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How to Avoid Being Haunted by Zombie Debt

While we can assure ourselves that AMC’s “The Walking Dead” won’t return until October of this year, debt collectors never rest in their search for opportunities to buy Zombie debt to try to scavenge payment for old debt from consumers. Fortunately, you can prepare yourself to avoid such tactics by these opportunists.
Is this a zombie debt collector?

Is this a zombie debt collector?

What is Zombie Debt?

Zombie debt, also referred to as Stat debt or Out of Statute debt, refers to debt that is very old or no longer owed. Effectively, these debts have “come back from the dead” to haunt you again. Debt scavengers are debt collectors who purchase zombie debt from a source – the original creditor, a successor creditor who bought the original creditor’s debt, or even from another debt collection agency – often for pennies on the dollar, and who attempt to collect the debt from the debtor. I wrote an article about these scavengers that contains some very useful information entitled, “You Can Add Points to Your Credit Score by Beating the ‘Charge off Date’ Scam” . Another article I wrote entitled “Consumer Alert: Judges suspicious of the rising tide of lawsuits and garnishments” explained how some judges were growing suspicious of the number of scavenger lawsuits that were being filed. These scams and scammers are nothing new to me or my firm. I’ve warned my clients to take precautions with their credit scores and identity protection for many years.

In the article on my site entitled, “What you don’t know about “Charge off Dates” can hurt you”, I pointed out that once a debt has been in default (unpaid) for six years, the statute of limitations to collect the debt has expired. The creditor cannot file a suit to collect the debt once the debt is too old, as having been in default for six years. However, to trick you into thinking that the creditor has additional time to collect upon the debt, the creditor will (out of thin air) make up a phony date called the “charged off date”, and put that phony “charged off date” on your credit report as the date of default.

Debt Can Be Too Old To Be Collected on By Creditors

Sometimes, aged debts may be too old to properly serve as the basis for a creditor lawsuit to collect the debt in question. However, some creditors will still file a lawsuit on a too-old debt, hoping that you won’t realize that the debt is too old to support the lawsuit. The courts don’t seem to care about lawsuits filed to collect aged debt. That means that if you don’t file a response to contest the creditor’s suit, then the court will enter what is actually an improper judgment. The court expects you to be responsible enough to understand—or be represented by a qualified attorney who is knowledgeable on debt collection and aged debt practices—and if you don’t care enough to contest the suite, the court shouldn’t care either.

In addition to typical consumer and business debt, there are also some other types of debts like criminal fines or restitution which many not be subject to a statute of limitations that is as short as the time period for bringing suit on consumer and business obligations.

As you can see, it literally pays to obtain qualified legal advice about a particular debt that you owe is too old to be collected in a lawsuit. You should also be aware that statutes of limitation on aged debt can vary from state to state. If you’ve incurred a debt in the past in another state, protecting yourself with qualified legal advice is as important in those cases as it is in the state of Washington.

In the article on my site entitled, “What Happens if My Chapter 13 Bankruptcy Plan is Dismissed Because I Can’t Afford the Payments?”, I pointed out that your creditors will return if your Chapter 13 bankruptcy plan is dismissed in most cases. The deadline for creditors to file suit to collect a debt is six years after debtor breaches the terms of their debt contract by failing to make the payments that the debt contract obligated the debtor to make on time. Even if the debtor files bankruptcy during that six-year period, the deadline for the creditor to file suit to collect the debt is neither extended nor shortened due to the fact that the debtor was in bankruptcy during the six-year time period.

Zombie debts can stem from dealings with big creditors, not just smaller companies. In May of 2015, the New York Times reported

“Two of the nation’s biggest banks will finally put to rest the zombies of consumer debt — bills that are still alive on credit reports although legally eliminated in bankruptcy — potentially providing relief to more than a million Americans.

Bank of America and JPMorgan Chase have agreed to update borrowers’credit reports within the next three months to reflect that the debts were extinguished.

The move is a victory for borrowers whose credit reports have been marred as a result of the reported debts, imperiling their job prospects and torpedoing their chances of getting new loans.

The change by the banks emerged this week in Federal Bankruptcy Court in White Plains, where the two banks, along with Citigroup and Synchrony Financial, formerly GE Capital Retail Finance, face lawsuits accusing them of deliberately ignoring bankruptcy discharges to fetch more money when they sell off pools of bad debt to financial firms.

The lawsuits accuse the banks of engineering what amounts to a subtle but ruthless debt collection tactic, effectively holding borrowers’ credit reports hostage, refusing to fix the mistakes unless people pay money for debts that they do not actually owe.”

While it’s been over a year since the agreement was reached, if you were a customer of any of the banks mentioned in the article, and if your bankruptcy filing included a debt owed to one of those creditors over the period covered in the settlement described in the article, it pays to check your credit report to ensure that the debts that they promised to remove have in fact been removed from your credit report.

Items for Action:

Never ignore a lawsuit that has been filed against you for any debt, even an old debt that you don’t recognize.

Check your credit score at least once a year. The article on my site entitled, “Let me show you how to start a great annual tradition that can save you money and your reputation, and it’s free!” explains how to a get a truly free credit report once a year, and how to effectively dispute debts that you find on your report.

Beware! Some zombie debt is simply not yours. The debt might belong to someone with a similar name, or the debt could be the result of a creditor mistake. In some cases, debt that has been wiped from your credit record is sold to another debt collector that tries to bring it back to life and collect on it once again. Perhaps worst of all, zombie debt can result from identity theft.

If your Chapter 13 bankruptcy plan is becoming too expensive for you to continue as is, please call to arrange a meeting with us at our offices. We might be able to modify your Chapter 13 bankruptcy plan payments to something more affordable.

If you have incurred new debts in the interim, please call to arrange a meeting with us at our offices. After reviewing your situation, we may either file a new Chapter 13 case for you, or discuss conversion of your case to Chapter 7.

Quick Takes

The New York Times reports that the US Department of Housing and Urban Development announced today that
“A federal program that sold more than 100,000 soured mortgages to private investors at discounted prices is getting a major overhaul.

Changes announced by federal housing officials on Thursday follow months of criticism from legislators and housing advocates that the buyers of the loans have not done enough to keep struggling borrowers in their homes.

The housing officials said that private investment firms buying delinquent mortgages would have to consider reducing the total amount of money owed on a mortgage as part of potential modification to make a loan more affordable.”

“Edward L. Golding, principal deputy assistant secretary with the Department of Housing and Urban Development, said that the housing agency was ‘deeply committed to protecting struggling homeowners and making certain they have the greatest opportunities to avoid foreclosure and remain in their homes.’

Federal officials also said they would make it more difficult for private buyers to temporarily reduce the interest rate on a mortgage only to have it revert to the original terms after five years, a practice used by some private buyers.

The changes in the program are intended to address criticism that the sale of distressed mortgages — while resulting in better loan terms for some borrowers — did not come with specific directions outlining the steps the buyers should take to make the mortgages more affordable.”

My site contains many articles that explain the mechanics of foreclosure sales, avoiding foreclosure through bankruptcy, and related information that you may find useful. You can browse the articles at this link http://washingtonbankruptcy.com/tag/foreclosure/

The venerable Sports Authority brand may only appear when you’re watching NFL games held in Denver someday soon. According to news reports in the Wall Street Journal, Reuters, and other financial news sources, Dick’s Sporting Goods won the Sports Authority Brand Name in a bankruptcy auction on June 30th. According to the story on the Consumerist web site, “Buying the intellectual property of Sports Authority, as Reuters reports that Dick’s Sporting Goods has done, would allow Dick’s to open Sports Authority stores or an e-commerce site if it wanted to, but it probably won’t. Instead, purchasing the mailing list and loyalty card member information means acquiring some customer names, especially in areas where it doesn’t currently have stores. Buying the brand means that no one else can own it.”

While this isn’t in quite the same vein as our zombie debt article above, it goes to show that your financial information is quite valuable to big companies as well as criminals. The big company may use the data, including your past purchase history, to market products to you using the defunct company’s name, or in their own name, just as though you were a current customer. It pays to keep track of the mailing lists that you’re on, and to occasionally opt out of some mailings if you find that you aren’t reading the messages or no longer find them useful. We always respect your rights, and provide an opt out link on every newsletter that we send. We hope that you’ll find the information that we share valuable enough that you’ll remain a loyal reader for years to come.

We’re With You. All the Way Back.

If you find any of this confusing, please make an appointment to come in and discuss your situation. We are here to help you through your bankruptcy—before, during, and after the filing and completion of your case.

The Most Popular Articles on WashingtonBankruptcy.com in 2015

Last year, we compiled and published a list of the most popular articles on washingtonbankruptcy.com over the year. It proved to be popular, and we hope that it was useful to those of you who read it. We have done the same compilation this year. As was the case last year, the articles cover a breadth of topics, and represent the kind of valuable free advice that we strive to provide to you through email, our site, and other digital media.

We especially want to take this opportunity to thank you for being a loyal subscriber to our newsletter this year, and we hope to provide it to you as a free information source for you in 2016 and for the years to come. We are pleased to warmly offer this year-end issue to you in the hope that it will help inform and advise you and those who you care for during this Holiday Season.

Thanksgiving Blessing

Best wishes to you and yours during the holiday season from everyone at our firm


Each post title listed below contains the link to each article so that you can easily click them. The direct link follows the title of each post so that you can copy and paste them to share with friends and family individually if you like, or simply send a link to this page so that they can see the breadth of information we cover throughout the year. The articles are listed in descending order of popularity, with the title of the page followed by the direct link.

Bankruptcy FAQ — Answers to Frequently Asked Questions About Filing Bankruptcy in Washington State
http://washingtonbankruptcy.com/bankruptcy-faq/

Chapter 7, Chapter 11, & Chapter 13 Bankruptcy — An Explanation of Chapter 7, Chapter 11, & Chapter 13 Bankruptcy
http://washingtonbankruptcy.com/bankruptcy-chapter/

Start Fresh: Begin Building Your Financial Future Now! – This page provides an overview of the bankruptcy process, and how to get your case started as quickly as possible with our firm
http://washingtonbankruptcy.com/bankruptcy-basics/

Reviews — Our Clients Review the James H MaGee Law Firm on various sites around the Internet
http://washingtonbankruptcy.com/reviews/

You Can Add Points to Your Credit Score by Beating the “Charge off Date” Scam
http://washingtonbankruptcy.com/you-can-add-points-to-your-credit-score-by-beating-the-charge-off-date-scam/

I Didn’t List All of My Creditors in My Chapter 7 Bankruptcy Filing. What Will Happen to My Case?
http://washingtonbankruptcy.com/i-didnt-list-all-of-my-creditors-in-my-chapter-7-bankruptcy-filing-what-will-happen-to-my-case/

What Happens if My Chapter 13 Bankruptcy Plan is Dismissed Because I Can’t Afford the Payments?
http://washingtonbankruptcy.com/what-happens-if-my-chapter-13-bankruptcy-plan-is-dismissed-because-i-cant-afford-the-payments/

Debt Consolidation Scams – This page provides useful consumer information about “Credit Repair” & “Debt Consolidation” swindles that seem to come and go in different forms every year
http://washingtonbankruptcy.com/debt-consolidation-scams/

What Difference can my Choice of Attorney Make? – This article answers the question, “Why choose the Law Offices of James H. MaGee, Washington bankruptcy attorney?”
http://washingtonbankruptcy.com/cheap-attorneys/

Do You Know These Eight Used Car Buying Scams?
http://washingtonbankruptcy.com/do-you-know-these-eight-used-car-buying-scams/

There is Life After Bankruptcy – We published a series of articles to help our clients understand key questions and concerns, including “What has happened to people who file bankruptcy?”
http://washingtonbankruptcy.com/there-is-life-after-bankruptcy/

How to Avoid the Loss of Inherited 401k and IRA Funds to Creditors in Your Bankruptcy Case
http://washingtonbankruptcy.com/avoid-the-loss-of-inherited-401k-and-ira-funds-to-creditors-in-your-bankruptcy-case/

What is the Bankruptcy Process Really Like? – Another article in our series about life after bankruptcy that provides a detailed walk through of a typical personal bankruptcy case
http://washingtonbankruptcy.com/what-is-the-bankruptcy-process-really-like/

How Do Bankruptcy Exemptions Function to Protect Some of My Property from Sale by A Bankruptcy Trustee?
http://washingtonbankruptcy.com/how-do-bankruptcy-exemptions-function-to-protect-some-of-my-property-from-sale/

Student Loan Debt Archives – One of the areas that clients continually ask about is the ability to discharge student loan debt in bankruptcy. You’ve no doubt heard discussions of student loan financing in the Presidential primary coverage, and some discussion from a federal legislative point of view. This series of articles will equip you with the best information available about the state of student loan debt and federal bankruptcy to date.
http://washingtonbankruptcy.com/category/student-loan-debt-2/

If you find any of this confusing, please make an appointment to come in and discuss your situation. We are here to help you through your bankruptcy—before, during, and after the filing and completion of your case.

We’re With You. All the Way Back.

I have compiled a record of service to my clients that is based upon my determination to be of help to them long after their case is over. Most of the articles on my site and the newsletters I’ve authored contain financial planning advice, including those linked above. The newsletter archive is posted on my site in case you would like to review previous editions at a later time. I am both proud and humbled by the comments my clients say in person and the reviews they’ve freely left about my staff and I on the web. I am committed to helping my clients resume their lives on a solid footing—all the way back after bankruptcy.

The newsletters and articles I write are free, and will remain so. You can rely on a regular series of updates throughout the year. I am motivated to write new articles that directly address questions asked by clients, to help them clarify questions they have, and relieve some of the worries that they feel. Day by day, I listen to my clients’ concerns and questions, and author articles with what I learn from these conversations.

Introducing Our Annual Financial Review Program

One of the services that we recently introduced is an annual financial plan review for clients who have completed their bankruptcy case. The program is an opportunity for you to schedule an in-person appointment to go over your personal financial circumstances, post-bankruptcy. We want to help you avoid pitfalls, and to make your life after bankruptcy the best it can be.

Make your appointment by calling us at (253) 383-1001, or by contacting us through our website, and keep the positive energy and momentum going in your life after bankruptcy.

Did The US Supreme Court Just End Your Ability To Wipe Out Your Second Mortgage In Bankruptcy?

No. What the Supreme Court did in its ruling announced on June first, 2015 was to clarify that you can wipe out your second mortgage by filing a chapter 13 bankruptcy case on your primary home, or the “20 part” of your 80/20 mortgage, or your Home Equity Line of Credit (HELOC). You cannot file a Chapter 7 case to get rid of any of the debts mentioned above. The case that the Supreme Court ruled on, Bank of America v. Caulkett, was a Chapter 7 filing.

Q: When can you wipe out a second mortgage?

A: If the amount that you owe on the first mortgage is greater than the market value of the house, then you can file a Chapter 13 house and “strip off” the second mortgage. In fact, if you owe large balances in delinquent property taxes and you are delinquent on your first mortgage, you can use these delinquencies in combination to “boost” your chances of wiping out a second mortgage in a Chapter 13 case.

Photo courtesy of dbking. See more of David's work at https://www.flickr.com/photos/bootbearwdc/

Photo courtesy of dbking.See more of David’s work at https://www.flickr.com/photos/bootbearwdc/

Q: Could you give us an example of a situation where a lien strip might be allowed in a Chapter 13 case?

A: What follows is an example that illustrates how delinquent Homeowners’ Association dues and delinquent property taxes “boost” your chances to succeed in a Chapter 13 lien strip of your second mortgage that wipes out the second mortgage forever:

Jack and Diane owe $12,000 in delinquent property taxes. They also have a mortgage that is 12 months behind on payments of $2,100 monthly, of which $2,000 monthly is interest and $100 is principal paid on the loan. They also owe $3,000 in delinquent Homeowners’ Association dues. The principal balance of the mortgage is $190,000, the second mortgage home equity line of credit is $40,000, and the appraised value of the house is $210,000.

Total debt superior to the second mortgage: $229,000

– $3,000 HOA dues

– $12,000 Delinquent Property Taxes

– $24,000 Delinquent Interest

– $190,000 first Mortgage Principal Balance

As we said, the value of the home according to a certified appraiser is $210,000. However, the tax assessed value according to the county is $240,000.

After considering the facts, the judge in Jack and Diane’s chapter 13 bankruptcy case allowed the stripping and non-payment of the second mortgage balance of $40,000 because the appraised value of the home is less than the debts owed against the home that are superior to the second mortgage. The judge correctly found that it is irrelevant that the county tax assessed value of the home is $240,000. In such a case, the judge will say “So what?” that the county thinks the house is worth $240,000 – what matters here for a lien strip is the opinion of the certified appraiser hired by the Chapter 13 debtor about the value of the home.

Q: Can the second mortgage lender whose debt will be cancelled fight back in court against the Chapter 13 termination of the second mortgage debt?

A: You bet! Once the appraiser renders their professional opinion against the position of the second mortgage holder, then the second mortgage holder usually settles quickly or gives up. Sometimes a credit union lender will try to run the clock out a bit and frustrate you, but in the end they usually settle as well. Most of the big commercial lenders use better sense than a credit union and reach a settlement or give in.

Q: Can I file a Chapter 13 to get rid of my second mortgage even if I have recently had a Chapter 7 case?

A: For now, yes. Most of our local judges have ruled that back to back cases–a chapter 13 following a recently filed Chapter 7–are permissible. This might change, though. We will have to see what the future brings in these cases.

Q: Let’s say that I file a Chapter 13 case to get rid of my second mortgage now. Suppose that in 18 months after filing, the value of my home increases, can my efforts to wipe out my second mortgage be reversed by the judge at the request of the second mortgage lender?

A: No.

Q: In Chapter 13 I have to repay 100% of my debts, right?

A: No. Some people who file chapter 13 bankruptcy pay back one percent or even less of their credit cards, car repossession balance, and medical bills in their chapter 13 case. The remaining unpaid balance is discharged forever in chapter 13.

Q: Will my monthly payments in a 36 – 60 month Chapter 13 plan be large, and force me to pay back a big percentage of my debt?

A: Probably not. I have some clients who pay as little as $155 each month for 36 months to wipe out $40-50,000+ in second mortgage debt.

Q: I already just recently completed a Chapter 13. Am I excluded from filing a new Chapter 13 to get rid of my second mortgage?

A: No.

How to Avoid the Loss of Inherited 401k and IRA Funds to Creditors in Your Bankruptcy Case

You may be surprised to learn that Congress gave America a financial break in 2005. You can stash away up to about $1,245,375 in 401k/IRA accounts and still file for bankruptcy without losing any of the funds.

What can you do to protect your inheritance for someone who will be your benefactor in the future, or if you are thinking of your own estate plans and distributions, the 401k and IRA funds that you intend to gift to those who you wish to inherit your estate someday?

Limitations in Bankruptcy Cases on 401k and IRA Funds Received Thru Inheritance

There is an important limitation to this Congressional gift. Effective June 2014, any 401k or IRA funds that you receive by way of inheritance—as opposed to earning the funds yourself—are no longer exempt in a bankruptcy proceeding. In fact, a bankruptcy trustee can take inherited IRA/401k funds from you if you file for bankruptcy after the benefactor who left the funds to you dies.
Continue Reading →

What Happens if My Chapter 13 Bankruptcy Plan is Dismissed Because I Can’t Afford the Payments?

The simple answer is that few plans should be dismissed for failure to make payments. In general, I can often secure a court order to reduce the payments and/or forgive accumulated payments. A qualified and caring Chapter 13 practitioner can and will ask the judge to “modify” the plan to meet your changed circumstances, if you make an appointment to come in and consult with us before it is too late.

A conversion to Chapter 7 bankruptcy may also be an option, or a filing a new Chapter 7 bankruptcy case after your Chapter 13 bankruptcy case is dismissed. In many cases, “straight bankruptcy”, also known as Chapter 7 bankruptcy, is preferable to long-term credit recovery.

James H. MaGee, Washington Bankruptcy Attorney

I am a qualified and caring Chapter 13 bankruptcy practitioner who can and will ask the judge to “modify” your plan to meet your changed circumstances. Make an appointment to come in and consult with us before it is too late.

Your Creditors Will Return if Your Chapter 13 Bankruptcy Plan is Dismissed

If your Chapter 13 bankruptcy plan is dismissed, either because it can’t be modified, or the modification to your Chapter 13 bankruptcy plan isn’t filed in time, eventually your creditors will return and start attempting to collect their respective debts again. Your creditors can collect again because no discharge of debts was issued since your Chapter 13 bankruptcy plan wasn’t completed.

Let’s Review Some Basics: What Is A Chapter 13 Plan?

A Chapter 13 bankruptcy plan is a “reorganization plan” where debtors make payments on their debts over a period of three to five years. Today, Chapter 13 cases are less common than Chapter 7 “straight bankruptcy” cases. In the Western Washington State area where I practice most of my cases, only about 20% of bankruptcy cases filed are Chapter 13 cases.

Higher income debtors are sometimes ineligible to file Chapter 7 bankruptcy, and must file for Chapter 13 bankruptcy in order to repay some portion of their debts. The amount of Chapter 13 bankruptcy plan payments is calculated by the application of a complex multi-page formula. I am very familiar with this formula and process, and I can help you estimate the amount of Chapter 13 bankruptcy plan payments you would be required to make in your specific circumstances.

Some lower-income debtors file a Chapter 13 case for one or more of these reasons:

  • Stop the foreclosure of your home, and catch up on missed house payments over time.
  • Reset payments with a car lender who is threatening to repossess your vehicle.
  • Repay your defaulted IRS taxes interest-free.
  • Restore your drivers’ license that was suspended for nonpayment of court fines and tickets.

Depending on income, many Chapter 13 bankruptcy cases propose to repay little if any general unsecured debts, including medical bills, defaulted obligations to landlords, and credit card debt.

Many debtors in Chapter 13 bankruptcy are good, hardworking folks who are struggling to get by financially. Some folks are “on the edge” financially, and some of their Chapter 13 bankruptcy plans do not complete. In those cases, their Chapter 13 bankruptcy plans are dismissed, and their creditors can restart collection calls and collection lawsuits against the debtors.

You Can Be Sued Once Your Bankruptcy Case Is Dismissed

A debtor who is fresh out of a failed Chapter 13 plan can be sued by creditors once their bankruptcy plan or case is dismissed when these conditions are met:

  • When the statute of limitations to file suit on a tort or breach of contract expires after the dismissal date of the Chapter 13 bankruptcy plan.
  • When the Chapter 13 plan is dismissed for the debtor’s default because of failure to make the Chapter 13 reorganization plan payments.

11 USC 108(c) (1) generally provides that bankruptcy does not interrupt the running of a statute of limitations. If the creditor had six years to file a lawsuit from the date of breach of contract, the six-year period is neither shortened nor extended by the bankruptcy as long as the Chapter 13 bankruptcy plan begins and then fails over a time period that is within that six-year statute of limitations to file suit.

An Example of the Six Year Statute Of Limitations to File Suit

Suppose that you are a debtor who breached a written contract with one of your creditors on August 1, 2009 and then after the creditor hounded you for a year, you the debtor filed Chapter 13 bankruptcy on September 1, 2010. The six-year statute of limitations to file suit to collect this debt starts on August 1, 2009. If your Chapter 13 bankruptcy case is dismissed without issuance of a discharge on September 1, 2014, due to defaults or failures in the Chapter 13 bankruptcy plan payments, the creditor still has a long time to file suit against you the debtor. The creditor can file suit as late as July 31, 2015 because the statute of limitations to file suit runs out on August 1, 2015, some six years after the breach of contract on August 1, 2009, and almost a year after the Chapter 13 bankruptcy case was dismissed for non-performance on September 1, 2014.

As we can see from the example above, the deadline to file suit to collect a debt is six years after the breach. The deadline is neither extended nor shortened due to the fact that the debtor was in bankruptcy during the six-year time period.

What Should You Do Today If Your Chapter 13 Plan Is Unaffordable or Your Circumstances Changed?

There is a lot that we can and will do to help you. Contact the Law Offices of James H. MaGee, Washington Bankruptcy Attorney today!

I Didn’t List All Of My Creditors In My Chapter 7 Bankruptcy Filing. What Will Happen to My Case?

There is a Federal Requirement to List All Debts and Claims When Filing Bankruptcy

Many people unnecessarily postpone filing for Chapter 7 bankruptcy out of fear that they cannot find a name and address for every single creditor to whom money is owed.

Similarly, other folks who have already filed a Chapter 7 case unnecessarily worry for years afterwards that a creditor may have been overlooked, and that the creditor is not clearly identified in the bankruptcy documents. They incorrectly believe that this omitted creditor can still sue and collect on the debt post-Chapter 7.

Couple listing their creditors for their bankruptcy filing

Is It Really A Big Problem If A Creditor Is Not Written Down In The Bankruptcy Paperwork, If It Is An Innocent Error?

Continue Reading →

Bankruptcy in the United States: A Brief History

For most of the first 100 years after the adoption of the U.S. Constitution, bankruptcy was primarily a creditor’s remedy to the extent that it was available at all. Following the punitive English model, it was generally deemed an “equitable” remedy, even though the Constitution authorized the creation of bankruptcy statutes. Equitable remedies are judicial remedies developed by courts of equity from about the time of Henry VII to provide more flexible responses to changing social conditions than was possible in precedent-based common law.

In England as well as in most of pre-20th Century America, bankruptcy was a forced repayment plan. Bankruptcy was a state of financial affairs that creditors forced you into involuntarily; you had no choice in the matter. Bankruptcy was not voluntarily initiated by you in order to free yourself of burdensome debt as it is today. You were placed under supervision and forced to repay portions or all of your debts over many years.

The Irish Model for Bankruptcy

Until quite recently, Ireland followed this same old English model, and bankruptcies were extremely rare in Ireland. While England has significantly liberalized its bankruptcy system to something closer to the more generous 20th Century American model, Ireland kept its Victorian era approach until recently. Under the pre-reform Irish model, your creditors had to vote or agree to let you out of bankruptcy repayment when they thought you had repaid enough. I described the pre-reform Irish bankruptcy system here, and in further detail here. The Irish system is undergoing reforms largely as a result of the massive property and economic downturn in this decade.
The General Post Office at the center of DublinThe General Post Office in Dublin, a symbol of Ireland’s independence.

A Different Approach to Bankruptcy in the New World

In early America, state law receivership proceedings were more common than bankruptcies. However, with the development of the bankruptcy code in America in the 20th Century, receiverships lessened in favor of bankruptcies although receiverships and similar proceedings under state law have not disappeared.

Article I, Section 8 of the Constitution granted the US Congress the power to “Establish … uniform Laws on the subject of Bankruptcies throughout the United States.” This power was infrequently exercised, however. In the early years of the United States, bankruptcy relief was limited to merchants, and was a stick, rather than a carrot. Initiation of bankruptcy proceedings was limited to creditors and only involuntary bankruptcy proceedings were allowed. Furthermore, creditors could only force commercial debtors into bankruptcy, and the proceedings were involuntarily. Proceedings for individual consumers were not allowed in general. As was the case for commercial debtors, voluntary bankruptcy petitions for individuals were not allowed.

However, things changed with the bankruptcy Act of 1841. The commercial eligibility test was eliminated as a bankruptcy requirement, and bankruptcy was made available to individuals. For the first time, debtors were allowed to file a voluntary bankruptcy petition, instead of being subject to a creditor’s involuntary bankruptcy proceeding.

Unfortunately, for those who might have petitioned for bankruptcy at the time, the Bankruptcy Act of 1841 was short lived. It was repealed in 1843. In 1867, laws were passed that allowed voluntary petition for bankruptcy to be filed. Historically, not much is made of the 1867 changes. The next important, groundbreaking change to bankruptcy law occurred in 1898.

The Nelson Act of 1898 and the Bankruptcy Reform Act of 1978

The Nelson Act is sometimes referred to as the Bankruptcy Act of 1898. This law survived for almost 80 years, with some amendments.

After this 80 year span, Congress passed the Bankruptcy Reform Act of 1978. The revision to the law in 1978 was a very far reaching overhaul of bankruptcy. The system we have today is still largely based upon the 1978 framework.

Items that continue today from the 1978 Act are the four principal bankruptcy chapters: chapter 7, chapter 11, chapter 12 and chapter 13.

The Bankruptcy Reform Act of 1994

Bankruptcy laws were streamlined and clarified by the passed of the Bankruptcy Reform Act of 1994. This revision to bankruptcy law helped to clarify the requirements for both individual consumer bankruptcies as well as for business bankruptcies. Most bankruptcy law practitioners agree that following the 1994 Act, bankruptcy worked fairly well with relatively clear rules and standards.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

In 2005, Congress developed another reform. This reform was controversial, and had been advocated for beginning in 1996. On October 17, 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 came into being. One knowledgeable Judge wrote of the 2005 law: “Those responsible for the passing of the Act did all in their power to avoid the proffered input from sitting United States Bankruptcy Judges, various professors of bankruptcy law at distinguished universities, and many professional associations filled with the best of the bankruptcy lawyers in the country as to the perceived flaws in the Act. This is because the parties pushing the passage of the Act had their own agenda. It was apparently an agenda to make more money off the backs of the consumers in this country. It is not surprising, therefore, that the Act has been highly criticized across the country. In this writer’s opinion, to call the Act a ‘consumer protection’ Act is the grossest of misnomers.” These comments were made by Judge Frank R. Monroe as cited in In re Sosa, 336 B.R. 113 (Bankr. W.D. Tex. 2005) in “Chapter 11 for Individual Debtors: A Collier Monograph”, by Daniel M. Press and Brett Weiss.

How bad is the 2005 Act for consumers? Well, nearly 9 years on, we find that perhaps it is not so bad after all, and as a result, the bankruptcy remedy is available to all consumers who want to file for bankruptcy.

Income Tests and Bankruptcy Today

The 2005 Act establishes income tests that look at income over the past six months leading up to bankruptcy. However, many people still find a way to qualify, even if their income is higher.

Problem: Don’t qualify for Chapter 7 under the 2005 Act tests?

Solution: One option can be as easy as ceasing overtime or quitting your job and then filing bankruptcy a few months later.

Problem: Can’t afford to quit your job to qualify for Chapter 7 under the Chapter 7 income tests because you need the benefits and have to support your family?

Solution: File a Chapter 13 and seek a deviation from the repayment formulas under the 2010 U.S. Supreme Court case, Hamilton v. Laning. These deviations are granted relatively routinely provided there are good reasons why you need to spend less repaying your debts in Chapter 13 while spending more on your household needs.

Problem: Was your Hamilton v. Laning request to pay less under Chapter 13 rejected, and you now required to repay debts according to the income test formula?

Solution: Pay according to the income test formula for six months and then seek a plan modification to permanently reduce your payments into the 5 year chapter 13 repayment plan, enabling you to bypass the income test formulas imposed upon higher income Chapter 13 debtors.

Are there only three ways to beat the restrictions of the 2005 Act? Of course not! A qualified bankruptcy law practitioner has even more knowledge about bankruptcy law to get you the relief that you need and deserve.

How Do You Select a Qualified Washington Bankruptcy Lawyer?

Look for a bankruptcy lawyer who is a member of

  • the American Bankruptcy Institute (ABI),
  • the National Association of Consumer Bankruptcy Attorneys (NACBA), and
  • The Washington State Bar Association Debtor/Creditor Section.

Also, ask if your bankruptcy practitioner actually attends at least some of the semi-annual ABI and NACBA programs. These programs are attended by bankruptcy attorneys nationwide, are located out of state, and entail expenses for tuition, travel and accommodation. Attorneys who are “triple members” of all three organizations and who actually participate in the events sponsored by ABI and NACBA are usually among the best informed and most conscientious bankruptcy lawyers you will find in the marketplace.

I am a member of all three organizations. In doing so, I am one of the few South Puget Sound bankruptcy practitioners who makes the necessary sacrifices and investments in time, expense, and study. In addition to attending the seminars sponsored by the ABI and NACBA, I also participate in the Northwest Bankruptcy Institute educational presentations.

You or someone you know may want to turn over a new leaf, and get started towards a brighter financial future now. Call us at (253) 383-1001, or contact us through the form on our web site, in order to schedule a free, no obligation, personal consultation with me. During our meeting, I will listen to your situation, examine your options with you, and explain how and why bankruptcy may be the right choice for you. Don’t wait; stop procrastinating! Act now to regain your peace of mind right away.

Phone: (253) 383-1001

Home Prices Increase, But More Slowly, in June, While Pending Home Sales Decline

Homeowners have been through a roller coaster that rivals any mere thrill ride over the past decade. The curves and slopes represented by single family home prices have at one time or another over the years led to temporary riches, longer term losses, and more familiarity with terms like “under water”, “upside down”, and other financial slang than most homeowners would prefer. As reported by the S&P/Case-Shiller gauge, U.S. home prices increased by 2.2% in June. That’s a healthy increase, but in May, home prices increased an average of 2.5% nationwide.

These results aren’t uniform when you look inside the numbers. According to an analysis of the most recent S&P/Case-Shiller index by marketwatch.com, in six cities, prices rose faster in June than they did in May. In May 10 cities had posted faster monthly growth.

A longer term view shows more good news for home sellers when reviewed on an annual basis. Annual home-price growth hit 12.1% in June, down from 12.2% in May, when prices hit the fastest year-over-year pace since 2006.
Ruth Mantell, the author of the Cash-Shiller Index analysis, also reports on pending home sales on marketwatch.com. According to her article, “Led by drops in most of the U.S., sales contracts on homes fell 1.3% in July, a second month of declines, as mortgage rates continued to rise, according to data released Wednesday. Despite the recent drop, the pending-home sales gauge in July was up 6.7% from the year-earlier period, according to the National Association of Realtors. By region, pending home sales in July fell 6.5% in the Northeast, 4.9% in the West and 1% in the Midwest. Meanwhile, pending sales rose 2.6% in the South. A sale is listed as pending when the contract has been signed. Sales are typically finalized within one or two months of signing.”

Ideas for Action

If you are in the market to buy a home, rising interest rates may temper price increases in homes in your price range.

The articles and the surveys that the articles are based upon represent aggregate information that can be helpful in identifying trends, but probably has little direct correlation on individual markets like the one where you live. A realtor friend points out that the number of foreclosures and short sales in an area greatly affect the comparable market value of homes for sale in that area.

Spend time finding the most reputable realtor, and most reputable lender, that you can. Insist that they provide you with reviews and references if you can’t find reviews on the web. When you buy a home, you are making an enormous financial commitment that will have long term repercussions on your financial life. Ensuring that you are well represented and advised in your home buying and selling transactions, just as you ensured that you are well represented legally by engaging the Law Offices of James H. MaGee as your attorney, is worth the time and effort to identify reputable real estate and loan servicing agents in order to achieve the quality, satisfactory results that you should expect.

What you don’t know about “Charge off Dates” can hurt you

You may be able to remove some negative items off of your credit report by disputing old debts that are no longer due, and watch your credit score rise as a result!

Reporting invalid “out of statute” debt as currently collectible obligations is an old bill collector’s scam. If you fall into this trap, you could be tricked into paying money you don’t owe.

Did you know that consumer debt that has been in default for more than six years is not collectible using any sort of lawsuit or legal process, and therefore should not be reported on your credit report? However, there is an important exception to that rule in the case where debt is owed as a result of a lawsuit judgment that was issued at some time within that six-year period. I’ll explain how this exception applies later in this article.

Many Americans have several “out of statute” debts –debts that should not be listed as currently due on their Experian, Transunion or Equifax credit report. These debts are too old to be carried on the credit report. In these cases, you should write to the collection bureau that lists the debt and dispute the entry so that the debt no longer appears on your credit report from that credit reporting bureau.

Q: How do bill collectors get away with this?

A: Once a debt has been in default (unpaid) for six years, the statute of limitations to collect the debt has expired. The creditor cannot file a suit to collect the debt once the debt is too old, as having been in default for six years. However, to trick you into thinking that the creditor has additional time to collect upon the debt, the creditor will (out of thin air) make up a phony date called the “charged off date”, and put that phony “charged off date” on your credit report as the date of default.

Q: Why is my credit score important?

A: The benefits of improving your credit score are undeniable; improved employment prospects, cheaper car insurance, and low-interest rates for future car loans and mortgages are among the perks of a better credit score. A FICO credit score of 700 or higher is ideal for the best of benefits –850 is considered “perfect” credit.

Q: My credit is pretty rocky. Will disputing “out of statute” debts really help?

A: If your credit is already really troubled with many enforceable unpaid debts, then disputing a few here and there might not be that helpful–a bankruptcy filing might be the right call. We can help you determine your best course of action, contact us at www.washingtonbankruptcy.com. But if your credit is reasonably clean, you should make a habit of securing your free credit report each year, and checking it for errors. Even after a bankruptcy filing, you should get in the habit of making an annual review of your credit report. You can obtain your free credit report atwww.annualcreditreport.com.

Q: Why do creditors report “charge off dates” as occurring months or years after the date you defaulted on the debt?

A: It is a trick to fool you into believing that an aged and invalid debt is still valid and collectible. Actually, “Charge off date” is a term of no legal significance. So definitely make a written dispute of all credit report debts that have been unpaid and in default for six years or more, regardless of the “charge off date” reported in your credit report.

Please read the rest of this article on my website. My website also contains many more useful tools and voluminous information on bankruptcy and financial planning that I invite you to browse and learn from at no cost or obligation.

You Can Add Points to Your Credit Score by Beating the “Charge off Date” Scam

You may be able to knock a few negative items off of your credit report by disputing old debts that are no longer due, and watch your credit score rise as a result!

Reporting invalid “out of statute” debt as currently collectible obligations is an old bill collector’s scam. If you fall into this trap, you could be tricked into paying money you don’t owe.

Did you know that consumer debt that has been in default for more than six years is not collectible using any sort of lawsuit or legal process, and therefore should not be reported on your credit report? However, there is an important exception to that rule in the case where debt is owed as a result of a lawsuit judgment that was issued at some time within that six-year period. I’ll explain how this exception applies later in this article.

Many Americans have several “out of statute” debts –debts that should not be listed as currently due on their Experian, Transunion or Equifax credit report. These debts are too old to be carried on the credit report. In these cases, you should write to the collection bureau that lists the debt and dispute the entry so that the debt no longer appears on your credit report from that credit reporting bureau.

Q: How do bill collectors get away with this?

A: Once a debt has been in default (unpaid) for six years, the statute of limitations to collect the debt has expired. The creditor cannot file a suit to collect the debt once the debt is too old, as having been in default for six years. However, to trick you into thinking that the creditor has additional time to collect upon the debt, the creditor will (out of thin air) make up a phony date called the “charged off date”, and put that phony “charged off date” on your credit report as the date of default.

Q: Why is my credit score important?

A: The benefits of improving your credit score are undeniable; improved employment prospects, cheaper car insurance, and low-interest rates for future car loans and mortgages are among the perks of a better credit score. A FICO credit score of 700 or higher is ideal for the best of benefits –850 is considered “perfect” credit.

Q: My credit is pretty rocky. Will disputing “out of statute” debts really help?

A: If your credit is already really troubled with many enforceable unpaid debts, then disputing a few here and there might not be that helpful–a bankruptcy filing might be the right call. We can help you determine your best course of action, contact us at www.washingtonbankruptcy.com. But if your credit is reasonably clean, you should make a habit of securing your free credit report each year, and checking it for errors. Even after a bankruptcy filing, you should get in the habit of making an annual review of your credit report. You can obtain your free credit report at www.annualcreditreport.com.

Q: Why do creditors report “charge off dates” as occurring months or years after the date you defaulted on the debt?

A: It is a trick to fool you into believing that an aged and invalid debt is still valid and collectible. Actually, “Charge off date” is a term of no legal significance. So definitely make a written dispute of all credit report debts that have been unpaid and in default for six years or more, regardless of the “charge off date” reported in your credit report.

Q: Can you give me an example of a phony “charge off date” for an “out of statute” debt?

A: Let’s assume that you received medical or dental services on May 20, 2005 (8 years ago) that were billed to you on June 1, 2005. Let’s assume that you made one or two small payments and never paid again after August 1, 2005 (7 years 9 months ago). Finally, let’s assume that as of today, May 22, 2013, the remaining unpaid medical/dental bill balance appears on your credit report as “charged off” on December 31, 2009 –only 40 months ago. What should you do?

In this example, you should make a written dispute to each credit bureau that lists this debt as still due–based on your current credit report that you obtained for free at www.annualcreditreport.com–so that the debt can be removed from your credit report for each credit reporting bureau that lists the debt as due. The date of default for the debt was really July 1, 2005, the last date you made a payment that did not pay the debt in full. The last date that the creditor could file suit to collect the debt was six years later on July 1, 2011. You have been “free” of the debt for 1 year and 10 months, since July 1, 2011.

Q: What should my “out of statute” credit report dispute letter say?

A: The credit report dispute letter should be sent to each of the three credit reporting agencies: Equifax, Transunion, and Experian. In addition, I always recommend that you include a copy to the original creditor. In order to address the example debt we examined above, I suggest that your letter contain the following language: “If I even ever owed this debt reported as owing to _____, I dispute that I presently owe the debt. If I ever owed it, then I defaulted upon this debt on July 1, 2005 and the six-year statute of limitations to commence a collection lawsuit passed on July 1, 2011. Today is May 22, 2013. No lawsuit was ever commenced. This debt was erroneously reported on my credit report as a valid and collectible debt having a “charge off date” of December 31, 2009. This entry is thus not accurate because the debt would no longer be collectible under local law as it is an out of statute debt. I require that you remove any and all reference to this debt from my credit report at once and that you recalculate and amend my credit score without the effect of this debt computed into the calculation. Please provide me with a copy of the amended credit report within 30 days of the date when this letter was first written as shown above.”

Q: Do Sporadic Payments “Reset” the Default date?

A: Probably not. I do not believe that must judges would rule that a few sporadic payments here and there over the years would rescind your default on the debt. Back to our example: medical and dental bills are almost always “due upon receipt”. When you did not pay the debt off in full within a short period following the date you received the initial bill on June 1, 2005, you were then in default upon the terms, even if the medical or dental creditor did not “declare” you to be in default until 54 months later on December 31, 2009.

The “charged off date” is just the date at which the creditor declared the bill not readily collectible for its own internal accounting purposes, and in most scenarios the creditors choose an arbitrary and ridiculously late “charged off date” to fool you into thinking that the default date (and thus the commencement of the running of the six-year statute of limitations) occurred much later than was truly the case.

Q: But I always thought “Charged off” means “forgiven”?

A: Some folks innocently confuse “charged off” as meaning “forgiven”. Please, don’t make this mistake. “Charged off” does not mean “forgiven”, “written off” nor “pardoned”. If you see “charged off” on your credit report for a relatively recent debt, do not take comfort! The debt is still collectible by lawsuit for six years from the date that you were supposed to pay the debt—the amount of the debt that you did not pay. And there are more problems.

Q: How long can I be pursued for a valid debt?

A: If a debt is valid—the debt is still due and payable within six years of the date of default—the creditor can file a lawsuit and obtain a judgment provided that the lawsuit is filed with the court before the six-year period expires. Once a judgment is obtained in the creditor’s lawsuit to collect the debt, the creditor has ten years after the date of the judgment to pursue and garnish you based upon the lawsuit judgment. There is even worse news. After the first 10 year period draws to a close, the creditor can ask the judge to extend the judgment for an additional 10 years (for a total of 20 years!). That’s right; the creditor can have up to 20 years to garnish and collect from you.

Q: When is bankruptcy the best choice to recover and rebuild my financial life instead of disputing credit report contents?

A: If you have no hope of repaying your existing debt off within 24 months, consider a bankruptcy filing. Your credit can often return to health with amazing speed! To learn how, please read my article entitled, “Rebuild your credit score after bankruptcy”. Even better, please contact my offices to make an appointment for a free, confidential, personal consultation so that I can advise you about your individual circumstances. Don’t wait; the creditors won’t go away unless you act now!

Throughout our lives, we must remain ever vigilant of our credit report contents in order to protect our financial future. Remember, you can dispute any and all debts that have been in default for more than six years—regardless of the date reported by creditors as the “charge off date”.