stepped into the credit trap.

Lucky for me, attorneys often find themselves in a position to make the big score. For me it was a personal injury case that netted enough to pay off my credit card debt and the loan on my home, but it was only after struggling for twenty years that I finally escaped the credit trap and became debt free. For most entrepreneurs bankruptcy or death will be their only way out.

The above article is from my book, Go Broke, Die Rich, Turning Around the Troubled Small Business. For an entertaining perspective on credit cards read my novel Plastic Gods. And be sure and visit my website or follow me on Facebook.

Turning Around the Troubled Small Business

Over the years I have presided over the births and deaths of hundreds of small businesses. As an attorney, I have watched many of them grow, mature, and thrive, but I have seen many more stumble, fall, and die.

It is painful to see an entrepreneur, once so full of hope and excitement, suddenly desperate and defeated. I am saddened when I drive down the street and see an empty storefront, as I know someone has suffered an immeasurable loss, and endured extraordinary grief and pain trying to save their piece of the American dream.

There are few experiences in life as painful and brutal as the failure of a small business. For a small business conceived and nurtured by its owner is like a living, breathing child. Its loss is no less traumatic than losing a loved one. After all, a business owner spends most of his waking hours at work. He will invariably become very attached to it, particularly if it is the business he loves and the one he has always wanted to pursue.

Inevitably the business becomes an extension of the owner himself. When it is ailing, he is ailing as well from stress and worry over whatever problems the business is facing. When the business is thriving, he will be happy, confident, and enjoying life to the fullest. If the business fails, the owner will feel like a failure and suffer deep emotional scars that will greatly impact his personal life for years to come.

With business failure often comes marital strife and divorce. I don't claim to be a psychologist, but every day I see husbands and wives torn apart because one blames the other for a business failure. Or, if they don't blame each other, they are often so tired and battered from battling with creditors that they give up on the marriage. The sight of each other only brings back bad memories. So too often the unhappy couple opts for divorce. If the marriage does survive, it will never be the same.

Having watched my small business clients closely over the years and having operated my own law practice, I have come to some conclusions about why some businesses succeed while others fail. The sad fact is that many of the businesses I have seen fail could have been successful. The good news is that it's not too late for those still in business, if they will wake up and take control of their destiny.

In my new book, Go Broke, Die Rich, Turning Around the Troubled Small Business, ISBN 978-1-929976-9-59 http://tinyurl.com/7jv86fm, I explain these common causes of small business failure, how to identify them, and what can be done to defend the business while it is being turned around.

Don't get me wrong. This book doesn't contain any magical formula for success. Turning a business around requires hard work, discipline, and sacrifice. But what I hope this book will do is give the reader insight into why so many small businesses fail, and provide solutions and strategies that can help turn around an ailing business.

This book is intentionally written in a simple, informal style for the average business owner rather than for college graduates or MBAs. I've found that the cause of business failure isn't just a lack of education, experience, or business training, but just as often a lack of common sense. Often small business owners, or "entrepreneurs"s as I call them in the book, do things they know are stupid and reckless. Why? Because entrepreneurs by definition are risk-takers. They like to experiment and do brash things that may only have a slim chance of success. They are the eternal optimist and often have unrealistic expectations.

Although my major at UCLA back in the late 60s was political science, fortunately, I did minor in economics. The business courses I took were helpful to me when I started in law practice in 1976. More importantly, however, was the training I received at Metropolitan Life Insurance Company. While I was in law school I had to support my wife and four children, so I worked full time selling life insurance. This wasn't a glamorous job, but I did learn much about financial and business planning—something that had scarcely been mentioned in high school or college.

Go Broke, Die Rich is not intended to be a manual or reference book. It is my hope that it will be interesting, entertaining, and informative. I fear too many self-help books get stuck on a shelf and never read cover-to-cover because they are too much like a textbook. This book is about adversity and how to overcome it. Its full of practical advice and ideas on how to deal with just about every adversity an entrepreneur might face.

Go Broke, Die Rich is full of real life events that should be of interest to any small business owner. Obviously, the names and locations have been changed and the facts altered enough such that no confidences will be breached. Hopefully, the reader will be able to identify with the characters in these stories and understand the problems they face. The reader will, no doubt, be facing similar problems and can learn from the mistakes made by the business owners in these stories.

As needed, I will provide legal and business advice but it will not be technical or hard to understand. It is not my intention to burden the reader with the complexities of the law, but simply to give them ideas and alternatives that will provide direction and avenues to take toward solving the problems encountered.

I consider every business failure a tragedy and, when it is one of my clients who goes down, it is even more troubling. I often lie awake at night wondering if there was something else I could have done to save a client's business and spare him and his family the dire consequences of a business failure. My only hope is that this book will help other entrepreneurs save their small businesses.

Visit my websites at http://williammanchee.com and http://mancheelaw.com.

Are Mortgage Company's Stealing Your Money?

Just finished drafting a lawsuit today for woman, I'll call her Mary Lou. She's a single woman who lost one of her two jobs she needed to make ends meet and got behind on her mortgage. She contacted her mortgage company and asked if they could do a modification. They said "no problem" we'll just roll the past due payments into the modified loan. So, she filled out the loan applicaton and sent them 27 pages of documents. A few days later she confirmed with them that they'd received the documents. Nothing happened for 45 days so she contacted them again and ended up talking to their India office and was told they couldn't find the application. She faxed it again and confirmed with them the next day that they got it. They told her it would take 30 more days to process. In the meantime she's getting farther behind on her mortgage.

Forty five days later she contacts them and she gets the same story---we can't find your paperwork. So, she faxes them 37 pages again. This time they say it will take 60 days to process. She confirms they got the fax and waits. A month later she contacts them again and can't get through to a person so she leaves several messages. Several weeks later she finally gets a later acknowledging her request for a modification and assuring her that it will be processed expeditiously.

There weeks later she tries to contact them again and they direct her to another agent in India. After many attempts she finally talks to a woman and is told they need more documentation. The client has trouble finding these documents but manages to send them in two weeks later. In the meantime she receives an acelleration letter and notice of foreclosure from a lawfirm. She tries to call the mortgage servicer to see what's up but only gets messages. A few weeks later she breathes a sigh of relief when she gets a letter from the mortgaging servicer assuring her everything is okay and they won't foreclose.

On the first Tuesday of the following month the mortage company forecloses and the home she's lived in for 23 years is sold for $50,000 more than the note. Mary Lou doesn't find out about it until a man walks up with eviction papers---she has 3 days to vacate!

Devastated, Mary Lou moves out to an apartment and has to trash two thirds of her belongings because they won't fit into her small apartment. She's broke, depressed, angry, humilitated and can't focus on anything. Her life has been ruined and she doesn't feel like even getting off the sofa.

What she doesn't realize, in addition to all the horrible injustices that have been inflicted on her, is that she's just been ripped off for $50,000. The lender had a duty to write her a check for the money they received from the foreclosure in excess of the loan principle plus the cost of foreclosure, but instead someone pocketed her money!

I wish this were an uncommon experience, but it happens every day, and it's not always simply gross incompetence, sometimes, if not many times,it's intentional.

Mortgage Companies Circumventing Bankruptcy Laws and Forcing Debtors into Foreclosure

This week we discovered a new and ingenious way that mortgage lenders are circumventing the bankruptcy laws and forcing Chapter 13 debtors into foreclosure. Typically when a consumer gets behind on their mortgage and are faced with foreclosure they can file Chapter 13 bankruptcy. This allows them to cure the default under the mortgage, cure property tax defaults, and pay out what is delinquent over three to five years.

Mortgage companies don't like this obviously because they'd prefer to foreclosure and take the consumers equity in the property, or, if they don't have any equity, to liquidate the collateral and get their money into a performing loan. Additionally, there's a lot of extra bookkeeping, legal expenses involved in monitoring a case in bankruptcy, not to mention the danger of violating the automatic stay and getting sanctioned.

This week we noticed two different mortgage companies use the same trick to force our chapter 13 clients into a default situation. What they did was to pay the delinquent property taxes that were included in the debtor's chapter 13 plan. Then they notified the debtor that there was an escrow shortage in the account so their monthly payments had to be increased. For one of our clients their mortgage payment would have doubled for the next year until the delinquent property taxes were paid.

The chapter 13 trustee involved fell right into the trap set by the mortgage company. When they received a letter from the taxing authority that the taxes had been paid, they quit making the monthly payments provided in the plan. We almost fell for the scam too thinking there was nothing we could do about it, until we realized the mortgage companies had violated the confirmation order by forcing the debtor to pay the property taxes prematurely and causing a post petition default of their deed of trust.

If the debtor can't pay the increased mortgage payment then, of course, the mortgage company will file a motion to lift the automatic stay or notice the debtor for default, if an agreed order is in effect. Eventually the debtor may find his house up for foreclosure again, despite the protections of Chapter 13 and his diligent compliance with the terms of his plan.

Hopefully, when we bring this to the courts' attention the judges will put a stop to this practice.

Don't Throw Away The Evidence

One of the big problems consumer attorneys face when they try to make creditors obey the bankruptcy discharge or properly report a consumer’s credit after bankruptcy, is that much of the evidence has disappeared. Unfortunately, to prevail in a lawsuit you have to produce credible evidence to the court or jury and without it a remedy that should be available is not. This is tragic as creditors often get away with flagrant violations of the law!

Persons who have filed bankruptcy should be aware that creditors are not allowed to contact them once the case is filed. If contact does occur it should documented carefully and reported to your bankruptcy attorney. We often are called upon to file adversary proceedings to stop creditors from violating the automatic stay or the discharge injunction. In order to prevail in these actions we must prove the creditor contacted the debtor in an effort to collect the debt. So, it’s important that letters received are kept, telephone calls recorded or, at least the pertinent information about the call written down. So, often when a client calls about a violation they can’t tell me who they talked to, the date and time of the call, or what exactly was said.

It’s even worse in credit reporting cases. To prove damages here we need specific information about damages such as credit denials, increased interest rates charged, as well as documentation of mental distress suffered on account of the creditor’s illegal behavior. So often we have to settle a case for far less than it’s worth simply because a consumer has thrown away critical evidence or neglected to keep track of all the damages that has been suffered on account of the creditor’s malicious conduct.

Here are some simple things that every consumer who files bankruptcy should do once their case is filed:

1. Keep all correspondence from creditors received after bankruptcy
2. Record all telephone calls from creditors after the case is filed. Simple recording equipment can be purchased at Radio Shack.
3. If creditors call after the case is filed get their name, name of their company, the identity of the creditor they represent, how much they say is due, and the reason for the call. Note the date and time of the call. Don’t argue with them or hang up on them until you have this information. Once you have this information tell them you’ve filed bankruptcy and give them your attorney’s name.
4. If a creditor calls a second time get all this information again so you can testify with confidence if the need arises. Also, note anything they say that is untrue, argumentative, slanderous, threatening, rude, or profane.
5. If you apply for credit and are denied, keep the denial letters that come in the mail. Also, try to get the creditor to tell you specifically what caused them to deny you credit. Often it will be the erroneous information on your credit report. Ask them what would have to be removed from your credit report for them to extend you the credit you requested.
6. If you receive offers of credit upon favorable terms but when you apply they want to charge you more interest or give you less favorable terms, keep the documentation of the original offer so you can prove what you lost when the original deal was lost.
7. Often consumers suffer extreme mental anguish, embarrassment, fear and humiliation when credit is denied. This can result in insomnia, headache, muscle ache, high blood pressure and a wide variety of other ailments. To get mental anguish damages, however, requires proof. Documentary evidence from doctors, medical providers, and pharmacist is needed if the consumer seeks medical attention. Even more critical, however, is a daily diary of all of the emotions, anxieties and physical symptoms suffered each day from the date the creditor's misconduct occurs. If a consumer has this information at his fingertips it will provide him much confidence and add credibility when he tries to explain how he has been damaged by the creditors violation of the law.

Creditors are often angry when they have to write off a debt and often try to take advantage of debtors who may not understand the law. Understand your rights and make your ex-creditors obey the law. If you need help contact us.