Northern California Bankruptcy Lawyer

On The Bankruptcy Soapbox

The Soap Box

Your Right To Credit Reporting After Bankruptcy

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credit report after bankruptcy

You’ve finished your Chapter 13 and emerged from bankruptcy with your home loan current.

But your credit report is a blank page as to your mortgage.

The mortgage servicer isn’t reporting your payments to the credit reporting agencies.  

Nothing. Nada.  Crickets.

So, even though you’re making regular payments, you’re not visibly rebuilding your credit.

Ask the servicer and they’ll tell you that they can’t report your payments “because of your bankruptcy discharge“.

But they are wrong:  a little-discussed provision of Chapter 13 says that long-term mortgage debt is not discharged in 13.

Yup.  The mortgage loan is not discharged as a personal obligation.

And therefore, there is no bar to the servicer reporting your payments, and every danger should they not report.

Servicer’s obligation to report

Put simply, if a creditor reported to credit reporting agencies before the bankruptcy was filed, then there is an obligation to report after the bankruptcy.  The “furnisher”, the creditor who supplies information to the credit reporting agency, has an obligation to make the information on file fully accurate.

In contrast to an unsecured debt like a credit card, which should be reported as having a zero balance after the discharge, the mortgage loan after Chapter 13 has a balance.

Presumably, it is also current.  Both facts which should appear on your credit report.

Mortgages excluded from Chapter 13 discharge

I’m certain you will have to cite to bankruptcy law when you challenge the improper reporting on a mortgage loan after Chapter 13.

Here’s the part of the Bankruptcy Code that excludes long term debt like your mortgage.

Section 1328 says,

(a)… the court shall grant the debtor a discharge of all debts provided for by the plan …, except any debt—

(1)provided for under section 1322(b)(5); 

The section that 1328 incorporates, Section 1322(b), says

(b)Subject to subsections (a) and (c) of this section, the plan may—

(5) … provide for the curing of any default within a reasonable time and maintenance of payments while the case is pending on any unsecured claim or secured claim on which the last payment is due after the date on which the final payment under the plan is due;

Get mortgage payments reported

If you find that your post discharge payments on your home loan aren’t being reported, challenge the accuracy of what is on your report about that loan with the credit reporting agency.

It is the CRA’s responsibility to see that information in your credit file is accurate.  The CRA is supposed to ask the furnisher to reinvestigate the challenged tradeline.

The Consumer Financial Protection Bureau has a how-to, with a template letter, on how to dispute inaccurate information on your credit report.

Get the good information reported.

More

How to find and fix credit reporting errors

Your post bankruptcy to-do list

Your Bankruptcy Discharge Has Teeth: Bite Back

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bankruptcy discharge has teeth

Your bankruptcy discharge is more than a piece of paper.  It’s a federal court order prohibiting action to collect the discharged debt from you.

And it has teeth.

When creditors ignore a federal court order, it has unpleasant consequences.  Or should have consequences.

So, my call to debtors is to stop being prey to unscrupulous debt collectors.

Bite back.

Discharge binds all creditors

All creditors who got notice of your bankruptcy are subject to the discharge injunction, with a few exceptions.

That’s why it’s so important to list everyone who thinks you owe them money in your bankruptcy schedules. Getting your schedules right.

The discharge is a public record, retrievable on PACER  by anyone who is interested.

In short, there is no excuse for the creditor (or anyone who bought the debt from your creditor) to attempt collection of debts predating your bankruptcy.

And creditors who try to collect have effectively given you the right to sue them at their expense.

Here’s hoping that more debtors harassed by creditors after their bankruptcy will march into court for enforcement of their right to a fresh start.

When collector calls after bankruptcy

Whether it’s a debt buyer or the original creditor, it seems to be inevitable that you will encounter a collector after your bankruptcy case is over.

When that happens, make sure you tell the collector about your bankruptcy discharge.  To have a legal remedy for the violation of the discharge, you will need to prove that the collector knows about the discharge.

  • Tell them.
  • Make notes that you’ve told them.
  • Write them.
  • Keep a copy of your letter.

They’ve had their one cost-free mistake. The next contact will cost them.

The debt buyer can’t hide behind the fact that it wasn’t the listed creditor in your schedules.  If the debt buyer bought a discharged debt, he’s gotten nothing of value.

But again, you need to point out to the collector that the debt is gone by reason of the bankruptcy discharge.

Any further collection after learning of the bankruptcy spells trouble for the collector.

Suing to enforce the discharge

The doors to the bankruptcy court are always open to debtors whose discharge is being ignored.  And at the end of the day, prove your case and the collector pays your attorney’s fees.

How much more than your attorneys’ fees you recover depends on your ability to show how the discharge violation hurt you.

  • Lose sleep
  • Get turned down for a loan
  • End up in the doctor’s office
  • Take a credit report hit
  • Feel helpless and hounded

Those are just some examples of the damages you might experience.

9th circuit bankruptcyThe discharge is enforced by motion here in the 9th Circuit, which means you can get a hearing before the judge much faster than if you’d filed an adversary complaint.

The motion is a contested matter under bankruptcy rules.   That entitles you to discovery from the other side if you want or need it.

Most motions are heard and decided on the written pleadings and declarations. Nothing prevents a bankruptcy judge from taking live testimony.

Stop suffering in silence

If creditors who were discharged in your bankruptcy case continue to hound you, do something.

Tell your bankruptcy attorney.  Bring in the evidence about your contacts with the creditor.

If your bankruptcy attorney doesn’t handle contested matters, ask for a referral to an attorney who does or shop for a local attorney willing to enforce your rights.

It’s my conviction that until it costs creditors to ignore the discharge, they will continue to do so.

And judges don’t know this is a problem until we tell the story in their courtrooms.

So, make them toe the line or pay for the failure to do so.

Debtors beat big banks in California case

What to do after your bankruptcy discharge

Debts that survive the discharge

 

 

 

 

Fix Mortgage Troubles After Chapter 13

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mortgage mess

The mortgage servicer took less than 30 days to change its story, big time.

In three weeks time, the servicer went from telling the bankruptcy court, under penalty of perjury, that the loan was current, to telling the homeowner that she was $50,000 behind.

The whole story appears here.

Three weeks!

And there, in a nutshell, you see the utter disarray in mortgage loan accounting when a bankruptcy is involved.  (Actually I doubt the accounting is any better outside of bankruptcy, but that’s another story.)

Home loan after Chapter 13

Trouble with your home mortgage right after you’ve completed a Chapter 13 is a real bummer.

You get current through years in Chapter 13, make the payments after you file, and then are slammed with a statement saying you’re behind. Or worse, you get a foreclosure notice.

The problem was widespread enough that the national bankruptcy rules committee wrote a rule trying to head off the problem. That’s how we got FRBP 3002.1.

The rule requires lenders with a lien on your home to provide notice while you’re in Chapter 13 of changes to your payments and of fees and expenses added to your loan.  Then, at the end of the case, they need to file a response indicating whether they agree that you are current post – filing on the loan.

Yet time after time, mortgage servicers, the folks who are supposed to keep track of your payments on your loan, tell the bankruptcy court that you’re current in a filing signed under penalty of perjury.  Then they turn around within weeks, and sing a different tune.  In one of my cases, weeks after telling the bankruptcy court she was current, Big Bad Bank said she was $50,000 behind.

And it’s happened many times just this year.  The servicers either don’t know, or don’t care, what they tell the court about the loan.

While it’s supremely galling, you are not without power to sort the situation out.  Even though your bankruptcy case is over, you have unexpected friends:  bankruptcy law itself; the bankruptcy judge; and your attorney.

How to make your mortgage loan right

The folks who wrote the rule must have had a premonition that the rule requiring disclosure and transparency wouldn’t alway work.  Here’s what they wrote in the official comments to the Rule.

If, after the chapter 13 debtor has completed payments under the plan and the case has been closed, the holder of a claim secured by the debtor’s principal residence seeks to recover amounts that should have been but were not disclosed under this rule, the debtor may move to have the case reopened in order to seek sanctions against the holder of the claim under subdivision (i).

In short, get the matter back before the bankruptcy judge.

The Bankruptcy Code contemplates that you might need to reopen a closed bankruptcy case to seek relief.  There’s a procedure for reopening the case.

You may have to advance the filing fee, but you should be able to either get it refunded by the court, or collect it from the servicer.

Lender faces trouble in court

In my view, the lender who filed a statement with the court saying the loan was current and then sent a mortgage statement claiming an arrears arising from the period of the bankruptcy has two problems.

One problem is that matter of judicial estoppel, the idea that a party can’t take one position before the bankruptcy court and another in a state law foreclosure action.  If there were unpaid amounts at the end of the bankruptcy case, the Rule 3002.1 procedure was supposed to flush those out before the bankruptcy case was closed, and resolve them.

The second problem is that attempts to collect debts discharged in bankruptcy violates the discharge injunction.  And there are well established remedies for contempt of a federal court order.

It’s tricky when the lender retains its lien on the property.  It’s a central tenet of bankruptcy law that liens pass through bankruptcy unaffected, unless the court takes specific actions to alter the lien.

So, homeowners want monthly statements after their bankruptcy.  New rules even require it.  But those statements have to be correct and consistent with what the lender told the court under Rule 3002.1.

Relief and recompense in court

The bankruptcy court can award an injured debtor  “appropriate relief”.  That certainly includes attorneys fees and costs.

It can include an order determining that the loan balance is what the lender first said, or the court later determined.  It’s unclear whether the debtor can recover damages for emotional distress or other kinds of economic injury.

If the court finds that the servicer violated the discharge injunction, a wider array of sanctions are available.

But to get relief, you have to get to court.  And you have to get there with evidence.

So, save each written communication you get from the servicer after your bankruptcy case closes.

Keep a log of any phone contact with the servicer.

  • Who called you?
  • What did they say?
  • Were they trying to get you to pay?

The more detail you capture, the more compelling your story is in court.

If this happens to you, contact your bankruptcy attorney.  If the attorney who handled your case doesn’t feel confident with these kinds of cases, ask for a referral to a lawyer who does.

More

Watch out for mortgage modifications

Claim a deduction for mortgage arrears paid in Chapter 13

Getting the truth from mortgage servicers

 

 

 

 

 

Life After Bankruptcy: What’s It Really Like?

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life after bankruptcyWhat’s life really like after bankruptcy?

Everyone suffering through financial difficulties wants to know whether filing bankruptcy just trades one form of pain for another.

Will you be shut out of the American dream forever?  Unable to function in a world centered on electronic payments?

Here’s a collection of our best stories and advice on the world of your fresh start.

Your credit heals

Damaged credit improves over time, just like wounds heal. A credit report is not like a wine glass that once it’s broken, it’s gone forever.

 

after bankruptcy8 Tasks after bankruptcy

You’ve still got work to do after your bankruptcy to enjoy your fresh start.  Figure out where you are, money wise, and apply the lessons of the debtor education class you took to get the discharge.

 

after bankruptcyRenter to homeowner
Even with generous California exemptions, this aging client had nothing coming out of bankruptcy because she had nothing going in. Three years later, she’s a homeowner.

 

debts after bankruptcyDealing with debts that survive bankruptcy

A few unsecured debts can’t be discharged in bankruptcy; it’s a short list.  Some liens are your assets remain a charge on the collateral for that lien, but not on your new acquisitions.

 

car loan after bankruptcyGetting new wheels
How do you hold on to your ride, or replace your aging car after bankruptcy? Understand the impact of a shedding debts through bankruptcy.

 

bankruptcy discharge has teethDefending your discharge

The bankruptcy discharge is a federal court order;  it has teeth.  If creditors ignore your right to be free of collection efforts, you may have to bite back.

 

life after bankruptcyBankruptcy can be a life-changing event, for the positive

Life after bankruptcy can be what you make it.  You get a chance to make some new choices and to strip some sources of stress from your life.  How will you color it in?

More

Is it better to just keep making minimum payments?

Secret alternative to bankruptcy

How debt makes you dumb

Bankruptcy Changes Your Life, Only Not The Way You Think

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How will filing bankruptcy change my life?

My clients ask all the time.  They imagine the remainder of their life after bankruptcy with neither credit cards nor credit.  Outcasts in our economy.  Shunned by all.  Crippled by bankruptcy.

They can see a scarlet “B” tattooed on their foreheads to mark them forever as Bankrupts.

My short, irreverent answer to that question is that they will sleep better at night.

Other side effects of bankruptcy include a drop off in telephone calls from collectors and shrinkage of the amount of mail they get.

They get smarter; debt makes you dumb.

All true, but probably not the answer they expected from a bankruptcy lawyer.

You drive change

The more serious answer has to reflect what brought them to me to file bankruptcy in the first place.

When the driving force was gambling or some other irresponsible behavior, I tell them that I can dig them out of this hole with bankruptcy relief, but positive change for the future requires that they change their behavior.

When the current crisis is  created by events beyond their control, like job loss, divorce or illness, bankruptcy is likely to put their financial lives back on track.

For those in business,  failure is one of the risks that we take when we sign up to be entrepreneurs.  Bankruptcy clears the financial decks so we can go forward with life.

Life after bankruptcy

At the superficial level, life continues only slightly changed after bankruptcy.

Your credit score probably goes up a bit, in the short run.  Credit is more expensive shortly after bankruptcy, becoming more available and more affordable as time goes on.  With time and a down payment, you can buy a house.

Credit heals

Your ability to borrow too much on student loans endures.

Most important, in my view, is that eliminating debt means that you can take responsibility for providing for your old age.  A frightening slice of Americans have nothing more than Social Security to support themselves as they age.  And age they will, even if they believe they will never “retire”.

An equal number of people couldn’t handle a $400 emergency without borrowing money.

Life after bankruptcy can be what you make it.  Bankruptcy makes it possible;  you fill in the details.

More

3 things that keep you from getting out of debt

Bankruptcy myths

The Truth About Tax Liens After Bankruptcy

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liens after bankruptcyWe have a lien on your name.  Not your property, your name.

That’s what the county tax collector told my client, years after he got his bankruptcy discharge.

And that multi-thousand dollar lien claim threatened to sink the refinance of his house.

Eventually, we got the county straightened out without going back to bankruptcy court, and the lien claim withdrawn, but only after educating the county on liens and bankruptcy.

Here’s what was wrong with the county’s claim they had a lien on my client’s name.

Liens attach to assets

The initial nonsensical claim is that a lien attaches to someone’s name.

A name isn’t property.  You can’t enforce a lien against a person’s name by seizing the name and selling  it.  That’s what a creditor would do with a valid lien that attaches to an asset.

Yet the tax collector claimed the lien was against the name of my client. Not a lien against his home, but a lien that entitled them to payment from a real estate refinance.  (Not logical, but this was a tax collector.)

Perhaps the tax collector was trying to say that the lien wasn’t one for real property taxes on that particular house.  Or she was saying that it wasn’t a consensual lien where the homeowner pledged his house as collateral for a loan.

But she definitely contended that the lien on my client’s name survived his bankruptcy.

Liens don’t snag post bankruptcy assets

The second bit of nonsense was the claim that the county had a lien in the house my client acquired after he filed bankruptcy.

The law on liens and a bankruptcy discharge is straightforward:

  • Liens that attach to an asset owned on the day you file bankruptcy survive the discharge
  • If the debt supported by the lien is not discharged, the lien attaches to property acquired after bankruptcy
  • If the debt is discharged, there’s no lien on newly acquired stuff.

It’s the last proposition that saved the day for this client.  The county’s tax claim was discharged in the bankruptcy.  My client didn’t own a house when he filed.  Therefore, the county got no lien on after-acquired property on account of a debt that was discharged.

Preventing post bankruptcy surprises

It’s not uncommon for creditors to pop up after bankruptcy with a claim inconsistent with the bankruptcy discharge. It happens because of ignorance, incompetence, and, occasionally, sheer greed.

Bankruptcy courts stand ready to enforce the rights that debtors get from bankruptcy.  But that takes time.

When a judgment lien pops up after bankruptcy

The trouble comes when the creditor stands to upset a real estate transaction that has a deadline, and possible costs associated with missing that deadline.  Like my client trying to refinance his house. Interest rates are going up.  Miss the deadline and pay a higher rate for the life of the loan.

If real estate is involved, start immediately to see what liens show in the public record. In California, where I practice, that means get a preliminary title report at the first opportunity.

Identify any liens that are unenforceable by reason of the bankruptcy discharge, or by reason of having been paid, died of old age or avoided in bankruptcy.

My attack on the county tax collector started with providing the creditor mailing list from the case, showing that the county had notice of the bankruptcy.  I sent them a copy of the discharge order and the schedule that showed that my client didn’t own the house when he filed years ago.

Having given the county good notice of the bankruptcy, way back when, my client avoided more than $10,000 in tax claims.

And his name was his own.

More

Dealing with tax liens in bankruptcy

When creditors ignore your discharge

The IRS after your bankruptcy case

 

 

Credit Reports Heal

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band-24298_1280 (1)_optWill filing bankruptcy hurt my credit? Probably.

Should that hit to your credit keep from filing bankruptcy?  Not by a long shot.

Incredibly, I encounter people drowning in debt who think their credit report is more important than their financial health.

Their thinking seems to be that credit, once damaged, is never the same.

It’s not so.

A blow to your credit is not permanent nor even long lasting.

Your “credit”, or really, your worthiness for new credit, is almost a living, breathing thing.  It can suffer a blow and recover.

Credit hit is like a cut

Whether you choose debt settlement, debt management or bankruptcy, the solution will damage your credit, in the short run.

Think of the damage like a wound.

The wound bleeds, it exposes the rest of your body to infection.  It hurts.

Think of bankruptcy as antiseptic.  Douse the wound with antiseptic to kill infection and promote healing and it hurts…but the hurt fades.

Over time, the wound closes and scabs over.  It isn’t painful most of the time.

When it’s healed, there’s a bit of a scar.

Over time, even the scar fades.

Debt is chronic disease

When your debts are beyond paying off in the normal course, it’s like a disease you can’t beat.  Persistent symptoms, sometimes progressively worse, other times just ever-present.

Debt saps your energy, consumes your thinking and limits your opportunities.

If your debts are such that you’ve considered bankruptcy, your credit worthiness is probably already compromised.  Would any creditor lend you more money at a reasonable rate?

If not, your credit may not be doing you any good at present.

Your balance sheet is what counts

A credit report is a limited history.  As time passes, the oldest history falls off the report to be replaced with the snapshot of today’s finances.

If you use bankruptcy to wipe away your old debts, your balance sheet (assets minus liabilities) improves on the spot.

The bankruptcy filing shows on your credit report, in the rear view mirror, for some time.  But its significance to lenders fades the farther down the road you get from filing.

But with your old debts gone, even right after you file, you no long look like someone who already has as much debt as they can handle  or more.

Take steps to get financially healthy and your credit will recover too.

Image courtesy of Flickr and RambergMedia Images under a Creative Commons license.

Is There Life After Bankruptcy?

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multiple questions-grisel d'an flicker_opt

Is bankruptcy worth it?

Those who see the decision to file bankruptcy to get a fresh start as painful or less than honorable wonder what life is like, on the other side of bankruptcy.

I got a report from the other side this week from a Chapter 7 client from 3 years ago.

Single, well past middle age, a renter, and dead broke when she’d filed, she’d retired, moved, and bought a house!

Her email was entitled:  “A Happy Ending”. [Read more…]

Ten Debts That Follow You After Bankruptcy

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debts after bankruptcy

Some debts just follow you out of bankruptcy.

Not many but a few.

These debts continue to be collectible even after a Chapter 7 discharge.  The discharge in Chapter 13 is different and broader:  just another reason to choose Chapter 13.

1.   Family support

Regardless of what it’s called, court ordered payments for support of children or spouses

2.   Recent taxes

Income taxes for tax years  more than three years old, counting from when the return was due [Read more…]

Couple Beats Big Banks Who Ignored Bankruptcy Discharge

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bankruptcy discharge

 

A couple of banks found out that it’s expensive to ignore the bankruptcy discharge.

For a change, money will flow from banks to my clients.  Because even a bank can’t just do business as usual when their borrower files bankruptcy.

Equally important, the judge recognized, in dollars, the emotional costs to debtors when their discharge is ignored.  And she awarded compensatory damages without live testimony, expert witnesses, or protracted discovery.

Bravo for common sense on the bench.  She put real teeth in the bankruptcy court’s discharge order.

Discharge poorly enforced

Bankruptcy judges have regularly called out creditors for bad behavior and made debtors whole for their attorney’s fees.   But, too often, in my experience,  the harassed debtor got no meaningful monetary recovery.

For me, that unwillingness to put a dollar value on the peace which is supposed to flow from the bankruptcy discharge has been a huge hole in the bankruptcy system. It leaves the debtors feeling cheated of all of the benefits they expected when they made the hard choice to file bankruptcy.

Until it becomes more expensive to the scofflaw creditors to ignore the discharge than to honor it, debtors get only a fraction of what the discharge promises.

Debtors must not take it anymore

The flip side of the problem of discharge violation is that after the bankruptcy case is closed, debtors assume they have no remedy.  They simply suffer continuing collection efforts.

Or, the debtor assumes that his lawyer screwed up.  Why else would this creditor keep bothering him.

Bankruptcy discharge and zombie debt

Neither judges nor bankruptcy attorneys can fix the problem if the victim doesn’t make themselves heard.

The problem your bankruptcy lawyer can’t fix

My clients helped their case by keeping most of the dunning letters sent by the creditor over several years.

The case would have been better still, for this judge anyway, if they’d kept a log of the phone calls and what was said.  The fact that the creditor kept calling wasn’t sufficient proof that the call attempted to collect a debt.

Creditor pays for its mistakes

The creditors in my case will end up not only paying their Tall Building Lawyers to oppose our motion for sanctions, but they will pay my fees to make them stop.

In the thousands of dollars.

You see, the bankruptcy discharge is an injunction from a federal court.  It prohibits acts to collect a discharged debt as a personal liability of the debtor.

Ignore the order and you are in contempt of court.

When a debtor proves that the creditor knew about the discharge and intentionally acted anyway, the debtor gets compensatory, or civil, sanctions.

Almost without exception, the sanctions include payment of the debtor’s attorneys fees.

These creditors will also pay for the fee to reopen the case to get the matter before the judge.

It’s some solace to my clients who don’t feel as victimized as before.

More on enforcing the discharge injunction.

 

 

643 Bair Island Road
Suite 403
Redwood City, CA 94063
Phone: (650) 694-4700

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