7 Rules About Making Payments to a Bill Collector

Working with bill collectors can be challenging.  They come in different flavors and styles—some low key and professional and others harsh and downright rude.  A frequent complaint I hear is that they won’t take payments and demand the entire balance be paid at once or they will sue.  The new model of bill collection firms is to invest in technology systems that implement rigid collection procedures that reduce reliance on individuals who exercise personal judgment about when to sue and when to establish payment plans.  Many collectors just don’t offer payment plans these day and that causes many debtors to give up making any payments at all.

Here is what you should do when attempting to pay off a debt owed to an inflexible bill collector machine.

  1. Figure out if you can really pay the debt at all.  Some debts are just too big to pay.  If all you can afford is $100 per month on a $50,000 medical bill, there is no point in making any payment.  Are you paying enough each month to pay off the debt in a reasonable time?   Most bill collectors want the debt paid in 12 months or they will start litigation.  If you don’t see the debt getting paid off in a reasonable period of time consider other options like bankruptcy or debt settlement.
  2. Can a Bill Collector Sue Me if I am Making Payments?   The answer is yes unless you have a written agreement allowing you to make payments.  Many people make a token payment of $20 under the false belief that if the collector accepts the payment they cannot sue.  Wrong.
  3. Send a Payment.  Don’t believe bill collectors when they say you cannot make payments.  Nonsense!  I’ve never seen a bill collector return a payment.  That does not guarantee that you won’t be sued for the debt, but at least the balance is decreasing.  When a bill collector sees payments coming in they treat you better and may hold off on litigation.
  4. Don’t Send a Personal Check.  Even if you are making payments the bill collector may start litigation and obtain a judgment for the debt. If you are making payments with a personal check you are telling the bill collector where you bank and they will send a garnishment summons to the bank.  Instead, make payments with a Money Order or use PayPal so they don’t know where you bank.
  5. Change Bank Accounts.  If the bill collector obtains a judgment and you have been using your bank account for a long time, chances are the collector may know where you bank .  To avoid a garnishment open a new account at a bank you have never used before.  Even better, open an account in another state.  With online banking and debit cards it is really easy to open an account in a place the bill collector would never discover.
  6. Demand Verification of the Debt in Writing.  Bill collectors are governed by the Fair Debt Collection Practices Act.  That law requires the bill collector to send written verification of the debt if you send them a letter demanding they verify the accuracy of the debt.  If nothing else sending a verification letter slows them down so you can make payments.
  7. File a Written Response to the Lawsuit.  Over 90% of all collection lawsuits result in Default Judgments because the debtor fails to file a written response to the lawsuit with the Clerk of the Court.  Always file a written response to any lawsuit to slow down the process and to verify that you are paying the true amount owed.  At the very least, filing a written response will give the debtor another 60 to 90 days to pay the debt.

Image courtesy Flickr and GrBusinessGroup

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Posted in Debt Buyer Lawsuit, Garnishment, Uncategorized

What happens at the bankruptcy court hearing?

About one month after a bankruptcy case is filed the debtor must attend a court hearing and meet the bankruptcy trustee.  Sometimes this hearing is called the “Meeting of Creditors” because creditors have the right to attend and ask questions, although they rarely do.  Lawyers call this hearing the “341 Hearing” because is required under Section 341 of the Bankruptcy Code.

Most hearings take about 2 to 5 minutes to complete.  Larger business hearings may take longer.  For Chapter 7 cases the court will randomly appoint one of Nebraska’s six  Chapter 7 Trustee’s to the case.  We never know what trustee will be assigned to the case in advance.

The Trustee will typically ask the following questions:

  • State your name and address.
  • Show me your photo identification and proof of your social security number.
  • How many people live in your home?
  • Have you filed bankruptcy before?  If so, when?  Was it a Chapter 7 or 13?
  • Do you own any real estate?  When did you purchase the property?  How did you value the real estate?  Appraisal?
  • Does the government owe you a tax refund?  If so, how much?  Did you receive the refund before or after your case was filed?  How much did you receive last year?
  • Do you own a vehicle?
  • Did you list all of your debts in the bankruptcy?
  • Did you list all of your property on the bankruptcy schedules?
  • Did you list all your income and expenses on the bankruptcy schedules?
  • Do you own a business?  If so, are you incorporated?  Do your customers owe the business money?  If so, how much?
  • Do you expect an inheritance in the next 6 months?
  • Have you transferred any property in the last year?
  • Have you transferred or sold any real estate in the past 5 years?
  • Have you claimed the Exemptions you are entitled to under state law?
  • Did you get a copy of the US Trustee’s Information Sheet?
  • Have you paid any creditor more than $600 in the past 90 days?
  • Have you paid any relative or business partner in the past year?  (Think hard about that tax refund.  Did you repay family loans with the refund?  Don’t do that before bankruptcy.)
  • What were the colors of your wedding? (Believe it or not, one of our Trustee’s thinks this is a funny question!)

Image courtesy of Flickr.

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Getting Help with Loan Modifications

The Home Affordable Modification Program (HAMP) has helped thousands of Nebraskans to modify their home mortgage payment.  A loan modification can lower the interest rate, establish an escrow account to pay taxes and insurance, and cure past due mortgage payments.  When this program works it is really magical—a loan can go from unaffordable and in foreclosure to being affordable and in good standing overnight.

You may be able to obtain a HAMP loan modification if the following is true:

  • You are struggling to make the payment because of a financial hardship
  • You are delinquent or in serious danger of become delinquent on the loan.
  • Your mortgage was obtained on or before January 1, 2009.
  • The property has not been condemned.
  • You owe less than $729,750.

The problem is, the banks are difficult to work with and homeowners get lost in the shuffle of paperwork and red tape.  There are horror stories of banks losing the paperwork over and over again.  The rules are complicated and not all loans are eligible for modification.

So how do you level the playing field?  How do you make sure the bank plays fair and that your application is really taken seriously?

The best way to make sure your loan modification is properly handled is to have a certified housing counselor review and submit the paperwork.  The Department Housing & Urban Development (“HUD”) provides a list of approved housing counselors in Nebraska here.

Some of the key benefits of submitting the application through a HUD counselor:

  • It is harder for the bank to claim they never received the paperwork when HUD counselors submit the paperwork.
  •  HUD counselors submit thousands of applications so they know the correct way to fill out the paperwork.
  •  There are a variety of modification programs available.  HUD counselors know what programs you qualify for and which ones you do not.
  •  HUD counselors usually charge no fee or a minimal fee to process the application.

Can you obtain a loan modification if you have filed for bankruptcy?  The short answer is yes.  In fact, when facing a foreclosure it is often a good strategy to file Chapter 13 to stop the foreclosure sale and then to immediately file a new loan modification application with a HUD counselor.  Chapter 13 cases can be dismissed or amended if the application is accepted.  Chapter 13 gives you time to properly file the application in an organized manner.

Image courtesy of Flickr and Andrey 77 dron

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Not a Solution. Obama’s Student Loan Reform Not Enough

Student loan attorney Joshua Cohen (@studentloanlaw) writes an excellent critique of the Obama administration’s new executive order to lower student loan payments. The order will extend eligibility for the Pay-As-You-Go (PAYE) program that was previously only available to students who started borrowing after 2007 and who took out a new loan after 2011.  Those time restrictions are now lifted.  The extension is scheduled to go into effect at the end of 2015.

This is not a solution, it is a bandage. It doesn’t make college more affordable. It doesn’t cap maximum loan amounts. It doesn’t create underwriting standards. It doesn’t return bankruptcy or other consumer protections to federal student loans. It doesn’t address the private student loan debacle (you know, the loans that supposedly have underwriting standards that allow an 18 to 22 year old to rack up $100,000 in debt with no credit history, ropes in a relative as a co-signer, offers no flexible repayment terms, and is also exempt from discharge in bankruptcy? The real killer of the economy in my opinion). It doesn’t even apply to all federal student loans (Parent PLUS loans are not eligible)!  This is, at best, a baby step forward.

Cohen makes several strong points.

  • There is no maximum cap on student loans.  Schools and banks may pile on as much debt as they want without any underwriting standards at all.  There needs to be some minimal connection between the amount being borrowed and the ability to repay the debt.  Yes, we want to give all Americans the chance to improve themselves through education, but at some point there has to be a limit and an underwriting standard.
  • Private Student Loan Nightmare.  Prior to the Bankruptcy Reform act of 2005, Private Student Loans were dischargeable in bankruptcy.  Since 2005 banks have dramatically increased the amount of private student loans made and, unlike Federal student loans, private loans do not have income based repayment plans.  The level of frustration experienced by borrowers seeking to repay these debts is extremely high.
  • Parent PLUS Loans not eligible for the new plan.  The number of parents I see with student loan debt is amazing these days.  Folks who should be saving for retirement are commonly holding $50,000 or more of parent loans whose children graduate from college only to obtain a $10 per hour job.
  • These loans are having a dramatic impact on our economy by crowding out other forms of borrowing, such as mortgage loans, car loans and other loans that trigger economic activity. Young graduates are overly burdened by loans that prevent them from buying homes, starting businesses and families.  Is this good for America?

Student loan debt now exceeds $1.2 trillion and this figure is projected to increase steadily in the next decade.

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Taking the Offensive on Debt Buyer Lawsuits

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If you are reading this article, there is a good chance you have been sued by a junk debt buyer such as Midland Funding, Encore Capital, Portfolio Recovery, Cavalry SPV, CACH LLC, Midland Credit Management, LVNV Funding LLC, or Unifund CCR Partners.  These are companies that purchase delinquent credit card debts for generally 3 to 7 cents on the dollar.

Debt buyers typically buy nothing more than a list of names and balances owed without any real proof of the debt.  By that I mean they do not acquire a signed copy of the credit card contract or a record of all payments and charges made to an account.  They lack an explanation of how charges were assessed from month to month and almost never can provide a copy of the many amendments made to the credit card agreement.  In short, they generally lack any proof of the debt.  In fact, the seller of the debts usually states that there is absolutely no guarantee that the debts are actually valid.

Why would a debt buyer spend millions to purchase unverified debts?  Because 95% of the time when they sue for payment the debtor does not file a written Answer to the lawsuit and they obtain a Default Judgment for the entire balance due, whether they can prove the debt or not.  The debt buying industry is founded on volume and default judgments.  They don’t have to prove their case because nobody makes them.

So, if you have been smart enough to file a written answer to the debt buyer lawsuit, what happens next?  Well, in a surprising number of cases the debt buyer will just let the case get dismissed.  However, my general experience is that the debt buyer’s attorney will send you a variety of discovery documents in the form of Interrogatories, Requests for Admissions and a Motion to Produce Documents.  It is extremely important to respond to these requests within 30 days.  Failure to respond will allow the debt buyer’s attorney to seek a Summary Judgment .

Although filing a written Answer to a lawsuit and responding to discover is absolutely essential, if is this all you do you are missing a key element to your defense.  You are playing an entirely defensive game and are forgetting the most important factor or these lawsuits:  the debt buyer has the burden of proof and generally cannot prove their case.  You need to play offense.  You need to make them respond to questions and to admit or deny basic facts and to produce documents.  And if they cannot respond to your questions and requests, maybe you should file the motion for Summary Judgment.

Here are some questions you may want to ask the debt buyer’s attorney:

  • Identify every person who has or may have personal knowledge of the claims, defenses, or allegations in this lawsuit, including all persons you may call as a witness at trial.
  • Identify all documents you claim demonstrate Defendant’s consent to be obligated on the account.
  • Identify all documents you claim entitle you to ownership of the account.
  • State all transactions on the account. Include in your answer the following: All late charges assessed to the account, and the date of each charge; All over-limit charges to the account, and the date of each charge; All charges to the account, including cash advances, and the date of each charge; and All payments to the account, and the date of each payment.
  • Explain in detail how you calculated the total amount due on each date a statement was sent to Defendant.

In addition to asking questions (what lawyers call “Interrogatories”), demand that they send you every documents regarding the account, including the contract, amendments to the contracts, every billing statement, and all other documents relevant to the litigation.

After sending all this to the debt-buyer’s attorney, mark your calendar for 30 days later.  Did you receive a response?  If not call the debt buyer’s attorney.   It might be a good time to chat about a reasonable settlement.  They filed a lawsuit with no proof of the debt, and that is outrageous.  Put them on the defensive.  Why shouldn’t their attorney be sanctioned for filing a frivolous lawsuit?  How is this not a violation of the Fair Debt Collection Practices Act (FDCPA) to file a lawsuit with no proof of the debt?  Shake them up.  Turn the tables on them. Play offence.

* Image courtesy of Flickr by Paul De Los Reyes

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How to Request a Stay of Foreclosure in Nebraska

Foreclosure comes in two forms:  Judicial and Non-judicial.  Judicial foreclosure proceedings are lawsuits filed in the District Court of Nebraska against the property owner to determine the amount owed and, if the owner is in default, it results in a publicly advertised Sheriff Sale of the real property.  The homeowner receives a Summons from the Sheriff along with a copy of the foreclosure lawsuit showing the amount due.  The homeowner has the right to dispute the amount owed and to seek an accounting of the loan and to demand proof that he bank has the right to foreclose.  Once the Court has determined the amount due and the right of the bank to foreclose, a Decree of Foreclosure is entered and the bank may then proceed to schedule public auction that is conducted by the County Sheriff.

A great advantage to homeowners caught in a judicial foreclosure proceeding is the availability of applying for a Stay of Foreclosure, something that is not available in the non-judicial Trustee Sales. 

In Nebraska, the homeowner in a judicial foreclosure proceeding has the right to seek a Stay of Foreclosure Request of either three, six or nine months, depending on how many years are left to pay off the mortgage.  The closer the loan is to being paid off, the longer the stay.   What that means is that the homeowner can delay the Sheriff Sale for 3, 6 or 9 months if they request a stay in writing to the Court.

If the mortgage loan matures in more than 20 years (which means that you have owned the home for less than 10 years if you have a traditional 30-year mortgage), then the stay is for 3 months.  If the mortgage loan matures in less than 20 years but more than 10 years, the stay is 6 months.  If the loan matures in less than 10 years, the stay is 9 months.  Again, you must file with the Clerk of the Court a written application to stay the foreclosure, and the application must be filed within 20 days after the Decree of Foreclosure is entered.  See Nebraska Revised Statute, Section 25-1506(a).

Is there a disadvantage to applying for a Stay of Foreclosure?  Yes, and it is a very real disadvantage if you are disputing the amount owed or the bank’s right to foreclose.  “When a defendant requests a stay of sale pursuant to § 25-1506, the defendant is precluded from appealing from the foreclosure decree. Production Credit Assn. of the Midlands v. Schmer, 233 Neb. 785, 448 N.W.2d 141 (1989); Federal Farm Mtg. Corporation v. Ganser, 145 Neb. 589, 17 N.W.2d 613 (1945); Ohio Nat. Life Ins. Co. v. Baxter, 139 Neb. 648, 298 N.W. 530 (1941); Carley v. Morgan, 123 Neb. 498, 243 N.W. 631 (1932); Ecklund v. Willis, 42 Neb. 737, 60 N.W. 1026 (1894); McCreary v. Pratt, 9 Neb. 122, 2 N.W. 352 (1879). A request for a stay of sale is also a waiver of any prior error in the proceedings. Id.”  Deutsche Bank National Trust Co. v Siegel, 777 N.W.2d 259, 279 Neb. 174, 182 (Neb. 2010).

So, getting an extra three to nine months to live in the home is great, but if the homeowner really wants to litigate the amount due and the bank’s right to foreclose it may be better to seek the protection of Chapter 13 bankruptcy rather than to surrender precious rights by filing for a stay of foreclosure.  But if all you are asking for is a few months to move then requesting a stay of foreclosure may be just the break you need.

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Filing Bankruptcy Stop Utility Shut-Off

Snowy Meter

As I write this blog post in December, the thermometer has climbed to a scorching 15 degrees Fahrenheit on the snow blown Nebraska plains.   It occurs to me that this may be a good time to discuss how filing bankruptcy in Nebraska can stop a utility shut-off.

Section 366 of the Bankruptcy Code provides that “a utility may not alter, refuse, or discontinue service to, or discriminate against . . . the debtor solely on the basis of the commencement of a case under this title or that a debt owed by the debtor to such utility for service rendered before the order for relief was not paid when due.”

Upon the filing of a bankruptcy case, the utility cannot shut off its service.  However, the utility will require the debtor to pay a new security deposit within 20 days to continue future service.

YOU MUST PROVIDE A NEW SECURITY DEPOSIT WITHIN 20 DAYS TO CONTINUE SERVICE.

After the bankruptcy case is filed the utility company will demand a new security deposit be paid within 20 days.  The security deposit is typically based on the average monthly utility bill over the last 12 months of service.  Failure to pay the new security deposit will result in a utility shut-off.

SHOULD YOU FILE BANKRUPTCY ON THE UTILITY COMPANY?

Sometimes it is a bad idea to list a utility company as a creditor in bankruptcy.  For example, if you owe $50 to the electric company and elect to list this debt in the bankruptcy case, you may have to pay a new security deposit of $200 within 20 days.  Or perhaps you have already worked out an arrangement with the utility to repay $25 of the past due bill each month and it is probably more affordable to pay that small amount each month than to come up with a new security deposit.

WATCH OUT FOR SERVICE AT OTHER PROPERTIES.

If you receive utility service at more than one location (perhaps you own a business or rental properties), listing the utility as a creditor for a bill owed by one of your properties may result in a new security deposit being demanding based on the service provided to all of your properties.

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Documents Needed to File Bankruptcy in Nebraska

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Tax Returns.     The bankruptcy trustee must review the last two (2) tax returns filed.  If you have lost your returns, complete IRS Form 4506.  If you have not filed your tax returns, do so now.  The bankruptcy case will automatically be dismissed if you fail to file any tax return due in the past four years.

Paycheck Stubs & Other Income Statements.  Six months of paycheck stubs or some type of report provided by your employer showing wages for the past six months.  Even though your most recent paystub tells us how much you have earned, bankruptcy attorneys must prepare a special report (called the “Means Test”) that shows your income for the past six months.  Child support or Social Security or Retirement income statements are also necessary.  In short, your attorney needs all documents proving your income.  If you are self-employed, then provide a Profit & Loss Statement for the past 6 months.

Bank Statements.    Six months of bank statements from every account you are on is required.

Credit Counseling Certificate.  Before you can file bankruptcy you must obtain a pre-bankruptcy credit counseling certificate.

Bills, Lawsuits, Collection Letters, etc.   Provide your attorney with copies of all your bills, collection letters, and lawsuits.  In short, we need the name and address of every creditor.  Write down the name and address of bills you are missing.  The basic power of bankruptcy is to notify your creditors that you filed and that they can no longer contact you.  If the creditor is not notified the bankruptcy is ineffective.

Divorce Decrees.  It is extremely important to provide your attorney with a copy of your divorce decree.  Special notice must be given to your ex-spouse if you are paying a Domestic Support Payment (i.e., child support or alimony).  If your ex-spouse owes you money, that is an asset that must be reported on the bankruptcy schedules.

Retirement Accounts.    Provide a recent statement showing the balances of your retirement accounts.

Claims Against Others.  List all claims for injuries, worker’s compensation, auto accidents, etc.  Warning:  If you fail to list a claim you have against someone else on the bankruptcy schedules, you may forfeit the claim.  If you can sue someone for any reason, tell your bankruptcy attorney and list the claim on your list of property.

Life Insurance.    If you have a life insurance policy that has a “cash surrender value” provide a statement of the surrender value.  Whole or Universal policies usually have a cash value.

Home Appraisals & Tax Statements.  Provide a copy of your most recent real estate tax assessment statement or home appraisal.

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Responding to a Court Summons in Nebraska

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If you have been served with a court summons in Nebraska, it is imperative that you respond to the lawsuit correctly.  Here is what you need to do:

  • File a WRITTEN REPLY to the lawsuit with the Clerk of the Court.  The summons typically says that an “appropriate response” must be issued within 30 days.  What does that mean?  (No, calling up the plaintiff’s attorney office and giving them a piece of your mind is not enough.)   What this means is that you must file a written reply, you must sign the reply, and it file it with the Clerk of the Court within 30 days.
  •  A standard reply form is usually provided by the Clerk of the Court. (Here is a link to the Appearance & General Denial form.)  Write your name, address, phone number, the case number and then sign the form.  Have the Clerk of the Court then file your response in the court record.  You should also mail a copy to the creditor’s attorney.  An even better response form is found here.
  •  Demand an Accounting.  Send the attorney for the creditor a letter to demand a list of all the payments and charges to your account.
  • Request for Production of Documents.  Request all the documents relevant to the case, including the contract, billing statements, correspondence, etc.  Many creditors, especially credit card debt buyers, do not have the documents to prove you owe the debt.
  • Affirmative Defenses: You may want to assert certain affirmative defenses, such as the Statute of Limitations which bars claims that are too old.  In Nebraska the Statute of Limitations on a written contract is typically 5 years from the date of last payment and 4 years for an oral contract.
  • Countersuit: Perhaps you have a claim against the creditor.  If the doctor suing for unpaid medical bills committed malpractice, you should ask the court to give you compensation for the damages caused.
  • Seek Legal Advice:  Ask an attorney review your written reply.  Believe it or not, most attorneys are really nice people and they don’t mind taking a quick look at what you have written.
  • Negotiate the Debt.  One of the main benefits to filing a written response to a lawsuit is that it makes the creditor more willing to negotiate the debt.  Contact the creditor’s attorney (here is a link to find the attorney’s phone and email address) and make an offer.  Most creditors will accept a reasonable settlement offer.

Failure to respond to a court summons within the time allows will result in the creditor obtaining a “default judgment.”  A bill collector that obtains a Default Judgment has the power to garnish up to 25% of your paycheck and all of the money in your bank account.  Filing a written response with the Court will prevent a Default Judgment from being entered.

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