As the Debtor's Revolution continues on YouTube, you have to view these videos, especially the one posted here, and ask yourself if Bank of America is intrinsically evil?
As the Debtor's Revolution continues on YouTube, you have to view these videos, especially the one posted here, and ask yourself if Bank of America is intrinsically evil?
According to CNN and other sources, despite government and lender efforts to halt foreclosures, in the third quarter of this year 937,840 homes received a foreclosure letter, whether a default notice, auction notice or bank repossession notice. This according to RealtyTrac. This means that 1 in every 136 homes in the United States were in foreclosure during the 3rd quarter. This is a 5% increase from the second quarter, and a 23% jump over the third quarter of 2008. The numbers are down slightly for September, but not by much.
These statistics are disturbing for a number of reasons, not the least of which the stats demonstrate that foreclosures are rampant, and there does not seem to be any end in sight.As what happens with most bulk operations, this is resulting in less oversight by mortgage servicing companies that tends to follow debtors into bankruptcy. As a result, the automatic stay is violated in aggressive, and sometimes unusual, ways, as the mortgage companies work at recovering not only properties but in recouping their losses.
The bottom line is that this plow-through philosophy in regard to mortgage loans in default, and the systematic drive to recover losses by the mortgage servicing companies, results in bad bankruptcy practices.
As to the YouTube based Debtors Revolt, you have to believe that consumers have at least found a new way of making their plight heard by the powers that be at these large financial institutions. And, there are signs that, at least in limited circumstances, that the tactic is working.
Now as reported by HuffPo, Bank of America has cut another deal with a YouTuber that its call center and lack of concern had previously ignored. It is strange that the bank staff cannot feel compelled to listen to their customers and debtors when an appeal is made in person and in private, but they cannot ignore the appeal when it is made in public. That, if nothing else, represents a shameful practice.
We presented the YouTube video of Ben Frasier on this site earlier. (See it below as well). Mr. Frasier stated that he would not make any more payments on a $30,000 personal line of credit unless Bank of America would let him settle up with a lump sum. Bank of America was not interested in the offer when he made it over the telephone. Bank of America apparently took notice when it was made public.
First, Bank of America settled with Ann Minch who helped start the YouTube revolution back in September. (See her video below as well). Now, it has agreed to settle with Ben Frasier.
As was reported on HuffPo, BofA's agent made the following offer, "Based on the new payment amount from you of 15,134.78 and the credits to that account that I stated below, it would leave a remaining balance on the account of roughly $12,215.00. I would then be able to set that amount to a 60 month payoff term and an interest rate of 8.99%. The new payment on that amount for the 60 months would be roughly $260.00". Mr. Frasier stated that he would accept the offer as soon as he saw it on paper. He told the HuffPo that he is happy with the deal even though he thought the way he got it was ridiculous.
As reported by HuffPo and others of late, banks and credit unions in this country raked in an eye-popping $24 billion in overdraft fees in 2008, this according to the nonprofit Center for Responsible Lending. But, that is not the scary statistic. That would be that this figure is an increase of 35% from 2006. These fees and increases effected 51 million people, and they do not even consider another substantial increase in these fees this year. Some say this year the fees will exceed $27 billion and, as it has been pointed out, this is the first time that banks and credit unions have increased these fees during a recession. In short, they are kicking people when they are down.
How bad is this?
Well, it represents about $470 per person per bank account affected. It means that the poor cannot effectively afford a bank account to manage their money in this increasingly online and debit card based world, and it means that everyone else is forced to live with a type of bank tax, the amount of which most would scream about if it was being handed out by the federal government. The only ones that avoid this tax are the richest bank customer. And, I do not really know, but I would bet, that a bank would not be silly enough to rip this money out of the bank account of a congressperson (Republican or Democrat). Otherwise, the tax is so pervasive that no one else can much escape it.
Now, of course, the banks and credit unions bill these fees as a convenience for customers who otherwise would see their purchases denied. The problem is that the cost of such losses is nowhere near the level charged. Further, the banks and credit unions have configured their systems so as to present them as a trap for consumers who do not know the precise dollar amount in their checking accounts.
It is fine to say everyone should know at all times their balance, but in this day of debit cards, coupled with online providers and the banks dipping into customers' accounts at will (often changing their collection dates, increasing the amounts taken from the account and on other terms without fair warning). A perfect example of this is that, as a condition of my non-negotiable contract for health insurance for my family, these funds come out of my account each month. In the past, these funds came out on the 20th of each month (or the 22nd depending on a weekend or holiday). Now you can plan for this. Except, I receive a letter from my insurance company informing me in August that my premium would increase substantially come my October payment. Two things happen, of which I was not aware, however. First, the insurance company took out the higher amount in September. Secondarily, they decided, probably for profitability reasons, to unilaterally change the debit date to the 16th of the month.
These issues arise constantly for most people. It use to be that banks would take this into account with their good customers and waive these fees if asked. Bank of America, for one, as been reported as directing its staff not to do this any longer.
The problem with this being a profit machine for the banks and credit unions, is that they manipulate the system to bankrupt many who have these types of events happen. For example, since it is programmable, when it comes to tallying the fees, some banks post debits from the highest amount to the lowest, rather than chronologically, or the lowest to the highest, so a $4 purchase at 10 a.m. at Starbucks, for example, is posted to the account after a $68 dinner bill that created a negative balance, making each subject to a fee.
Now, it has been reported by Law.Com that Wachovia, Bank of America, and Citibank have been sued over "bad-faith" overdraft fees, and probably for good reason. It is such a problem that regulators and legislators are trying to beat back after years of failed attempts. The Federal Reserve is considering new rules, and Representative Carolyn Maloney (D-N.Y.) introduced a bill in March that calls for consumers to be alerted every time a debit card purchase would overdraw an account. Senator Chris Dodd (D-Conn.) is expected to introduce similar legislation. Only because of this, banks such as Bank of America, JPMorgan Chase and Wells Fargo announced changes to their overdraft programs. One such move: finally allowing customers to opt out of the service.
A recent survey of 679 adults by Consumers Union, the nonprofit publisher of Consumer Reports, found that two-thirds of bank customers said they preferred to expressly authorize overdraft transactions. And, do not think about getting out of this by buying prepaid debit cards. Now, The New York Times is reporting that banks hide enormous fees within the terms of these cards.
What is amazing to me about his is that the so-called co-ops known as the credit unions, that were invented and are chartered to lower the costs of banking and keep the big banks honest, are not only not doing this job, but are conspiring along with the banks to rip off their customers. So much for an alternative to a public option in anything we do.
The bottom line is that the wealthy, with their banking partners, gamble the economy into near oblivion, and then their lower income customers are taxed in a devious way to bail out the banks and credit unions.
It's wrong. It is important for us here because overdraft fees tend to follow people into bankruptcy as well. First, it removes the banks and credit union as an honest broker on which the debtor can rely when they file bankruptcy. Most have to move their accounts, and now cannot open new accounts because these fees are owed. Second, the fees are often represent the nails in the coffin that place the debtors over the edge in an already bad situation.
Gary Ozenne is a good example of the problems facing debtors. Changing creditors, assignment of loans wherein mortgage servicers do not handle the agreements and understandings of the companies from which they are acquiring loans, the inability of lawyers and others to help, and the lost of homes by ordinary people where the collection activities have just gone too far. Now, due to activities beyond their control the only place they can add their voice, and possibly solicit some help, is YouTube.
I think Gary Ozenne's video is important because it demonstrates we are not dealing with careless, extravagant or inarticulate people. We are dealing with thoughtful people who have work to solve problems that would seem to be in their best interest, but also the best interest of the lenders and the country.
The issue is arrogance on the part of the mortgage servicing companies, and the inability to communicate and do their jobs. People that should be getting help and are working to save their homes, are ignored and worse.
If anybody knows of someone that might be able to help Gary Ozenne, let him know. I will forward any email sent to me on his behalf to him.
Of course you could look at a 50% recidivism rate as a bad thing, or you could look at it as 50% of all home loan modifications work. That is a good thing. Much like asking yourself if the glass is half full or half empty, it pretty much depends on whether you are drinking or pouring. A 50% success rate in home loan modifications is good or bad depending on whether you are actually trying to save the American dream for everyone you can, or you are trying to bail out banks. Are you looking at it as working to solve an individual crises or as a statistic?
Anyway, that is my overall thought about the subject.
As reported by HuffPo and other sources, a report by the Office of the Comptroller of the Currency and the Office of Thrift Supervision reports that more than 50% of homeowners with loans modified earlier had missed at least two months of payments a year later.
Very telling in the report, however, was that among those who had their payments reduced by 20% or more, 60% of those had not defaulted again.
What the report says to me is that the program works substantially well, but that nothing works as well as when the all of the underlying difficulties that cased the homeowner's crises in the first place are not effectively addressed. You can end the predatory lending and modify the loan, but if the payments are too high, if the person is still unemployed or under employed, of if the market conditions around the home, the loan of which was modified, have tanked so there is no exit strategy when needed, nothing is going to help that is not more comprehensive in scope.
This is the reason that Congress should have placed bankruptcy judges in charge of this crises. Boots on the ground, as such, that can evaluate the matter up close and personally. Also, bankruptcy represents a program that is already designed to deal more effectively with the comprehensive issues a person faces.
Typically, the home loan is only one of the problems. If the homeowner has large medical bills, credit card bills, payday loans or other unsecured debt in a state where wage garnishment is likely, no amount of effort to restructure the home loan is going to be that helpful in the long run.
As for values and cramdowns, I think it is just silly to suggest financial institutions and the government are going to have to take back these houses at great expense, and then sell them for a highly discounted price, depressing the rest of the housing market for everyone else, and then suggesting that it is somehow not okay for distressed homeowners to keep their homes for its actual value. Why does it make sense that investors and rich homeowners and agribusiness can do this, but that ordinary people cannot. A former investment banker can cramdown a ocean front vacation home, but a middle class working stiff cannot. It just offends the fundamental sense of justice, but ultimately this is what the Blue Dogs and nearly all of the Republicans think is right.
The question, ultimately, is whether ordinary people in financial trouble can reorganize and keep their homes at no further detriment for the financial institutions holding the note than what the financial institutions already face? It is simply wrong to suggest that this should not be the case. And, to the extent that we have revolving defaults is because we have assistance that does not even begin to address the comprehensive problem that homeowners are facing.
I understand that there are some Democrats in the House and Senate that intend to bring up the cramdown provisions again this Fall. Let us all hope they do better this next time. The real fate of too many real, salt of the earth, God-fearing people depend on it to save their way of life.
Green Tree typically deals in the hardest of loans - more risky mortgages, second liens, HELCO and the largest portfolio of manufactured housing loans.
Now, no one can fault Green Tree for collecting debts. No company is in the business of giving away money or giving away homes. That much is true. The question has always been with Green Tree the inability to turn off the collection activities when things like bankruptcy intervene or to tone it down when personal tragedy is at stake. Money owed or not, it would just seem like to the decent thing to do. Remember, Green Tree manages secured money loans on homes to some of the least credit worthy people in this country. Obviously, it has more than enough problem in getting compliance with loan terms. It has undoubtedly created a machine, a mechanism really, that makes its borrowers believe it is the squeaky wheel that needs to be oil. It is efficient in this regard and, as a result, relentless. Once the machinery is turned on, so to speak, it cannot necessarily be turned off. Or, it seems that is what I have observed over the couple of decades I have seen Green Tree in action.
In Green Tree's defense I practice in an area that only sees the bad side of their operation. I have no knowledge of the percentage of customers that are happy with Green Tree or might be grateful for their intervention when someone falls behind.
And, then of course Green Tree never admits wrong when it is brought to task for some of its activities. If fact, if you every listen to their attorneys, the company is just an angel who is being picked on by the devil of the borrower that did it wrong. The company never much settles anything, it fights everything to the bitter end for fear, I guess, that they might have to come to terms with their practices. Maybe it is just to simply discourage people and attorneys in defending a debtor's rights. Who knows the thinking behind the policy.
A couple of examples come to mind. It is hard to know the truth of the matter or the actual facts of the case. I agree that every story has two sides. But, HuffPo reports on the case of Dianne McLeod, who is suing Green Tree Servicing for contributing to her husband's death at 57 years old. Stanley McLeod became ill after suffering a heart attack. This caused his family to fall behind in their payments on their manufactured home in Florida. This resulted in Green Tree numerous caustic phone calls to him each day, causing his health to deteriorate even further. Or, so says the family.
Green Tree has stated that this wrongful death claim is "outrageous and meritless". Maybe it is as the case has yet to be fully litigated. But, it is also notable to say that Green Tree makes these claims in almost every case in which it is sued for its collection activities.
According to the article, in one of the many recorded message, an angry male caller can be heard saying: "Stanley McLeod, you need to call Green Tree and get your act together and make a payment on your mortgage. Quit playing games." Then, presumably referring to the emergency aircraft that flew McLeod to the hospital after his heart attack, the caller said: "Why don't you have that helicopter pick you up and bring that payment to the office."
Other recorded calls gave him a deadline to pay a certain amount and threatened foreclosure. Some implored McLeod to call back so the company could try to work out payment arrangements with him.
The family's lawyer states that the number and harassing tone of the calls broke Florida law, and that Green Tree also illegally called a neighbor and McLeod's brother and grandson regarding the debt. The 2nd District Court of Appeal in Florida again ruled against Green Tree in the company's efforts to force the case into arbitration. And, the family's lawyer states further, "What happened to Stanley McLeod happened to a lot of people".
Green Tree for its part states, "We deny that collection calls, whether the content, number or timing, led to Mr. McLeod's death, and we look forward to defending this matter in a court proceeding instead of in the media."
Ultimately, the Jury will have to decide whether the number and intensity of phone calls can be egregious enough to contribute to someone's death.
Maybe a lender has to foreclose, and that will undoubtedly work a real hardship on a family. We see it every day in this country. That is a shame. But, having to do something like foreclosing because payment cannot be achieved, and harassing, are two different things.
The McLeod case reminds me of a case in the Tyler, Texas Bankruptcy Court entitled Mooney v. Green Tree Servicing LLC. It did not involve a death, but it demonstrated, at least for this judge, that Green Tree's collection practices were over the top. In this case, Green Tree was found to have repeatedly and egregiously violated the discharge injunction issued by the Court upon the completion of a bankruptcy.
In Mooney, Green Tree constantly contacted the debtor to collect the debt and then filed a lawsuit against the debtor in which it sought a judgment against the debtor personally. Yet, despite this objective evidence, Green Tree maintained that it had done nothing wrong, and that it was not attempting to collect a debt.
The Court found: "The evidence presented in this case is clear and convincing in its demonstration of the pervasive nature of the violations of the discharge injunction committed by Green Tree. In offering a laundry list of activities proscribed by the discharge injunction, one leading commentator explains that the discharge injunction '. . . extends to all forms of collection activity, including letters, phone calls, . . .or other adverse actions intended to bring about repayment [and that] . . . [p]ost-discharge lawsuits, of course, are clearly prohibited, ' fact that Green Tree engaged in every one of those enumerated, proscribed activities in this case cannot go unnoticed nor unremedied. In fact, Green Tree violated the discharge injunction in such a ubiquitous manner, even after being repeatedly informed of the impropriety of its conduct, the Court must conclude that Green Tree’sviolations were not only willful, but malicious". The Court went on to call Green Tree's conduct toward the Debtor "vexatious" and "egregious".
The Court in this case awarded $61,643.40 against Green Tree, of which $40,000.00 of this amount constituted punitive damages.
Each of these are individual cases. As such they stand alone. Nobody really knows how many times or what percentage of their loans in default receive this kind of treatment. But, it is pretty obvious the argument seems to rise up all too often.
If we understand this, if we understand the trauma and suffering real people are fighting to avoid in filing bankruptcy, if we can just come to somehow appreciate and acknowledge how disparaging such a world is that it must be avoided, then we would better understand the emotional damage that is done when creditors and others willfully violate the automatic stay and discharge injunctions issued in bankruptcy cases.
An HuffPo article recently brought some of this to light when it wrote about the heart-breaking wreckage that junk removers find when vacating foreclosed homes.
In the article they talk about finding the
report cards of elementary school children still stuck to the
refrigerators, the parents obviously proud of the As and Bs obtain.
The elderly that are locked in because they cannot escape, what seems
to many of us, the insignificant level of debt. The unemployed that
cannot seem to get any traction in extracting themselves from the hell
they find themselves.
It is all so real. It has to be understood in a non-academic and personal way. It needs to be internalized.
There is one thing that the law requires in almost any real estate action, at least in those states or in bankruptcy court, where there is a judicial action concerning foreclosure. That is the requirement to produce the actual real estate note, or at least a reasonable copy of it.
One would think that a lender, wishing to litigate on its note, or wishing to foreclose, would not have that much difficulty producing the darn thing. But, that appears to be wrong.
According to an article in HuffPo, and other media outlets, a small homeowner rebellion called "show me the note" or "produce the note" is taking off with some degree of success.
The truth of the matter, in this computer day and age, as these mortgages have been sliced up and transferred with great regularity, it just seems impossible for many creditors to produce the original mortgage note, as they must do if challenged. This has provided an opportunity for lawyers to get foreclosures stopped and get modifications negotiated.
As quoted in the article, "You wouldn't imagine that the lenders would be that slovenly that they would not be able to produce adequate documentation of the debt," said House Financial Services Committee member Rep. Brad Miller (D-N.C.). "But apparently a lot of times they really have been unable to."
When involving North Carolina's legal assistance to homeowners facing foreclosure, roughly one of every three mortgages has been found to have some substantial legal discrepancy.
During the securitization boom, millions of mortgages were sold and packaged into bonds -- often many times over, metastasizing into esoteric financial instruments -- for sale to investors. Each time, the paperwork should have been changing hands and the homeowner should have been notified that someone new held the note. But just as deciphering the true holder of the mortgage has become more and more difficult for homeowners -- Is it the servicer? Investor? Trustee? Original lender? -- the paperwork has also become difficult to track.
This also comes on top of the trend with the legal aid attorney in Florida, requiring proof as to actually owned the debt. Now they are filing quiet title actions attempting to get title to the client's home.
In dismissing 14 foreclosure cases in 2007 based on a lack of proper documentation, a federal judge in Ohio admonished the lenders, stating their argument that "'Judge, you just don't understand how things work'...reveals a condescending mindset and quasi-monopolistic system where financial institutions have traditionally controlled, and still control, the foreclosure process."
Now of course that is not surprising. Especially in states like Texas where garnishment is difficult or impossible, I would assume that debt collectors are the motivation for most people filing bankruptcy. Not for the fact that debt is owed and unpaid, but because of the harsh and repeated tactics the debtors are trying to avoid.
According to HuffPo's reporting, according to the National Association of Attorneys General (NAAG), more complaints were filed last year against debt collectors than any other industry. This was unchanged from the same survey conducted in 2007. Further, "Debt collectors generate more complaints than any other industry," according to the Federal Trade Commission's Web site. In a February report on the industry, the FTC cited "major problems" and "recognized that certain debt collection litigation and arbitration practices appear to raise substantial consumer protection issues."
It should be no secret that most debt collectors serve no real purpose other than that of harassment. Sometimes it is subtle but, as indicated in this article, much of the time it is not. More importantly, from a bankruptcy standpoint, debt collectors do not know how, or do not care, to shut down the machine of collect activity just because a bankruptcy is filed. You see this all of the time. The bankruptcy is filed, the case and the existence of the stay is noticed out, but the inappropriate actions continue. Often these inappropriate actions continue even when placed on notice to stop violating the stay by the bankruptcy attorneys.
Why is this so?
Most likely for the same reason that debt collectors represent the largest number of complaints to the various AGs and the FTC. They do not make money if they are not stepping over the line.
Another way to look at it is that these are generally large organizations with people working in undesirable jobs. It takes a lot of effort and manpower to get the collection machine moving. And, as collectors will argue, all they hear are hard luck stories or reasons why they should not be calling. So, they are trained to ignore these issues and continue on. This often gets them in trouble both inside and outside of the bankruptcy context.
It is, in reality, an issue that is not much discussed by courts, but occasionally it is something that is challenged. That is who exactly owns a claim for an automatic stay violation. It is relevant for a number of different reasons. First, it is an issue of standing. Who may bring a claim and under what circumstances? Second, to whom is the violator of the automatic stay liable, and is it possible that the violator of the stay might have multiple liabilities for the same act? Third, if a claim has already been brought by another and settled, is there an issue of res judicata or collateral estopple? Fourth, is court approval required of a settlement if the cause of action is not brought by the trustee? And fifth, who is entitled to the recovery of funds if there is a settlement?
In the past the answer with most courts has unofficially been that under 11 U.S.C. § 362(k)(1) (or previously under the pre-BAPCPA rule of 11 U.S.C. § 362(h)) that each individual injured by a willful violation of the stay could maintain a separate cause of action against the one violating the stay. Also, that the cause of action did not belong to the estate in that it constituted a private cause of action or a private remedy which belong to, and could be settled by, the individual presumably injured. However, there have been some mixed exception to this rule in our Texas courts, especially in the area of Chapter 13 bankruptcies.
Although brought in the context of a Chapter 11 bankruptcy, the 5th Circuit Court of Appeals has, in a case of first impression, gone a long way in formalizing these more unofficial views expressed from the bench by the majority of our bankruptcy courts.
In St. Paul Fire & Marine Ins. Co. vs. Labuzan, the Court had to analyze these issues in order to reach the conclusion it was required to decide. In doing so, the 5th Circuit established the analysis that automatic stay violations brought under § 362(k)(1) constitute "private remedies" (meaning they can be multiple remedies for multiple parties suing over the same set of facts and circumstances) that do not belong to the bankruptcy estate (meaning the claims are not property of the bankruptcy estate) and thus the recovery or remedy belongs to the person(s) bringing those actions and not the trustee in bankruptcy.
Labuzan concerned itself with the question of whether non-corporate creditors could maintain there own cause of action against a violator of the stay in a Chapter 11 bankruptcy even when the Trustee had settled its own stay violation action with the violator for the exact same set of facts and circumstances? The conclusion of the Court was yes because the proposed cause of action brought by, in this case, a man and wife creditor did not belong to the Trustee in that the cause of action under § 362(k)(1) was not property of the bankruptcy estate.
This conclusion is worth repeating in that it is vitally important in the resolution of the issues raised in the opening paragraph of this post. Claims or causes of action, and their remedies or recoveries, brought by an individual, whether that individual is a creditor or debtor, is "NOT PROPERTY OF THE BANKRUPTCY ESTATE". (Emphasis added).
Before the decision in Labuzan, most bankruptcy judges, I think, had come to accept that money recovered pursuant to a § 362(k)(1) action does not belong to anybody but the debtor or party bringing the action, but there are few notable exceptions to this sentiment in which the bankruptcy judge believed the award constitutes property of the bankruptcy estate, requiring a Rule 9019 motion to be filed and the Court's subjective determination of whether the settlement was reasonable or a benefit to the estate. This sentiment has caused problems in that it discourages debtors, and other parties, from bringing violators of the automatic stay to account for their willful actions, it substantially increases the costs of the litigation, and it discourages settlements on reasonable terms. It also raises other issues, such as, if the claim is property of the estate, does the debtor's attorney have to get permission to represent the estate before agreeing to go forward with the litigation, whether any settlement must also benefit the unsecured creditors or the estate apart from just the aggrieved individual, or whether the trustee is a necessary party to the litigation other than for notice?
Although this decision does not fully clear up the argument in regard to a stay violation case brought under a Chapter 13, it comes close enough in my estimation, and the decision confirms what we have been stating all along. A "private cause of action" is exactly that. It does not belong to the estate. The recovery does not belong to the estate. If the estate also has a private cause of action, then the estate needs to bring its own case and seek its own recovery under 11 U.S.C. § 105.
The 5th Circuit reaches its conclusion first by citing its 1989 decision in Pettitt v. Baker, which states that § 362(k)(1) creates a "private remedy for one injured by a willful violation of the automatic stay". (Emphasis added). For years now some bankruptcy courts seem to gloss over this ruling and what it means, stating that under 11 U.S.C. § 1306 any cause of action that arises post-petition becomes property of the estate. These Courts equate the "private cause of action" to mean simply that the Debtor can prosecute the estate's cause of action, as opposed to the trustee. A detailed reading of the analysis in Labuzan would strongly suggest otherwise, however.
Although § 362(k)(1) is available to non-debtors that are "within the zone of interests", the 5th Circuit seems to agree that § 362(k)(1) does not apply to non-humans or non-persons, or the trustee, but that decision is dicta in that the Court was not necessarily requested to consider these issues. Since the issue on appeal was whether the Labuzans were asserting a § 362(k)(1) action that belonged to the bankruptcy estate the decision of the Court in this respect is of the most importance. If a § 362(k)(1) cause of action was property of the estate, according to the 5th Circuits test established in Educators Trust, the action could only be brought by the trustee. In Labuzan the Trustee had already brought such an action and the violator had settled that case with the trustee.
To the 5th Circuit, however, the reverse view of the Educators Trust test was the exact reason that § 362(k)(1) causes of action, recoveries and remedies do not belong to the bankruptcy estate. As stated in Educators Trust, "If a cause of action belongs to the estate, then the trustee has exclusive standing to assert the claim". That law is still good. Therefore, since § 362(k) grants a "private cause of action" and a "private remedy" to someone other than the trustee, then by its very nature under the Educators Trust test the cause of action cannot be property of the bankruptcy estate under § 541.
The trustee or any creditor might have standing itself to assert a claim, for the same facts and the same event, for a willful violation of the stay under § 362(k) or § 105, but that standing is not exclusive. This means, or course, that if the trustee brings a cause of action and prevails, that claim and remedy belongs to the estate. If a creditor brings a separate cause of action and prevails, that claim and remedy belongs to that creditor and not the estate or the debtor. If the debtor brings a separate cause of action and prevails, that claim and remedy belongs exclusively to the debtor and does not belong to the estate or the creditors. Neither a debtor's claim or remedy, nor a creditor's claim or remedy belongs to the trustee. Therefore, the recover or claim is not property of the bankruptcy estate.
Of course, as pointed out by the Court, a § 362(k)(1) action cannot be property of the estate under § 541 for the simple reason that a § 362(k)(1) cause of action could have never existed at the time of the filing of the bankruptcy. But, the analysis of applicability under § 541 and the Educators Trust test is vitally important in Chapter 13 analysis. This is because § 1306 includes as property of the bankruptcy estate in a Chapter 13 all property or claims, which arise post-petition, provided that the property or claim would have been property of the estate under § 541 if the claim had arisen pre-petition. This is a fictional analysis that must be applied, but what § 1306 says is that "all property of the kind specified in [§ 541] that the debtor acquires after the commencement of the case but before the case is closed, dismissed or converted" constitutes property of the estate. Therefore, if in the 5th Circuits § 541 analysis, an automatic stay violation under § 362(k)(1) does not constitute property of the estate under § 541, then it will not constitute property of the estate under § 1306.
The 5th Circuit went on to state that it is possible for the bankruptcy estate and a creditor to "own separate claims against a third party arising out of the same general series of events and broad course of conduct", and that these separate claims "are mutually exclusive". And, that there is "nothing illogical or contradictory about saying that [a violator of the automatic stay] might have inflected direct injuries on [the debtor, a creditor and the bankruptcy estate]."
In short, if the debtor or creditor brings a separate cause of action under § 362(k)(1), then that cause of action is not property of the bankruptcy estate. It does not belong to, nor is it owned by, the trustee or the bankruptcy estate. It constitutes a "private cause of action" and a "private remedy" for the person or individual which might bring the cause of action. If the trustee or the bankruptcy estate has been injured separate and apart from these causes of action, the the trustee, on behalf of the estate, should bring its own separate cause of action against the violator of the stay.
Nobody but nobody likes their mortgage servicing company. The stories of bureaucratic SNAFUs, rude people who will not listen when told they are making a mistake, and complete arrogance that they can darn well do what they want leads often to some horrific mistakes. This occurs both inside and outside bankruptcy.
NBC Miami reports of such an incident involving a Anna Ramirez when Washington Mutual (which is now part of Chase) auctioned off her $260,000.00 home for $87,000.00 and then, without any warning whatsoever, showed up with Miami-Dade police officers and removed her, her husband, her daughter, her grandchildren and tossed of their belongings from the house on the front yard. The family was given just three hours to get themselves out of the house, and their belongings off the front lawn.
The problem with the auction and the eviction?
Anna Ramirez was not behind on her house payments, the house was not in foreclosure, the house was not for sale, there was no foreclosure letter, no entry and detainer notice, or nothing else to warn them.
The mortgage company obviously blames the Miami-Dade Clerk's office for the mistake, which was eventually reversed by a Miami-Dade judge who allowed the family to return to their home, But, it is hard to see how the matter should have been placed with the Miami-Dade authorities by WAMU in the first place.
The Ramirez family had lived in their home for three years and only recently refinanced the home with the bank.
This situation actually occurs all of the time in a Chapter 13 context. A foreclosure is posted, a bankruptcy is then filed, notice goes out, and whether notice is ignored, not received or some other mishap occurs, the foreclosure process does not stop.
Most of the time the mishap does not escalate to this level as only the foreclosure has to be reversed. But, the situation is illustrative of fear that is associated when mortgage companies are allowed to run rampant irregardless of the bankruptcy filing. Maybe the homeowners are not evicted as we have in the case at hand, in the long run, but the fear still exists. This results in mental anguish.
And, it is also important to note that my firm has handled a number of stay violations in which, by the time the case is referred, the debtors have already been evicted and their belonging removed to the front yard.
Bankruptcy attorneys and debtors need to remember to always be vigilant, proactive and timely as to bankruptcy notice. Maybe it does not stop the willful conduct, but it at least gives the debtor a cause of action and possibility of recovery for a willful violation of the stay when it does occur.
It is something that we as practitioners run into all of the time. A willful violation of the automatic stay took place when the bankruptcy case was pending, or the bankruptcy case gets dismissed during the stay litigation for one reason or the other. Then the violator comes in and argues that the bankruptcy court has somehow lost jurisdiction to hear the stay violation case. Or, the bankruptcy court dismisses the pending adversary proceeding sua sponte as if the adversary is based on the continued administration of the estate. Often times it is a self-fulfilling prophesy of sorts. In fact, the argument can almost rise to that of a strategy. If true, all the violator needs to do is disrupt the bankruptcy enough that it gets dismissed, often for non-payment of trustee payments, which usually is a result of the stay violation.
Although there are some judges that for some reason buy into this argument that dismissal of the bankruptcy ends or prevents the litigation on the stay violation case, most bankruptcy judges do not. Yet, for some reason, this issue is never much discussed or published.
Now, the United States Court of Appeals, 10th Circuit, has addressed the issue in Johnson vs. Smith. Writing for a unanimous panel, the decision was decided without oral argument by Judge Harris Hartz, in an appeal from the 10th Circuit BAP.
M&M Auto Outlet is Wyoming's largest used car dealership. It was found to have willfully violated the automatic stay provisions of 11 U.S.C. § 362(a) of Tommy and Candice Johnson's Chapter 13 bankruptcy. (Mr. Johnson later passed away). As a result, the Bankruptcy Court awarded damages as against M&M. $937.50 was awarded directly to Mr. and Mrs. Johnson, $5,028.50 in attorneys' fees and $232.23 in expenses. M&M appealed that decision to the 10th Circuit BAP and then to the 10th Circuit Court of Appeals, before it was remanded back to the Bankruptcy Court to reconsider the amount of damages. During the reconsideration of damages, the Johnson's bankruptcy case was dismissed. The Bankruptcy Court then reconsidered the damages, and the case was appealed again based upon the argument that because the bankruptcy had been dismissed, and alternatively because the Bankruptcy Court had not specifically retained jurisdiction of the matter in the dismissal order or otherwise reopened the bankruptcy to retain jurisdiction, that no jurisdiction existed by the courts to hear or decide this matter. The Bankruptcy Court dismissed M&M's argument that dismissal of Mr. and Mrs. Johnson's Chapter 13 bankruptcy divested the bankruptcy court of jurisdiction, and then awarded actual damages of $11,816.02. The BAP reduced this award by $17.34, but otherwise rejected the jurisdiction argument as well.
The 10th Circuit ruled that stay violation case was a "core proceeding ... which have no existence outside of bankruptcy." Therefore, stay violation cases are unique because they depend on the bankruptcy laws for their existence. It found that M&M was liable by virtue of the private cause of action under 11 U.S.C. § 362(k)(1). The Court found that M&M's argument was supported by cases that hold that noncore and related matters are barred by the dismissal of a bankruptcy, but that was not the situation in the case at hand.
The 10th Circuit stated that "It is particularly appropriate for bankruptcy courts to maintain jurisdiction over § 362(k)(1) proceedings because their purpose is not negated by dismissal of the underlying bankruptcy case. They still serve (a) to compensate for losses that are not extinguished by the termination of the bankruptcy case and (b) to vindicate the authority of the automatic stay. Requiring the dismissal of a § 362(k)(1) proceeding simply because the underlying bankruptcy case has been dismissed would not make sense. A court must have the power to compensate victims of violations of the automatic stay and punish the violators, even after the conclusion of the underlying bankruptcy case". (Internal cites omitted). The Court analogized this to other sanction hearings under Rule 11 sanctions. And, the Court stated that "Nothing in the Bankruptcy Code mandates dismissal of the § 362(k)(1) proceeding when the bankruptcy case is closed."
Finally, the 10th Circuit ruled that "we see no basis for requiring a bankruptcy court to state explicitly that it is retaining jurisdiction over § 362(k)(1) adversary proceeding when it dismisses an underlying Chapter 13 case, or for requiring the Johnsons to move to reopen the Chapter 13 case to pursue the § 362(k)(1) adversary proceeding".
(Picture Of 10th Circuit Judge Harris Hartz)
Oh the Baldwin boys. But, what Stephen Baldwin's bankruptcy filing demonstrates is that bankruptcy is a legitimate option for those facing financial problems. It does not matter if you are rich, famous, poor or infamous. There should be no reason to apologize for dealing with your difficulties in an organized and responsible manner.
As most know, 43 year-old Stephen Baldwin is an actor is the brother of Emmy winner and "30 Rock" star Alec Baldwin. He has appeared in films including "The Usual Suspects" in 1995 as well as more recently in U.S. celebrity and reality television shows.
Baldwin filed for Chapter 11 bankruptcy in New York stating that he is millions in debt. He claims owes more than $2.3 million and owns a New York property valued at only $1.1 million. His wife, Kennya Baldwin, also is named in the document. He claims he owes about $1.2 million on two mortgages on the property, meaning like many Americas he is serious under water or upside down on his home. He also owes more than $1 million in taxes, and he also has credit card debt.
Actual credit might not be the most important thing in the World, but that is not true for your credit report and credit score. After all, credit reports and scores are used to determine so many things now, such as insurance premiums and employment. And, the point is that using your credit cards, even if you do it responsibly, to purchase certain things can harm your credit. It matters little that you pay off your credit card on time each month.
According to Treehugger, if you shop at a thrift store to save money, get your tires retreaded instead of opting for new ones, buy organic produce, and you are using your MasterCard for these purchases, you could be ruining your credit without even knowing it. And, it is the concept of these secret algorithms that are so troubling about the credit markets.
The reason is that credit monitoring agencies have programed in certain buying decisions as red flags or indications that you might be in financial trouble.
According to the Concord Monitor, credit companies watch for signs that you are becoming a less reliable person to whom to lend money. These can be charges such a using your credit card to pay a for bail bond, but they also rely on more dubious red flags such as shoe repair, making purchases at the Salvation Army. The theory of the credit card companies is that you might not be able to afford to buy new tires or clothes and therefore might not be able to pay your credit card bill.
Using your credit card at any grocery store is also evidently a sign of your financial ruin, and is noted by the agencies.
First of all, it is distressing (and has been for a long time) that these agencies have so much access to information about our daily lives. But, but what is troubling is the fact that they are making generalized assumptions about our most trivial buying habits in ways that can dramatically impact our ability to take out a home loan in the future. At one time thift and savings were the key to good credit and home ownership in this country. Now, you must be buying new stuff or you suffer for it.
Well, you might say so what. I do not buy retreated tires, or shop at the Salvation Army or thrift stores. It does not matter because if you use your credit card at a grocery store that is a mark against you as too. Which, when you think about it, is amazing. It is true that a lot of people use credit cards at the grocery stores just because they do not to accidentally run up overdrafts for failure to properly transfer enough money at from one account to another at the same bank. Whatever the reason this is just crazy.
It is crazier still that credit card companies encourage you to not carry cash and to pay for purchases with your card, they tell you not to leave home without it, and then they punish you for doing as you are asked.
It is true a new law was recently past that will eventually cut into credit companies' ability to watch your every move and make such seemingly arbitrary adjustments to your credit rating, but it won't go into full effect until 2011.
Did you know the Biblical Sabbath is the origin for the present-day practice of “the weekend”, meaning Saturday and Sunday in which most do not have work scheduled, or where, like me, your work schedule is more relaxed. It comes from the Hebrew Shabbat meaning literally a “ceasing” in work. It is meant to be a hiatus. Also from this comes the concept of sabbatical, which is an extended version, which traditionally lasted a year. But, in recent time sabbatical has come to mean any extended absence in one’s career in order to achieve something.
Many times what we want to achieve away from work is just a better understanding of things. We just want to get away and experience new and much different surroundings. To open up our minds to new possibilities. To avoid the mental restrictions and constraints under which we live from day to day.
There is just something about being away for a while, and I do not mean simply near a computer or cell phone in a different location. I mean out of pocket and mysteriously away from the action long enough to consider other things and other factors that might positively impact our lives. To get away to someplace you might not otherwise go on your own.
So, although I have not made any plans, I would like your input on what I am thinking.
I am thinking about ditching it all for a week next summer, leaving the country for a more foreign culture, in an effort to see how the rest of the world lives and works — literally.
I am thinking about a Third Wave conference, or really more of an un-conference of sorts (a sabbatical if you will) wherein we legal professionals (lawyers, assistants, law students, techies, consultants, bloggers and the like) can commune and discuss with each other the concepts, the benefits and the nuts and bolts of the Third Wave Practice of Law, including the home-based practice, the virtual law firm, the niche practice of law, cheap tech, marketing and growing a non-traditional law practice, and collaboration, just to name areas. While, at the same time, getting our minds clear and our horizons adjusted and calibrated properly, by experiencing a different culture, a different environment, seeing the sights, and studying really comparative law or legal practices. How does the law differ in different places of the World?
CLE would be great, and with some planning there is no reason why this could not be added or achieved so as to kill two birds with one stone. This might also add some tax incentive to the trip.
Get away from the kids, the pets, and the pressures of the home and office for a week. Leave the cell phone and the email behind. Travel and experience and share and learn in a group of like minded law professionals.
I am thinking that maybe we can plan a trip together to Japan thinking that what will change our perspective culturally will assist us in changing our perspective about the practice of law in our country, and allow us to more fully understand what is truly possible.
It also goes to better understanding and appreciation of the concept of work-life balance or blending.
Japan, it would seem, would offer us that difference, enjoyment and entertainment we all want. And, with its mass transit, it could very well offer us something reasonably affordable.
My daughter, Mary, knows the county well, has worked there, has a degree in Japanese and is fluent. Many in Japan speak English as well. She could be our guide, and in that she will have finished her third year of law school by that time, she fits in our criteria and has our interest at heart.
I would hope that along with seeing the traditional sights, that we could arrange to visit a Japanese law school, a law firm and government offices to get a perspective how how things differ and not.
I understand that it is a lot to consider, but I would like to be able to gauge the interest out there for such a trip next summer. There is no reason to go to the effort over the next year if there is not enough serious interest.
So, here is what I would ask of you. If you would be interest in attending such a retreat and learning experience next summer (alone or with your significant other), please email me and let me know. I want to start by compiling a list of possible participants that want to understand more about the Third Wave practice of law and other cultures. I am looking for both newbies and those who would have the capability and would care to share your expertise with everyone about related matters, such as law firm tech, blogging, marketing, networking, collaborating, niching a practice, working from home, unbundled legal services or the like. Obviously, there is no obligation at this point and no money to put down for the trip, but I would like to have a list of people who would be greatly interest.
Email me at -
And, give me your contact information and any ideas that you might have for such a trip.
Other bloggers and social media types, please help me spread the word to other legal professionals. Your assistance would be greatly appreciated.
If we get enough interest, we will start planning and organizing something more formal for your review.
As reported by the AP and The Houston Chronicle, the State of New York shut down a Buffalo, New York company run by felons. The company operated under a number of names, including Final Claims Asset Locators, and it was run by a former drug dealer named Tobias Boylan that goes by the moniker, "Bags of Money". The company was terrifying people into paying money by stating that the police were being sent over to their house then to throw them in jail. In one recorded phone call the collector was heard saying, “Make sure you have somewhere for your kids to go. Lock up your house. Get some clean clothes, because you’re not coming home anytime soon."
This is obviously an interesting public interest story, but whether run by felons or more reputable sorts, the truth of the matter is that collection agencies are constantly engaging in this type of strange innuendo that is intended to deceive the person with whom they are dealing. There should also be a concern about the propriety of companies that provide the business to these collectors.
Now, three Democratic lawmakers have asked the Federal Reserve to curb charges that banks levy on customers when they make a purchase with a debit card and overdraw an account. The fees can mount up quickly and cost consumers more than their actual purchases. Known as "overdraft protection," and consumers often don't even know that they have the unasked-for convenience until the charges appear on their accounts.
House Financial Services Committee Chairman Rep. Barney Frank (D-Mass.), along with Rep. Carolyn Maloney (D-N.Y.) and Rep. Luis Gutierrez (D-Ill.), sent a letter to Federal Reserve Chairman Ben Bernanke asking the Fed to strengthen planned regulation of overdrafts.
"Overdraft abuses related to debit card purchases and ATM withdrawals are particularly egregious for at least two reasons," the lawmakers wrote. "First, overdraft fees triggered by these transactions, which could easily be denied at the terminal, often take consumers completely by surprise. Second, an overdraft fee charged on a typical debit card purchase is vastly disproportionate to the amount of the overdraft itself." The lawmakers want the Federal Reserve to require institutions to obtain the written consent of their customers before enrolling them in overdraft protection.
Overdraft charges represent one of the biggest slices of the short-term unsecured credit market. It is bigger than credit card over-the-limit penalties, and much bigger than payday loans, bringing in $34.7 billion in revenue for banks and credit unions in 2008, compared with $7.3 billion for payday lenders.
Payday loans are often vilified for their high costs, and they're illegal in 15 states. The annualized percentage rate (APR) of interest on a typical payday loan is 400 percent or more, according to the Consumer Federation of America. But that's nothing compared with the overdrafts the lawmakers are targeting. The Federal Deposit Insurance Corporation released a survey in January 2008 that broke down the average cost of overdraft fees to consumers and found that a typical $27 overdraft repaid in two weeks incurred an APR of 3,520 percent.
Just how bad is it when the banks and credit unions are charging more in terms of interest than are payday lenders?
We have all seen the TV spots of companies, and especially FreeCreditReport.Com, advertising FREE credit reports. I have always wondered how they can afford to saturate the TV airwaves for a free service.
Well, the new credit card reform bill signed into law by President Obama will not just try to put a stop to several unfair practices of the credit card industry -- it also targets misleading advertisements for phony "free" credit reports.
The law calls for the Federal Trade Commission to issue new rules that will force free credit report advertisers to inform consumers that the only place for a free credit report is AnnualCreditReport.Com. And, TV and radio ads will also be required to include the statement: "This is not the free credit report provided for by Federal law."
Under the Bush administration, the FTC repeatedly fined the folks behind FreeCreditReport.Com for deceptive advertising, since you only get the "free" report after enrolling in a $15-a-month credit monitoring program. But the fines amounted to mere wrist-slaps.
Not enough, maybe, but at least Congress has started to do something about the deceptive credit card industry. Now it is time for it to tackle an ever growing menace known as the payday loan industry and especially the online payday loan industry.
If you are interested, Huffpo has a post on the subject, we review here, and the site is looking for your horror stories as well. You can email those payday horror stories to Huffpo at this email address -
What Huffpo reported was that the online payday lending industry group, Online Lenders Alliance, wrapped up a 3-day conference near the White House, where they pandered to senators and congressmen from both parties. Or, maybe, the pandering was the other way around.
Regardless, the purpose of the OLA is to weed out the bad apples of the industry by requiring its members, none of which are listed on its website, to comply with good business practices. But, you know, good business practices do not always represent moral or even consumer friendly practices. You can be a loan shark and still account for your profits appropriately. Also, not many payday lenders promote themselves as being part of the OLA.
What is obvious, however, is that online payday loans are becoming more of the norm. Online payday loan lenders loaned (?) approximately $7.1 billion in volume for 2008 according to one estimate.
Consumer advocates sent a letter to members of Congress urging them to ignore the conference and implement a cap on interest rates. There point was that online payday loans are layering a whole other set of risks on top of a product that is set to fail by its basic structure.
As quoted in the article, Dale Pittman, a consumer protection lawyer who represents victims of debt collection harassment and abuse in Petersburg, Va., has some experience tracking online lenders. He said, "It's hard as hell to find these people ... You can't communicate with them and tell them what they're doing is illegal." Thirty-five states have enacted interest caps that effectively ban payday lending, but Virginia isn't one of them and so online payday loan lenders are avoiding these caps. Pittman tried to track down several online lenders on behalf of a client who was drowning in debt after taking out multiple payday loans over the course of a year. None of the lenders had a license, as far as Pittman could tell, so all the loans were illegal. He also could not find but one of the lenders.
The same problem is occurring in a bankruptcy setting. Whether or not it is an automatic stay or discharge injunction violation to submit an actual check for payment on an account which was issued before the filing of the bankruptcy, most of these lenders no longer accept actual negotiable instruments. Not only do these payday sharks ding bank accounts all of the time, but if they recover money that money will likely have to be returned if any turnover adversary is filed. But, try to find the company. The bank statements are not much help. Usually the trail is so difficult to uncover and the potential recovery is small enough that most bankruptcy attorneys do not believe it is worth their time, especially if they cannot recover attorneys fees if no stay violation is found. The debtor in bankruptcy, however, is made to suffer.
It really is a sad day for those facing foreclosure in this country. Strangely, it is probably not good news for the mortgage industry either that must now foreclose millions of homes and sell them at bargain basement prices. Worse of all, it is bad news for the housing market in that everyone will probably see their home prices reduced further.
The Senate has defeated legislation that would have let hundreds of thousands of debt-ridden homeowners seek mortgage relief in bankruptcy court.
President Barack Obama had said the bill was important to saving the economy and promised to push for its passage. But facing stiff opposition from banks, Obama did little to lean on lawmakers who worried it might spike interest rates.
The bill would have allowed bankruptcy judges to rewrite a person’s mortgage terms, if a bank refused to offer better terms based on income and home value. Only 45 senators voted in favor of the bill, with 51 senators opposed.
United States Bankruptcy Judge Bill Parker of the Eastern District of Texas issued JUDGMENT against a creditor in one of our adversary proceedings finding that posting a sign concerning the pre-petition debt owed by the Debtor constituted a willful violation of the stay. Worse for the creditor was the fact that the Court found that the creditor should pay actual and punitive damages of $21,820.00.
In James Bradley Collier v. Paul Hill the Court found that Hill's Mobile Home Parts & Service sold various mobile home parts and materials to Brad Collier prior to Mr. Collier filing a Chapter 13 bankruptcy, and Mr. Collier owed Paul Hill a pre-petition debt of $984.23.
Initial errors by Mr. Collier and the Bankruptcy Court failed to provide actual notice to Paul Hill and his company, Hill's Mobile home Parts & Service. However, after confirmation by Paul Hill that Brad Collier had filed Chapter 13 bankruptcy, Paul Hill engaged in two improper acts in violation of the automatic stay. First, he retained Josh B. Maness to represent him in regard to collection of the pre-petition claim. Mr. Maness sent a letter to Brad Collier's bankruptcy attorney, Jean H. Taylor, confirming the bankruptcy, yet demanding the full balance of the pre-petition debt. Misstatements were made in the letter that Mr. Maness attributed to an unfamiliarity as to how to use the Bankruptcy Court's PACER/ECF system. Regardless, the Court found the letter constituted a willful violation of the automatic stay issued in Mr. Collier's Chapter 13 bankruptcy because no good faith defenses are allowed as to stay violation. The Court concluded this "ill-informed conclusion based upon an insufficient investigation" was "not a technical violation based upon an innocent mistake" as "[t]his is precisely the type of behavior that the automatic stay is intended to preclude".
Based on the letter alone, litigation was not initiated. Jean Taylor contacted Josh Maness and informed him that his assumptions as stated in the letter were incorrect.
Second, and more concerning, Paul Hill and his company posted a large sign near a major intersection of US Highway 80 and FM 2199 in Scottsville, Texas, not far from where Brad Collier, his family, his friends, and his employer lived and worked, which read - "BRAD COLLIER OWES ME $984.23 WILL YOU PLEASE COME PAY ME!" (Emphasis in original). It is unclear if Mr. Maness encouraged the sign to be posted by Paul Hill, but he did continue to represent Mr. Hill in his refusal to remove the sign. It remained posted in public view for a period of 21 days, and Paul Hill only agreed to remove the sign at the hearing scheduled by the Bankruptcy Court on Brad Collier's requested expedited hearing for an injunction.
Following the precedent of the 5th Circuit Court of Appeals in Campbell v. Countrywide and In re Chesnut, the Bankruptcy Court found the sign constituted a willful violation of the automatic stay pursuant to 11 U.S.C. § 362(k).
Paul Hill vigorously contended that the posting of the Scottsville sign did not constitute a violation of the automatic stay, "[n]otwithstanding the actual languageusd in the sign" because it was not posted to collect a debt but rather "to inform the public that Collier wouldn't pay his debts and not to give him any credit". Mr. Hill testified that he had already "written off the debt" and that the threat of a judgment and the sign were intended to create embarrassment for Mr. Hill.
The Court found that "[w]hile embarrassing the Debtor in their shared community was certainly a motive of the Defendant, the Court finds that such a motive had an objective - to coerce the Debtor into paying his debt".
Mr. Hill contended throughout the litigation that the directive on the sign -- "WILL YOU PLEAS COME PAY ME!" - did not constitute an effort to collect a debt because there was no question mark at the end of the sentence. However, the Court found that the use of an exclamation mark in lieu of a question mark demonstrated that the opposite was true. "The exclamation mark transforms the sentence into a directive, which demands that the Debtor pay the debt." The Court further found that the Bankruptcy Code was clear. "Any effort, action, or demand by a creditor to collect a pre-petition debt violates the automatic stay".
Regardless of the stay violation, Paul Hill contended that he could not be sanctioned for his action of posting the sign because of his entitlement to exercise his free speech right under the First Amendment to the United States Constitution, citing Turner Advertising Co. v. National Serv. Corp. (In re National Serv. Corp.), 742 F.2d 859 (5th Cir. 1984). Since the Scottsville sign constituted free speech, Hill through his counsel contended, it could not be curtailed by 11 U.S.C. §§ 362(a) and (k).
As to this argument the Court found:
"While there are certainly components of speech involved in virtually every expression offered about the filing of a bankruptcy case, the automatic stay and the restrictions contained therein focus not upon speech but rather upon the restraint of actions -- actions that threaten the core objectives of the Bankruptcy Code and the judicial system designed to achieve those objectives. It proscribes conduct — conduct that threatens the “breathing spell” and the “fresh start” to which an honest debtor under this system is entitled as it fulfills the duty of full disclosure of its assets and liabilities — as well as conduct that threatens the efficient marshaling of those assets in order to insure a fair and equitable distribution to creditors. The scope of the automatic stay may at times incidentally impact free speech, but those isolated intrusions are justified in order to accomplish the significant governmental interest in providing uniform bankruptcy laws and an effective means by which to implement them".
Paul Hill's decision to continue with the sign and stating it was intended to embarrass Mr. Collier might have proved fatal. The Court awarded actual and punitive damages of $21,820.00 as against Mr. Hill.
Recently Brian Lacoff a St. John's Law Student writing on Bankruptcy Case Blog analyzed the decision in In re Dispirito, 371 B.R. 695, 695 (Bankr. D.N.J. 2007), which states it is the debtor's attorney that bares the risk of any loss in regard to fees in a Chapter 13 bankrutpcy.
The New Jersey Bankruptcy Court following and expanding on Judge Mavin Isgur's opinion in In re DeSardi, 340 B.R. 790 (Bankr. S.D. Tex. 2006), ruled that an undersecured creditor, in this case Ford Motor Credit Co., was entitled not only to adequate protection payments, but “super-priority” status of the inadequate adequate protection provided during the case meant that the Chapter 13 plan had to pay those amounts before paying any of the debtor’s attorneys fee pursuant to 11 U.S.C. § 507(b).
In Dispirito the Bankruptcy Court held that
by seeking to confirm a plan that provides for payments owing on a
vehicle, the debtor “implicitly acknowledges that such expenses are
both reasonable and necessary for the maintenance and support of the
debtor." As such, the adequate protection payments have super-priority over
other administrative expenses, such as attorney fees, under § 507(b). The Bankrutpcy Court reasoned that “if attorney’s fees are paid ahead of the adequate
protection payments, then adequate protection fails; the funds . . .
would be paid to someone besides the protected lender."
The court concluded, “[i]f the risk of non-payment of the debtor’s attorney fees . . . is too great to justify taking the case . . . [it] should say something about the case."
There is nothing much like a Bankrutpcy Court in a difficult decision taking a personal slap at the debtors' bar.
In any event, it appears that the DeSardi decision is slowly becoming the majority decision on the subject of attorneys' fees being paid upfront ahead of adequate protection payments of undersecured creditors.
The House has passed bankruptcy reform legislation that dealt the banking industry its first major defeat since 1994. The bill, passed 234-191, largely along party lines, encourages lenders to renegotiate mortgages with troubled homeowners. If they can't, the bill allows bankruptcy judges to modify the mortgages, a reform that bankers have argued undermines the sanctity of a contract and rewards bad behavior.
But their arguments fell on deaf ears in a chamber that has appropriated hundreds of billions of dollars in bailout funds for major banks.
"There are some people who said during the debate, 'Well, this bill rewards irresponsibility or bad choices.' Well, my goodness," said Rep. Artur Davis (D-Ala.). "Many people in my district feel that those [bank bailouts] rewarded irresponsibility and bad decisions, but they were done in the name of a broader interest. So on this issue, frankly, the banks were out of touch with the American people."
The argument that the bill would create chaos didn't influence lawmakers in this already chaotic environment. "The idea that this is all about destabilizing the real estate market -- that's just a bad joke," said Rep. Bill Delahunt (D-Mass.). "And looking forward, well, you know what, we can't look too forward because we're in this tsunami."
Financial Services Committee chairman Barney Frank (D-Mass.) said that the banks' winning streak was unsurprising, given that the GOP took Congress in 1995. But even with Democrats in power since January 2007, banks haven't lost any major battles.
"The Committee on Financial Services put out a bill to regulate credit cards in 2008. They didn't like that," Frank said, but noted the bill ultimately died. "Nothing passed both houses that they didn't like."
Energy and Commerce Committee Chairman Henry Waxman (D-Calif.) chuckled at the thought of the banks being on the losing end of a vote for once. "I'm not close enough to them to count their wins and losses, but they're pretty powerful," he said.
Rep. Mike Simpson (R-Idaho) said he wasn't sure about their win/loss record, either. "Hell, I don't know," he said. "I don't keep track of whether the banking industry wins or loses votes. We're trying to send a message to the banking industry? I don't know, I thought we were trying to pass legislation that would work and unfortunately this is not a good piece."
If I have said it once, I have said it a thousand times. There is no reason, no reason what so ever, for people to deal with, trust, or even communicate with a debt collector. This is especially true for relative and loved ones that are grieving. There is really no reason whatsoever for debt collectors to even exist. This does not mean that people should ignore the calls of the actual creditors, but in this day and age of selling bad debt, this does not much exist.
So, what is the problem this time?
We use to joke in the old days that death often represented the ultimate discharge of one's debts. This was especially true if the deceased did not have any real assets. No longer. Now you have a collection service that will try to harass your next of kin, such as your children and your widow, and probably at a time when they least need such treatment.
Intervening in a probate matter in which there are assets, other than the home, is one thing, but this is only a small part of what this company, and other collectors, do.
The problem is that the people contacted by DCM and other collectors often have no legal obligation to pay the debt, but they are pressured or convinced in some way to do it.
According to the NYT article, new hires at DCM, for example, train for three weeks in what the company calls “empathic active listening,” which mixes the comforting air of a funeral director with the nonjudgmental tones of a friend to convince people who have no liability to pay the debt. The goal is to play improperly on sympathies and emotions of the person, whether there is an estate of the deceased to pay the debt or not.
I loved this response from the article as to the fact these people do not owe the debt. Scott Weltman of Weltman, Weinberg & Reis, a Cleveland law firm that performs deceased collections, says that if family members ask, “we definitely tell them” they have no legal obligation to pay. “But is it disclosed upfront — ‘Mr. Smith, you definitely don’t owe the money’? It’s not that blunt.”
DCM started as a law firm, which means, I suppose, that it now just a collection agency. What is frightening is that it now employs 180 people, many directly involved in collecting debts from people who do not owe them.
How bad is this practice on collectors. DCM admits in the article that not everyone has the temperament to place such calls and they lose 50% of those it hires to do so in the first 90 days. Of course, you might say as easily that those that quit have a conscience.
And do not think the manipulation stops with the calls. DCM started a Web site called MyWayForward.com to provide the bereaved with information and tools. Obviously to gain the sympathies and trust of families struggling already with the death to pay debts they do not owe.
The collectors for the company are trained in the five stages of grief, which might sound like a good thing, except it is obviously used not to necessarily be of assistance to those grieving, but to solicit the payment of the bills of the dead from those likely not responsible.
I think all bankruptcy attorneys need to be on the lookout for people that have been taken advantage of in this regard.
PACER/ECF was a godsend for Third Wavers, connected attorneys, future lawyers, telecommuters, home office lawyers and, really, all lawyers when it was first established. It sure beat the hell out of making tons of copies of a documents and either couriering or FEDEXing them to the Courthouse, and then turning around and mailing out copies to everyone and his dog who had any interest in the case. The system now send me copies of everything filed in a case - twice. State court systems, especially in Texas, are pathetically and terminally behind the times and the tech. So, let us hear it for PACER/ECF! It is probably the best government sponsored program ever.
That said, things do evolve, and it is time to move away from the closed access futures of the system. My good friend Rick Georges over at Future Lawyer referred me to this article on Wire.Com, about Senator Joe Lieberman wanting to know why PACER has not eliminated its pay for access to view public documents.
According to the article, Chairman of the Senate's Government Affairs committee, Sen. Lieberman (I-Connecticut), bypassed the administrators of the system and sent a letter straight to the Judicial Conference of the United States, which stating in part:
"Seven years after the passage of the E-Government Act, it appears that little has been done to make these records freely available — with PACER charging a higher rate than 2002. Furthermore, the funds generated by these fees are still well higher than the cost of dissemination ..."
It is an ongoing attempt by some to open-source the nation's operating systems. In this I agree.
Uploading is paid in the way of filing fees in most instances. But, if you were an ordinary citizen you could walk into a Courthouse and see all these records for free. (Unless the Court sealed them for good reason). Sure you would have to pay for the cost of copying any document, as the government should not bare that costs. So, you should be able to access these public documents freely now.
I am not supporter of Sen. Lieberman, but I do like this idea.
Written before the collapse of our credit markets, I was reminded of the New York Times article Foreclosure Machines Thrives on Woes by Billy Price and his blog Dallas Bankruptcy Lawyer. It was an amazing article when written, and it likely speaks volumes now that foreclosures have only increased.
The essence of the article is really that bankruptcy attorneys seem to be the only real line of defense against some bad foreclosure practices, but the conduct does not stop even once a debtor enters bankruptcy.
One point of the article is that the methods employed by mortgage servicing companies has corrupted the system in a way that benefits nobody but the large law firms that pursue these matters in large numbers based on unit costs.
As stated in the article, "Nobody wins when a home enters foreclosure - neither the borrower, who is evicted, nor the lender, who takes a loss when the home is resold ... The reality is very different. Behind the scenes in these dramas, a small army of law firms and default servicing companies, who represent mortgage lenders, have been raking in mounting profits."
These law firms are commonly called "foreclosure mills". Most bankruptcy firms that have had to work with these mills will tell you that they are generally strident, ill informed, and have generally contributed to a worsening of the real estate market. They certainly make a debtors honest efforts to reorganize and save their home in bankruptcy exceedingly difficult many times. Yet, there is little change now as to how mortgage servicing companies have employed their services since the crash of the real estate market in this country.
The problem from a bankruptcy standpoint?
These foreclosure mills are paid by the number of motions, objections and documents filed in a bankruptcy. The result is that these mills are encouraged to file as many claims as possible. As stated in the article, “Court documents say that some of the largest firms in the industry have repeatedly submitted erroneous affidavits when moving to seize homes and levied improper fees that make it harder for homeowners to get back on track with payments.”
What seems to empower mortgage servicing companies and foreclosure mills is the notion that it can add any fee its wishes, without bankruptcy court authority or effective disclosure to the debtor's mortgage account. In a recent study, Katherine M. Porter, an associate professor of law at the University of Iowa, found that of 1,733 mortgage accounts in bankruptcy across the country she reviewed almost half contained questionable fees, which were automatically added tot he debtor's account.
The problem with any machine is that once it gets going it is just hard to turn off, especially when the machine is fueled not by its analysis of the situation, or how exactly it has effectively assisted its client, but by the shear number of motions and objections its files. The only real line of defense has been the debtors' bankruptcy attorneys, and even they get overwhelmed by the magnitude of this problem.
Previously I posted about series of problem in the State of Texas concerning the law firm of Barrett Burke Wilson Castle Daffin & Frappier (then commonly known as BBWCDF). The law firm went through a period of embarrassing revelations in the bankruptcy courts in Houston, Texas resulting in a number of high dollar sanctions and sever tongue lashings by the judges. (You can read these decisions by clicking HERE, and HERE, and HERE and HERE). The law firm has since undergone a reorganization and is now known as Barrett Daffin Frappier Turner & Engel, L.L.P (or BDFTE).
The problem ultimately is that BBWCDF or BDFTE might be one of the largest of this type of firm or foreclosure mill, but they are not the only one by any means.
The only recourse a debtor has is to be vigilant in reviewing the statements or records obtained from mortgage servicing companies, calling questionable fees and conduct to the attention of a bankruptcy attorney, and comparing with the bankruptcy attorney this information to that filed in the underlying bankruptcy case. Bankruptcy rights are not self-enforcing. If the courts do not know the activity is taking place, the courts cannot correct it. Bankruptcy attorneys only know to enforce what they can reasonably discover from the bankruptcy documents filed. It is ultimately the comparison of these bankruptcy documents, and what is really happening on the ground that uncovers much of the bad conduct. Mortgage servicing companies and these bankruptcy mills survive because nobody but the debtor has all of the information to review and compare, and the consumer is not versed in doing so.
So, be vigilant.
I have thought about it off and on, and I always wonder why were should just not outlaw bill collectors. I am not talking about companies that feel they need to collect their own debt, but independent debt collection companies. After all, what really useful function do they serve? There entire existence, say what you will, is based solely on harassing, lying, bullying and deceiving people. They really have no other arrows in their quivers, except for these. They exist for no other reason. And, most often, they are rewarded for succeeding at exactly this type of conduct in that they live off of a percentage of what they collect. They eat what they kill.
The goal of the law is to simply turn a blind eye to the entire reason these people and companies exist. The law seeks to insulate the actual creditor from the conduct that the creditor suspects is going to be employed to collect the debt. Maybe this is more metaphorical, but it is tantamount to hiring someone to go break the debtor's leg only to tell them you do not want to hear about it later. It reminds me of that scene in the movie Sneakers in which Ben Kingsley says to Robert Redford, "I cannot kill my friend". Then he turns to his henchman and says to him, "Kill my friend". Like the good servant that goes to church every Sunday only to live a regretful life the rest of the week, it is all too convenient for creditors, politicians, courts and we the people to simply put this in too sterile of light.
Do not get me wrong. There is a problem when companies extend credit and they do not get paid. They obviously need to do what they can to get paid. There are legal mechanisms, where a neutral party can make these hard decisions. Nobody is talking about taking from creditors there legal rights or their right to reasonably attempt to recover their capitalist lifeblood. Nobody is saying that. The complaint concerns tactics and techniques that are extrajudicial.
We somehow miss the mark. We meet and pass legislation that tries to delineate when a debt collector absolutely goes too far. Forget that they still cross this broad line constantly. We ignore that their purpose is simply not necessary. We concern ourselves with it might be okay for a private debt collector (not the creditor undertaking legal means) to turn the wheel on the rack 5 times but not 6 times, while ignoring completely that the rack is wrong.
You might think I exaggerate. I do not. These people are hurtful. Their tactics are cutting, pernicious, distressing and malicious. Why else would any normal person send money to a imperceptible third party, with no apparent connection to the debt, when they do not necessarily have the funds or have greater obligations that cannot be met. Maybe it is not physical brutality, or the threat of it. Maybe it is more clairvoyant in nature. But, sometimes psychological discomfort, or playing off the fears and emotions of those already in fear is worse. We know this for we worry about enhanced interrogation techniques at Gitmo.
And, it is hard to imagine that most of the people who are forced for low wages to man the call centers that do this type of work are enjoying the experience either. Sure there are probably some sadistic bastards who like the thrill of the work, but most problems arise because the ordinary people manning the phones at these collection agencies are being pushed beyond their moral compass as well. Why do you think most large corporations do not want to employ people for this nasty task. It is kind of like Wal-Mart not wishing to employ illegal aliens to clean it stores at night, so it elects to hire companies that hire illegal aliens to clean its stores at night. The cartoon below, I think illustrates this.
Therein lies the problem for us. Since the entire system of independent collection agencies is designed to skirt the law, to be so persistent as to not stop, and to lie and cheat their way into an advantageous position with the debtor, small things like the automatic stay and the discharge injunction simply do not matter that much. These collectors are trained to shoot back when they are threatened with the prospect of legal rights being violated, so why would they not do the same when told of the stay or the discharge injunction? In short, they are paid to pay it no never mind.
The only logical solution is not to say that some practices are wrong, but to outlaw the profession altogether. If a creditors is owed money, let the creditor try to collect it legally. These thugs they do not need.
In a case of first impression both for the United States Court of Appeals, 6th Circuit, and really a case of first impression by any court of appeals nationally, the 6th Circuit found that a debtor who received a bankruptcy discharge in less than four years before he filed a Chapter 13 bankruptcy was eligible for a discharge in the Chapter 13 bankruptcy as well.
The opinion was issued in In re Sanders, which was issued on December 29, 2008. Judge Jeffrey S. Sutton issued the opinion for a unanimous panel.
The case involved a debtor named Jason Sanders who had filed a Chapter 13 bankruptcy petition more than four years after he filed an earlier Chapter 7 case, but less than less than four years after the bankruptcy court issued his Chapter 7 discharge. This would not necessarily be an extraordinary situation because debtors often find themselves in need of Chapter 13 protection on an emergency basis, such as to stop of foreclosure or repossession regardless of the filing of a prior bankruptcy.
When Congress overhauled the Bankruptcy Code in 2005, it adopted 11 U.S.C. § 1328(f), which limited a debtor’s ability to obtain multiple discharges by filing one bankruptcy proceeding after another. Section 1328(f) provides: "(f) Notwithstanding [chapter 13’s provisions authorizing discharges], the court shall not grant a discharge of all debts provided for in the plan . . . if the debtor has received a discharge -- (1) in a case filed under chapter 7, 11, or 12 of this title during the 4-year period preceding the date of the order for relief under [chapter 13], or (2) in a case filed under chapter 13 of this title during the 2-year period preceding the date of such order." (Emphasis added).
The Court had to decide two questions -- when does the clock begin to running in this regard, and when does it stop?
As to when the clock stops running, the Court decided it ended upon the filing of the new Chapter 13 petition because § 1328(f)(1) makes clear that the time limit ends on the date the chapter 13 petition was filed, and also § 301(a) provides that the “commencement of a voluntary case . . . constitutes an order for relief.
The harder question was when does the clock start, or when does the § 1328(f)'s "four-year forbidden window begin?" The choices were either the date of the filing of the prior Chapter 7 bankruptcy filing or its discharge date.
Based upon the plain meaning of § 1328(f) and a point of grammar, the 6th Circuit decided that the four year prohibition begins when a debtor files his first petition, and not when the debtor receives his first discharge. To do otherwise would require the Court to read the word "filed" out of the statute.
(Picture is of 6th Circuit Justice Jeffrey S. Sutton, who issued the opinion).
There is a trend among used car dealers, and especially those used car dealers that tote the note, to install disabling devices in the automobiles they sell, which disables the vehicle from operating if a new code is not inputted at the time a payment is normally due.
The technology is generally called telematics, and where this term addresses many different solutions involving asset management such as maintaining the tracking of fleet vehicles and the use of anti-theft devices, one of the "solutions" is the ability to disable a mortgaged automobile if timely payments are not made. There is not a lot written on this aspect of telematics, but U. S. News & World Reports did report on it. There are a few companies that manufacture these devices. These are, for example, Aircept, PayTeck, and PassTime to name a few. Strangely enough, although devises to disable mortgage vehicles is a growing and vibrant area of the industry, it would seem that even the providers of the devices and system do not maintain websites that directly tout what they do in this regard. The disabling services deployed by these companies must seem insidious to these companies as well. Here is a video that explains the product from a positive standpoint that is not easy to find on the web -- CLICK HERE FOR THE VIDEO.
There are a lot of interesting issues concerning these auto disabling devices and who exactly they are intended to benefit. For example, the video talks about the system reducing interest rates charged by note lots. We seriously doubt that this is true and could find no direct evidence on this fact.
The State Bar of Texas is a mandatory bar association, and it is one of the largest in the United States. The Texas Bar Journal is distributed by mail to over 97,000 members and subscribers each month. I know I read it from cover to cover. It represents an outstanding forum to discuss the changing practice of law.
It is so vitally important for other lawyers, staff and law students to understand that they do have alternatives to the traditional practice of law. I would encourage you to help me populate the Web with this article. Please help me spread the word.
In reading bankruptcy court opinions concerning violations of the automatic stay, and from my practice in prosecuting these violations, it would appear the greatest misunderstanding of 11 U.S.C. § 362(k) (and the pre-BAPCPA provision of § 362(h)), is the distinction between damages and injury.
As I have often said, "damages" do not constitute a element that must be established to establish liability under § 362(k). Damages are simply a consequence of the bankruptcy court otherwise finding a willful violation of the stay.
Injury, on the other hand does not have to be individually proved up by a Plaintiff in a stay violation for the simple reason that the proving up of a violation (any violation, willful or otherwise) establishes the violation of a core right, which constitutes an injury. If you prove what you otherwise need to prove under § 362(k), you have established injury.
Yet, well meaning bankruptcy judges, as well as less than well meaning defense counsel, continue to spend much time and effort attempting to (1) confuse actual, out-of-pocket damages with injury, and (2) attempting to refute injury is separately established, contesting whether a defendant is liable under § 362(k). It is an analysis that is simply unnecessary.
As to the issue of damages v. injury the tendency is to treat these a synonomous terms. Defendants, and some judges, continue to believe that if actual, out-of-pocket damages cannot be established at the outset of the case prosecuting a violation, then the plaintiff simply cannot prevail. This would seem, however, to ignore proper legal construction. Words in a statute are not to be read so as to render them superfluous. Hence, the elementary rule of statutory construction is that, wherever possible, effect must be given to every word of a statute. United States v. Nordic Village, Inc., 503 U.S. 30, 112 S.Ct. 1011, 1015 (1992). The terms injury and damages are included in the same sentence and cannot be interchangable terms.
Further, the 5th Circuit (as with all circuit courts) does not establish either injury or damages as any one of the elements necessary for a determination of liability in its reading of § 362(k). In re Chesnut, 422 F.3d 298, 302 (5th Cir. 2005), In re Repine, 536 F.3d 512 (5th Cir. 2008), and Campbell v. Countrywide Home Loans, Inc., Case No. 07-20499, Pg. 9 (5th Cir. October 13, 2008).
The finding of a willful violation of the injunctions of a court, injury is already established. “Injury” is broadly defined as being "a violation of another's legal right, for which the law provides a remedy." Black's Law Dictionary 801 (8th ed. 2004). Since the automatic stay of 11 U.S.C. § 362(a) is a legal right afforded to Mr. and Mrs. Henderson that protects them from continued collection efforts by their Creditors. (H.R. Rep. No. 595, 95th Cong., 1st Sess. 174-75 (1977)) "the mere violation of the automatic stay constitutes an injury to the debtor inasmuch as the creditor's violation restricts the debtor's breathing spell and subjects the debtor to continued collection efforts, possibly including harassment and intimidation." Jackson v. Dan Holiday Furniture, LLC (In re Jackson), 309 B.R. 33, 38 (Bankr. W.D. Mo. 2004). Also see, In re Reed, 102 B.R. 243, 245 (Bankr. E.D. Okl. 1989); Bukowski v. Patel, 266 B.R. 838 (Bankr. E.D. Wis. 2001); and, In re Preston, 333 B.R. 346, 350 (Bankr. M.D. NC 2005). The United States Supreme Court recently confirmed that “injury” constitutes a standing issue, ruling that one of the elements to Article III standing a plaintiff must establish “a ―concrete and particularized‖ invasion of a ―legally protected interest”, as is the case with 11 U.S.C. § 362(a) and other bankruptcy provisions. Sprint Communications Co. v. APCC Services, Inc., 07-552, pg. 4 (U.S. 6-23-2008). The willful violation of 11 U.S.C. § 362(a)(1) and other bankruptcy provisions and rules does constitute the invasion of such a legally protected interest and the undisputed material facts above demonstrate such an invasion.
This represents our practice blog, but we have an interest in the changing practice of law as well. For a long time we have maintained a blog describing these changes, and our other interest, entitled Chuck Newton Rides The Third Wave. We have spent some time redesigning that blog and giving it a new look. Visit our Third Wave blog and let us know what you think by clicking here.
Let us be honest about it. Credit card company practices are designed to blindside consumers. Get them in debt. Get then paying minimum payments or close to it. Then lower the boom in fees and higher interest rates and quicker payment terms and how the money is applied. It is in short a game of gotcha with serious ramifications for many American families.
Now, in the defense of credit card companies (if you can call it that), they are not the only ones that seek to blindside their customers. Banks and how the manage their bank accounts and mortgage companies in how they have handled ARMs and and balloons and escrow accounts just to name a couple, do it as well But, I think we can all agree that credit card companies are the most egregious.
I just hate it when I get that tiny booklet in the mail, in the 6 point print, on onion skin paper, stating all of the changes that are happening to my account in some non-understandable fashion. I cannot read it and, besides, I did not have the rules under which I was operating in which to compare these changes. There is nothing to sign. You just toss it and hope for the best. But, I can assure you that what is in there is probably no good for you.
During the fight over bankruptcy reform consumer experts pleaded with Congress to at least add consumer protections in regard to the wanton acts of credit card companies. It fell on deaf ears because the credit card companies, and other creditors, had already greased the Republican Congress and the president.
Since that time, however, we have experience an economic meltdown in which the complicated Wall Street antilogarithms have come into conflict with a Main Street common sense understanding. You cannot get blood from a turnip. Credit card companies can change the rules in the middle of the game. They can blindside the consumer or trap them in any unpleasant situation desired, but if the consumer cannot pay the surprising higher price they did not expect, they cannot pay it. Period. For some unknown reason, through bankruptcy reform and the collapsing economy, lenders, and credit card companies in particular, thought they could simply contract their way to safety from consumer defaults.
This is something that has seemed to have been lost on creditors, Wall Street, the rich and the GOP controlled institutions for much too long. Just because you contract it to be so, and you legislated it to be so, and you close the doors to the emergency room known as bankruptcy, and you end all reasonable regulator oversight so you can pretend you do not know what is happening, does not mean consumers are going to be able to comply with what you want.
Maybe there is some awakening in this regard. As reported by Reuters, the credit card industry may face some reckoning for its evil ways.
Where Congress dare not tread, the Federal Reserve will vote on credit card reforms that hopefully bring some degree of relief to customers.
For one, credit card users will see easier-to-read tables in their monthly statements if the changes are enacted.
For another, the new Rules are expected to prohibit credit card companies from increasing rates at will, with some exceptions such as those that apply to people who fail to pay a bill within 30 days; so-called universal default, which permits changing card terms if the borrower defaults on another bill such as utilities or a gym membership, also is expected to be banned; and, double-cycle billing, in which card companies reach back to earlier billing cycles to help calculate interest charged in the current cycle, also is expected to be eliminated.
The changes, in part, are a result of Democrats strengthening their control of the next Congress, which is resulting in credit card companies that resisted many changes in the past to accepted them as inevitable.
Reform is necessary if for no other reason American consumers used an estimated 694.4 billion credit Visa, MasterCard, American Express and Discover cards in 2007 alone.
The new rules total some 1,000 pages. The rules must be approved not only by the Federal Reserve but the Office of Thrift Supervision and the National Credit Union Administration as well. But, all are expected to act soon on these new rules.
Burn is an exclamatory response, generally by a third party, after someone has just received an insult. It is slang for disrespecting someone or to make fun of someone. It is so humiliating or insulting to the point where you cannot return with a comeback.
I have thought, "Oh, BURN!", or its equivalent, a couple of times over the last decade.
The first was during bankruptcy deform, in which these large financial institutions pushed through Congress and the White House reforms that were not needed, and for which there was no motivation for no better reason than to make bankruptcy harder for consumers to file. Phil Gramm, who is now John McCain's economic adviser, was a United States Senator during part of the debate over bankruptcy reform, and I recall him getting on national TV, and sending out mailers, referring to those who file bankruptcy as "deadbeats". This practice was repeated by his successor, John Cornyn, who liked to refer to those who file bankruptcy as "deadbeats". I always thought, no matter what the arguments or what the position taken, that these two otherwise disrespectful men went out of their way to not only advance their contributor's goal, but to intentionally disparage, belittle, dishonor, derogate, defame and slur those who felt they needed this protection.
Certainly the Republicans were not the only ones to blame for this fiasco. Many Democrats were complicit. And, were John Cornyn could almost be forgiven because, I doubt from his demeanor in office, that he is very bright. However, is not Phil Gramm's excuse.
The second "Oh, Burn" moment came when I read about the $700 Billion bailout of the large financial institutions so as to prevent them from filing bankruptcy. None, or little, of that money is going to help ordinary folks that might have been affected by the conduct of these banks.
You can say what you want about the pros and cons of the bailout, but the philosophy of it show an hypocrisy that is huge and shows a blatant type of contempt for common people.
What this monetary philosophy entails is the privatization of profits, but the socialization of risk or losses. When there is money to be made or bilked, the government should get out of the way and never interfere, but the government should be made solely responsible for the risks and losses associated with the escapades of the financial institutions.
This was the same argument people like Gramm, Cornyn, Bush, McCain and many on both sides of the divide in Congress argued in regard to the so-called bankruptcy reform measures in Congress. They argued that in essence that by allowing middle class people to just file bankruptcy when times got tough for them, without regard for the better times they might have had in the past, that the government was allowing these people to privatize profits and to socialize their loses, and that was wrong in their minds at the time.
Now, after middle class people are forced into 5 year repayment schedules not based on their actual budgets or earnings, we are creating what is now a trillion dollars of relief for Wall Street, while ignoring Main Street, and while denying ordinary people the right to achieve the same result when they find a financial meltdown unavoidable.
With Lehman Brothers filing the largest bankruptcy in history, there are a couple interesting points to make.
First, in a democracy, what is a right for the biggest and most powerful corporations among us, should be a right extended to the least consumer among us. After all, this is also Biblical, is it not? "Whatever you do for the least of these my brothers, you do it to me". Matthew 25:40.
Second, it is interesting to view the top 10 biggest brothers (bankruptcies) of all time to give you the size and enormity of that right. These are:
1. Lehman Brothers - $639 billion in assets.
2. Worldcom - 103.4 billion in assets.
3. Enron - $63.4 billion in assets.
4. Conseco - $61.4 billion in assets.
5. Texaco - $35.9 billion in assets.
6. Financial Corp. of America - $33.9 billion in assets.
7. Refco - $33 billion in assets.
8. Global Crossing - $30.2 billion in assets.
9. Pacific Gas and Electric - $29.8 billion in assets.
10. United Airlines - $25.2 billion in assets.
This practice includes the prosecution of contempt as to those that violate the discharge injunction. However, when considering whether you can or should proceed with a discharge injunction violation you have to look carefully at the exceptions to discharge as stated in 11 U.S.C. § 523. If there is an exception is it one that requires an actual adversary by the opposing party while the bankruptcy is pending, or is the debt simply immune from any discharge entered due to the type of debt it represents. It is always a question.
In this regard, the 10th Circuit Court of Appeals has now stated that 11 U.S.C. § 523(a)(7) does not render nondischargeable a debt incurred by a debtor who has guaranteed a bail bondsman to make the bondsman whole in the event a criminal defendant jumps bail.
In a case of first impression for the Court, it ruled in Affordable Bail Bonds, Inc. v. Sandoval (In re Sandoval) that a judgment obtained before the filing of a case for the guarantee of payment to a bail bond company on an appearance bond was dischargeable because § 523(a)(7) did not apply.
In this case the Debtor, Sandoval, entered into a "plain talk" contract with the Bondsman, Affordable, as an indemnitor in the even the person being bailed did not appear as required. The Debtor paid the Bondsman $1,600.00 for the bond and agreed to reimburse the Bondsman for actual expenses in case of forfeiture, including the "full amount of the bail forfeited".
The 10th Circuit stated a few caveats: "It is important at the outset to understand what this case is not. It is not a case where the debtor was the defendant in the underlying criminal action who had previously jumped bail and is now attempting to get his debt to a governmental unit discharged in bankruptcy. Nor is it a case involving a bail-bondsman debtor or other type of surety debtor who is attempting to discharge a debt owing directly to a governmental unit incurred as a result of the
nonappearance of a defendant. We are not concerned here with the nature, scope, or operation of the bond agreement between the Bondsman and the State of Oklahoma".
In light of these caveats, the Bankruptcy Court had gone into some discussion that the Debtor was not a party to the bonds that were forfeited, and the debt was therefore not a fine or a penalty. The 10th Circuit cut through this by stating it does not matter because this type of "debt is not payable to and for the benefit of a governmental unit, and thus the statute does not bar discharge". All that mattered was that the "Bondsman is a nongovernmental corporate entity ... and the fact that [the Bondsman] ultimately paid money to the State of Oklahoma after [the one bonded out] failed to appear does not change [the Bondsman's] status from that of a private corporate entity". The Bondsman had attempted to bootstrap the government entity prong of The Bondsman attempts to satisfy the government-entity prong of § 523(a)(7) by arguing that [the Bondsman] should be subrogated to the rights of the State of Oklahoma. The 10th Circuit, as the Bankruptcy Court before it, was unpersuaded, stating: "the State had no rights on the bail bond or otherwise against the [the Debtor]. Thus, 'stepping into the shoes' of the State as a subrogee avails the Bondsman nothing in regard to the dischargeability of the debt and fails to afford the Bondsman status as a governmental unit.
The Bondsman relied on a public policy argument, which would seem to contravene the Bankruptcy Code. The 10th Circuit concluded that “'[E]xceptions to discharge are to be narrowly construed, and because of the fresh start objectives of bankruptcy, doubt is to be resolved in the debtor’s favor.”' (Internal cite omitted).
The problem for many big corporations, insurance companies, financial institutions and even consumers to a lesser degree is that it is easy for a lawyer to lead them into temptation. To the lawyer it is the means of getting paid more per case. To the entity it is the feeling of feeling vindicated, even if the final result does not necessarily turn out that way (kind of like the last act of defiance).
We all know lawyers that do this. Not only do we know who they are, they know who they are. They probably live a little better than the rest of us, they are never in their offices because they are always in depositions somewhere, and they probably have the best hourly and collection rates around. In East Texas we say that they are "Board Certified in Billing".
From my perspective typically representing the Plaintiffs, it comes at me this way. "My client does not think it did anything wrong". Or, their client wants to argue that a 1949 decision out of Puerto Rico represents a line of cases that represents good law, even if it goes against every decision in the circuit in which the suit resides. Or, the one I love the best, is that the attorney is concerned not for his client, but what message this sends if he allows his client to settle this claim. There is of course the so-called "Wal-Mart Defense" in which not only will there be no settlement, they will try to bury you regardless of the costs, for the principal of the thing. It has to be the delight of those attorneys who think to highly of themselves to convince their clients that this is a viable option.