Federal Trade Commission reveals the truth about debt buyers- debtors be savvy and demand proof

February 4, 2013 By

A large portion of past due debts are bought by professional “debt buyers” who then attempt to collect the bad debt. The Federal Trade Commission just issued a 162 page report after studying this practice for over 3 years. The report is eye-opening.

The FTC notes that it “receives more consumer complaints about debt collectors, including debt buyers, than about any other single industry. Many of these complaints appear to have their origins in the quantity and quality of information that collectors have about debts.”

The FTC found that debt buyers pay an average of 4 percent of face value, and for older debts, the cost is “significantly lower”. The debt is still fully due, but the buyer’s have a large profit percentage. This reflects, we believe, the inherent riskiness of what is being purchased.

Debt buyers will commonly buy these debts in bulk on an “AS IS” basis. Buyers typically received the basic information required for notices required under federal law, such as the amount of the debt. They also commonly had other information which has to be requested by the debtor by disputing the debt in writing.  This information, the FTC found “ included the name of the original creditor, the original creditor’s account number, the debtor’s social security number, the date of last payment, and the date of charge-off.”

What is revealing is what Debt Buyers did not receive upon buying the debt. This includes the history of previous disputes on the account  or information that would allow them to break down the outstanding balance into principal, interest, and fees.  Most of the time, the FTC found, Debt Buyers received “few underlying documents about debts” such as account statements, loan agreements or other documents showing the terms and conditions of credit. Yet these are the very kinds of proof that a court of law is likely to require if suit is filed.

The FTC found that some debt that was purchased was beyond the statute of limitations, meaning that a suit on the claim could be readily dismissed as time barred, IF the defendant asked.

These findings square with our experience. It usually pays if there is a basis for question to demand the underlying documents and proof of the debt. The results may not be immediate. We have found the same disputed debt being passed from collection agency to collection agency. But many times, the original signed agreements or purchase or charge records simply do not exist.

Of course, no one should ignore collection efforts. It just pays to be savvy and demand proof when appropriate.

 



Filed Under: Credit Issues, Debt Collector Abuse, Lawsuits, Uncategorized

NJ Court rules that failure to properly list a judgment holder in bankruptcy prevents later removal of lien from real estate

October 4, 2012 By

We have always told our bankruptcy clients how important it is to  accurately listing every possible creditor. The New Jersey Courts have reminded us again why that is so.

First, a common misconception. People think that if they have gotten a bankruptcy discharge, all judgments or liens against their home are removed. This is not so. Mortgages and judgments, and certain other liens cannot be collected post-discharge against the debtor personally, but they stay attached to real estate. This usually comes up when the debtor in bankruptcy wants to sell or refinance a home. The judgments are still there, clouding title to the home. They can be removed, but extra steps are involved, either a motion during the bankruptcy case, or a motion in the New Jersey courts under its “cancellation of judgments” statute,  filed a year or more after the bankruptcy discharge. This is usually pretty straightforward, assuming the attorney filing the motion knows what they are doing and the proper steps were taken in the bankruptcy case.

In Gaskill v Citi Mortgage Inc., (Appellate Division Sept. 28, 2012) however, the Gaskills could not get that relief to remove a judgment Citi had  against them. The reason? In their bankruptcy they had never listed Citi as a creditor but instead had listed as the “creditor” only the collection law firm that had represented Citi in obtaining the judgment. Because of this, the Appellate Division held tht Citi itself never got information sufficient in time to protect its rights in the bankruptcy;  its first notice of the bankruptcy, according to the opinion, came after the discharge was entered.  As a result, the New Jersey Appellate Division held that the Gaskills were not entitled to the benefit of cancellation of the judgment as a lien on their home. (BUT See Note Below)

The take-away here is that those who need bankruptcy relief need to pay attention to the details. We routinely pull a judgment search as well as a full credit report for our clients. As the Gaskill case reminds us, not everyone does this. And those who intend to keep their home, or possibly buy another, need to be careful as well. As always, having the right attorney and sweating the details pays off.

NOTE: The Third Circuit Court of Appeals has held that in the typical “no asset” bankruptcy were the trustee has no money to pay claims of creditors, a bankruptcy discharge applies to everyone who was owed money,whether or not listed. Here, however, that was not the case, since the trustee arranged for creditors to get notice to file claims. Oddly, Citi actually filed a claim in the bankruptcy and even filed and lost a motion in the bankruptcy court seeking a declaration that its lien was not to be discharged. One has to question the logic or validity of the Appellate Division’s ruling, since Citi clearly knew about the bankruptcy in time to protects its rights. Further, Citi lost on nearly the same issue that the Appellate Division ruled the other way. For now, this ruling signals that those who rely on New Jersey statutes to clear their home of judgments has better turn square corners.

For help with debt or related problems, please feel free to contact us.

 



Filed Under: Chapter 7 Bankruptcy, Lawsuits, Uncategorized

The continuing obligation to accurately list all claims and property in bankruptcy: what you do not list can cost you plenty.

August 22, 2012 By

In a bankruptcy, I often tell clients they are entering a “fishbowl” in which they have to list and disclose all property. Not doing so can get debtors in plenty of trouble. When what is not listed happens to be a valuable lawsuit, non disclosure can also cost them and the unfortunate attorneys who handle such claims plenty. This is the message from two recent Circuit Court cases, Guay v Burack, 677 F.3d 10 (1st Cir. 2012), and Love v. Tyson Foods, Inc.  677 F.3d 258 (5th Cir,2012). In both cases, a failure to list pending lawsuits in a timely fashion caused the courts to dismiss those suits, under the doctrine of judicial estoppel. In both cases, the debtors in bankruptcy did disclose the lawsuits, but in both cases, the courts held that “too little, too late” was not enough to save the day.

In Guay v Burack, the debtors initially filed under Chapter 11. While they were in Chapter 11,  police executed search warrants and caused alleged damage to their property. Their case was converted to Chapter 7, and 3 days later, Mr. Guay filed a pro-se civil rights suit in federal court. His wife followed with a similar suit. The Guays did not list these claims in their original bankrutpcy filing because the incidents had not occurred. However, they were required to amend to list them, and were later ordered to do so. Instead, they refused, and in fact filed affidavits stating that there was no need to do so as their original papers were accurate. Even though the Chapter 7 trustee learned about the suit and later abandoned the claim as not being of sufficient value, the courts held that judicial estoppel required that their complaints be dismissed, as they had taken inconsistent positions in the bankruptcy and district court, playing “fast and loose” with the system. Interestingly, the suits were not a secret for very long. At the First Meeting of Creditors, the debtors disclosed the existence of the suits to the Chapter 7 trustee, but only after being questioned by counsel appearing for the State of New Hampshire. The Trustee later gave up the claims by filing an abandonment.

In Love v Tyson Foods, Mr. Love filed a federal suit alleging violations of his civil rights and employment discrimination, while he was a debtor in a pending Chapter 13 case. Love did not disclose his claims against Tyson and affirmatively stated “NONE” on Schedule B, item 21, which required the identification of “[o]ther contingent and unliquidated claims of every nature.” On September 22, 2008, the bankruptcy court confirmed Love’s Chapter 13 plan, which did not mention the then-pending EEOC matter and provided that Love’s unsecured creditors would receive no payment. Only after Tyson moved to dismiss the lawsuits did Love file amendments listing these assets. By that time, his Plan had been confirmed. He never moved to amend it to make any money from the lawsuit available for his creditors. The District Court and later the Circuit Court agreed that this was “too little too late”, and that under the circumstances, judicial estoppel should result in the suits being dismissed.

Debtors in bankruptcy have a continuing duty to disclose assets and claims such as these, in the Schedules they file with the bankruptcy court. Disclosure should include assets acquired or claims that arose while a debtor is in Chapter 11 or Chapter 13. Not doing so, these courts emphasize, is playing with fire.

Judicial Estoppel is a doctrine that punishes those who say one thing in one court, and say something materially inconsistent in a later proceeding, in bad faith. Where once a court has accepted the position asserted and acts on that position, a litigant cannot ”play fast and loose” by then taking a different position in another court to gain some advantage or with a motive to do so.

Attorneys who handle these types of suits for debtors in bankruptcy have to be careful as well. The risk of judicial estoppel dismissal is only one of the risks or issues presented. Early consultation with experienced bankruptcy counsel is essential.



Filed Under: Blog, Chapter 7 Bankruptcy, Fraud, Lawsuits, Uncategorized

Estate Planning property transfers and gifts-the hidden trap of fraudulent transfer liability

June 18, 2012 By

Lately I have read two articles in bar journals discussing aspects of “estate planning” involving transferring property to relatives or into self-settled “special needs” trusts. Neither article mentions much less discusses the New Jersey Uniform Fraudulent Transfer Act. Yet the prospect of a transfer being unwound by a creditor or creditor representative (such as a bankruptcy trustee) is a real concern. Both those engaged in such planning activites and their lawyers need to keep this in mind.

Under both state and federal law (11 USC 548), a transfer can be “avoided” and the transferred property or its value recovered by creditors where the transfer was either with intent to “hinder delay or defraud” creditors, OR the transfer was made for less than “reasonably equivalent value” in exchange, at a time the person making the transfer was insolvent, rendered insolvent, or put into a position of not being able to meet current or reasonably anticipated future debts.

Stated in simpler terms, you cannot give away your property that creditors could seize to pay your debts, unless you get money or value in exchange that is roughly equivalent to what it is worth. Of course, if you pay off all your debts and stay debt free for a reasonable period of time afterwards, this may not be a problem.

Claiming that you intended to do estate planning rather than depriving your creditors is a defense that any good attorney can defeat, especially if the transfer was made to close family members, or creditors were starting to hound you. Intent to defraud can (and usually is) proven by looking to various “badges of fraud”. Not getting fair value in exchange is one of them.

Transferring your assets into a trust for your own benefit does not protect them from the claims of creditors. These “self-settled” trusts cannot, under New Jersey statutes, be used to insulate the property from creditors.

Most importantly, the creditors who can pursue fraudulent transfer claims include “future” creditors, not just those who were owed money when the transfer was made. While a 4 year statute of limitations applies to many such  state law claims, even after the 4 years is up, a creditor can sue up to a year after he or she learns of the transfer. And federal agencies, such as the IRS (or a bankrutpcy trustee in a bankruptcy case where taxes are owed) has up to 6 years.

We often say that those who want to engage in “asset protection” need to do it at a time when they do not need it. Usually, the impetus to these efforts is some impending problem, legal, medical or otherwise. Like so much else, timely counselling by someone who knows this area and has both pursued and defended these types of claims is invaluable. With proper guidance and planning, the problems I have outlined here can be minimized or avoided.



Filed Under: Blog, Credit Issues, Fraud, Lawsuits, Uncategorized Tagged With: , , ,

Third Circuit to injured plaintiffs- your claim can be discharged before you know it exists

June 8, 2012 By

When a defendant files for bankruptcy, anyone with a potential damages claim is at risk that their claim will be discharged and lost. But what about the plaintiff who does not know he/she has been injured? Under two recent rulings of the Third Circuit Court of Appeals, these claims can still be discharged so long as the claimant has been “exposed to a debtor’s product or conduct” before the bankruptcy was filed. In a more recent 2012 decision (Wright v Corning), that Court held that in a reorganization bankruptcy, even such claims where the exposure happened before the debtor’s plan has been confirmed (something that happens usually many months after the bankrutpcy is started) can likewise be discharged. The Court held that notice by publication is sufficient to alert claimants “that by being exposed to a debtor’s product or conduct, they might hold claims even if no damage is then evident”.

The facts in Wright v Corning illustrate the problem. In 1998, Wright purchased Owens Corning roof shingles which were installed on her house. The defects in these did not become apparent until 2009 when they started leaking. Corning filed its bankruptcy in 2000. Notice to potential claimants for defective shingles and other products was given by publication in local and national papers. In 2005, West purchased shingles which also turned out to be defective. This purchase was AFTER the bankruptcy filing, but BEFORE Corning’s reorganization plan was confirmed.

The Court, following the majority rule elsewhere, held that both sets of claims would be treated as debts that would be discharged by the bankruptcy filing and plan confirmation. This did not happen in this case because until 2010, the Court’s rule had been that such claims did not exist until the damages became apparent, and thus it was a denial of due process to sand-bag them, since at the time in 2005, they were entitled to rely on the old rule in effect. However, for any cases filed since 2010, claimants will not get such a “do-over”.

This should strike non-bankruptcy practitioners as unfair. However, the Court relied on the broad statutory definition of claim, which affords debtors seeking bankruptcy relief the broadest scope of protection against future claims.

Note that this same rule also applies when the defendant is an individual filing under Chapter 7 or Chapter 13.

Any time a potential plaintiff might have a possible claim, early and affirmative action in a defendant’s bankruptcy is critical. No doubt many deserving claimants whose damages become apparent after the bankruptcy will lose out. Hopefully, Congress will address this, or insurance will be available.



Filed Under: Blog, Chapter 11 Bankruptcy, Chapter 13 Bankruptcy, Lawsuits, Uncategorized Tagged With: ,

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