Dealing with payday loan collectors

Many of us, if we're lucky, have been living paycheck to paycheck. Sometimes the paychecks don't come soon enough and we're forced to swim with the sharks of the payday loan industry. These loans are terrible for myriad reasons. For instance, the interest rates on these loans can be as high as 900%. No, that is not a typo. NINE HUNDRED PERCENT!!! This extreme interest can make it nearly impossible for struggling people to ever break free from the clutches of a payday lender. The main issue I wanted to touch on today is what can happen in the months and years after you've paid off a payday lender. We're getting a lot of calls lately from people who've received harassing phone calls. The callers claim that the individual owes a debt to a payday lender, though they rarely identify who the lender is. They then proceed to threaten that criminal charges are pending and the only way to avoid jail is to pay up immediately. Or they say they will send someone to the debtor's residence to seize money or goods. Definitely a menacing prospect.

We think most of these calls are flat-out scams. The payday lenders have either sold their customer information to shady third parties or their data has been hacked. The callers often have a lot of information about the individuals, including their addresses and social security numbers. They often use this information to convince people of their legitimacy. They also prey on the fact that people who've used payday lenders in the past know from experience that these debts are difficult to pay off in full and that even a $1 balance can skyrocket quickly.

Whatever you do, don't agree to pay these collectors over the telephone. Do not give them any personal information about yourself or any of your financial accounts. Demand that they tell you the name of the payday lender you allegedly borrowed this debt from and that they put their demand in writing and mail it to you. Also, take notes on the call. Write down the number they've called from and the name the caller gave you (99 times out of 100, this will not be his/her real name). Note whether or not they spoke the phrase, "This call is from a debt collector and is an attempt to collect a debt," and make sure to write down any specific threats the caller made.

As soon as you are off the phone, we recommend contacting a consumer attorney or the state Attorney General's office. If the call is a scam, either should be able to tell you that and advise you on next steps.

Stop foreclosure with Chapter 13

Often people come to see us after they've done everything they can to stop foreclosure. Many try to get loan modifications from their lenders, but after lots of runaround, most are denied. For some strange reason, the lender just won't allow the borrower to get out of default and get back to making payments. With a foreclosure sale (often called a sheriff's sale) on the horizon, many people are looking for a way to stop foreclosure and force their lender to accept payments. Chapter 13 reorganization can be a fix in this situation. Here are some of the advantages:

1. The automatic stay will stop foreclosure. The automatic stay protects you from creditors and prevents foreclosure from taking place, even if the bankruptcy case is filed just minutes before the sheriff's sale. If the clock is ticking on your foreclosure sale and you're out of options to stop foreclosure, filing bankruptcy may give you the time you need.

2. You can force a lender to accept overdue payments over time. Chapter 13 involves repaying a portion of your debt over time to stop foreclosure. In a Chapter 13 case, you pay your mortgage arrears back over the life of the plan. To figure out if this is feasible, we do some simple math. We take the overdue amount on the loan (arrears), and divide it over the length of your Chapter 13 plan (three to five years). Let's say your mortgage payment is $1000/mo and you are overdue $10,000 on your mortgage. In a five-year Chapter 13 plan, we would divide the $1,000 arrears by 60 ($166.67). If you can pay your regular mortgage payment plus an extra $166.67 per month (for a total of $1166.67/mo), the lender will have to accept your repayment plan.

3. In some cases, we can "strip" your second mortgage. We can "strip" a second mortgage that is fully underwater. Here's how lien stripping works--if you have two mortgages, and the balance of your first mortgage is more than the current value of your house, then your second mortgage is "unsecured" because there's no equity in the home to back it up. When that's the case, the lien can be removed and the value of the second mortgage is paid pro rata with the rest of your unsecured creditors (medical bills, credit cards, etc.) Because you only pay the unsecured debt you can afford in a Chapter 13, and the remaining debt is wiped out after the plan has ended, this can save you truckloads of money.

Lien stripping be a huge benefit to borrowers over-stressed by two mortgages. If you're facing a sheriff sale and feel like you're out of options to stop foreclosure, give us a call.

Can a debt collector leave messages on my voicemail?

The Fair Debt Collection Practices Act (FDCPA) makes it illegal for a debt collector to communicate with any person other than you or your attorney about your debt. When a debt collector leaves a message on your answering machine (does anyone have these anymore?) or voicemail, it runs the risk that other people will overhear that a debt collector is contacting you. Embarrassing, right? According to FDCPA case law here in Minnesota, if a debt collector leaves a voicemail and mentions that you owe a debt, it may be breaking the law if a third party overhears it. If so, you may be entitled to $1,000 statutory damages plus any actual damages you incurred (such as emotional distress damages for invading of your privacy). The best part? You get your attorney's fees from the debt collector.

Proving your expenses in bankruptcy - sending money to family abroad

Family is important to everyone. We work with a lot of people who moved to the United States specifically because it provided them the opportunity to earn a better living, which in turn allowed them to support family in their native country. Unfortunately, this does not make them immune from the same issues that often cause people to consider bankruptcy (divorce, major medical expense, and job loss). When we file bankruptcy for a client, one of the things we need to demonstrate to the Court is that the expenses our client claims are accurate. This can be tricky when one of their major expenses is sending money back to their home country to support family members (or buying phone cards to call them). People often use wire transfer services such as Western Union to send money to places in Latin America, Eastern Europe, and Africa. Our clients often send their families some amount of money each time they get paid. The wire transfer companies provide a paper receipt, but generally don't keep records by customer (at least that they've seemed willing to release to the customer). When it comes to international phone cards, the buyer doesn't often get a receipt at all.

We know it's easy to toss or misplace receipts, particularly when they aren't for goods you are likely to return. That said, good record keeping is really important, especially if you need to file bankruptcy. We suggest picking up an accordion folder or other organizer and making a habit of placing receipts for all regular expenses in it. We also advise keeping all used phone cards rubber-banded together, separated by month of use, if possible. We can't guarantee that all your expenses will be justifiable to the Court, but having documentation will help us make the best case possible.

If you're in the Minneapolis area and have questions about bankruptcy or any other financial challenge you're facing, please call us anytime. We provide free consultations.

Can a second mortgage company sue after foreclosure?

In the wild heyday of mortgage lending, many people were offered two mortgages when buying a house. The first mortgage was a traditional mortgage for 80 percent of the value of the home. But for borrowers who wanted to buy without a down payment, lenders also offered a second mortgage to cover the down payment and help the borrower avoid having to pay private mortgage insurance (PMI). These were called piggyback loans. Man, did this backfire. When housing prices started to take a dive, the traditional 20 percent of equity borrowers used to have as security in their house wasn't there, since it had been leveraged by the second mortgage. Without this cushion, when a borrower needs to sell his house or can't make the monthly payment, the selling price won't cover the mortgages and so the borrower can't pay them off.

In most Minnesota foreclosures, the first mortgage company can only collect whatever it can get from the sale of the house. If the selling price doesn't cover the mortgage and there's still debt owed, it's wiped out by the foreclosure. It's a different story for second mortgages. Under Minnesota law, a second mortgage company can collect a deficiency (the amount owed beyond the balance that's paid off by the foreclosure.) This means many people after foreclosure are still being chased by second mortgage companies for balances somewhere in the tens to hundreds of thousands.

So what do people do when they are in danger of being sued for a deficiency judgment? Here are some ideas:

1. Do short sales work? Sometimes. A short sale is where the lender agrees to sign off on the sale of a house and take a reduced amount on their loan so that they don't have to go through the foreclosure process. We've heard of some short sales where the second mortgage lender accepts some modest amount of cash and agrees not to pursue the borrower for any remaining debt. But these are becoming more infrequent. In other cases, second mortgage lenders are taking the cash and signing off on the sale, but reserving the right to go after the borrower for the difference. Short sales can be risky, and there are lots of sharks in the real estate industry, so we recommend doing this only if you have an attorney you trust looking over the deal.

2. Can I negotiate with the second mortgage lender after the foreclosure? Sure. Considering the huge amount of money some mortgage lenders are collecting on a deficiency, many times they know they don't have a prayer of collecting their money. That's why they might be willing to take a fraction of the amount owed just to get something from you. When mortgage companies are willing to settle, we've seen the best deals when borrowers are willing to pay a settlement in one lump sum rather than lots of smaller payments.

3. Can bankruptcy wipe out a second mortgage? Definitely. Many clients come to us facing tens of thousands of dollars in deficiency judgments, and we're able to discharge these debts in bankruptcy. This is one of the biggest reasons our clients file bankruptcy. A defaulted second mortgage is treated as unsecured, nonpriority debt in bankruptcy, which is pretty much the same as credit card debt. This means we don't generally have any trouble making it go away.

Whether you're facing foreclosure and want to figure out your best option, or if you have already been through foreclosure and you're worried that your second mortgage is going to rise from the dead and come back to haunt you, call us at (612) 564-4025 or email for a free consultation.

The automatic stay in bankruptcy

One of the biggest benefits of bankruptcy is that your filing will stop any debt collection against you. This means no more angry phone calls from debt collectors, no more threatening letters, and any lawsuits against you must stop (including pending foreclosure sales). Under the bankruptcy law, this is called the "automatic stay." There are only a few things you need to know about the automatic stay:

1. The automatic stay begins the moment we file your case. This means that a foreclosure sale at 10:00 doesn't count if you filed your case at 9:59. It also means that a creditor who calls you minutes after your case has been filed has to stop, even if they haven't received notice of your filing yet.

2.  The stay is in effect until the end of your case, unless a creditor has a good reason. In a Chapter 7 bankruptcy, the stay often lasts until your case is closed. In a Chapter 13 bankruptcy, your case may last for three to five years. The automatic stay remains in effect the entire time.

A creditor may make a motion with the court to lift the stay. This usually happens with a secured debt you're not paying--the creditor can ask to have the stay lifted in order to foreclose on a mortgage in default, for example. If a creditor does try to lift your stay, your attorney can advise you on whether it's a good idea to fight the motion and prevent that creditor from being able to collect until the end of your case.

Even though the stay does expire at the end of a Chapter 7 case, that's usually not a problem for the debtor, since the stay is replaced by the discharge injunction. The discharge injunction is similar to the stay--once a debt is discharged in bankruptcy, a creditor can't try to collect it ever again.

3. The automatic stay protects you from all creditors, even ones who will still be able to collect when your bankruptcy is finished. If you have tax debts that are nondischargeable, or unpaid student loans, the automatic stay gives you three to four months of breathing room while you figure out your finances. Even if you're going to owe the debt once the bankruptcy is finished, they can't bother you while the stay is in place.

4. You may be able to recover money damages for stay violations. The Bankruptcy Code is dead serious about protecting debtors from being bothered by creditors after a case has been filed. If you are damaged by any "willful" violation of the automatic stay, you may recover actual damages, including costs and attorney's fees, and, sometimes even punitive damages.

In general, if you're getting collection calls in bankruptcy, we may give them one free pass--we remind the creditor that you filed a case and warn them not to contact you again. If they're brave enough (read: stupid enough) to continue giving you hassle, we can sue them for damages. Any damages that you win are not considered part of the bankruptcy estate and don't need to be turned over to the trustee, meaning they're your down payment toward your fresh start.

If the agency calling you is a third-party debt collector, they may have also violated the Fair Debt Collection Practices Act (FDCPA), which can result in awards of up to $1,000 statutory damages, actual damages and attorneys fees.

If you've filed bankruptcy, notify your attorney any time a creditor contacts you, and be sure to keep a record of what calls you've received and from whom.  If you've been harassed by a creditor after your bankruptcy has been filed, get in touch to discuss your options.

Domestic partnership and bankruptcy

UPDATE: As of August 1, 2013, same-sex couples can now file bankruptcy together in Minnesota.

We often work with same-sex couples dealing with debt. A few tricky issues come up with clients in domestic partnerships that want to file bankruptcy, but for the most part, the bankruptcy law treats them exactly the same as any non-married couples. Here are some questions we get asked a lot:

1. Can we file bankruptcy together? Only married couples can file joint bankruptcy cases. An unmarried couple will need to file separate cases regardless of age, height, star sign, or gender.

2. What if we were married in another state? No dice there. The federal Defense of Marriage Act denies federal recognition of same-sex marriage. So even though same-sex marriage may confer certain benefits in the states where it's legal, this doesn't extend to the bankruptcy law.

3. Does my domestic partner count toward my household size on the means test? In determining household size for the purposes of the means test, you can count any person with whom you share a household--even a roommate counts as long as you share household expenses. If you have kids, both partners can count the kids in household size under the means test.

4. Do I have to count my domestic partner's income toward my ability to pay creditors on the means test? In counting income, we only count a partner's income if it is paid toward the household expenses of the debtor. This is usually more favorable than the way a married single-filer is treated under the bankruptcy code. If married, you have to add all your spouse's income as household income, and then subtract any money that does not go into the household as a "marital adjustment" (such as the spouse's monthly payments to debt in his/her own name). For unmarried couples, all we do is add the portion of the non-filing spouse's income that is paid toward the expenses of the debtor or his/her dependents.

5. Will our case cost the same as it would if we filed together? Domestic partners the same discounted price that we would offer a married couple filing bankruptcy, even though we have to file two separate cases. The only difference is that because you'd be filing two separate cases, there will be two separate filing fees ($335 per person in a Chapter 7).

There are other issues to watch out for, especially if you and your partner own property jointly. Get in touch for a free consultation if we can help you figure some of these issues out.

What does it cost to file Chapter 7 bankruptcy?

I guess it's no surprise that our chapter 7 bankruptcy clients are often cash-strapped. So one of the first things a potential client wants to know during a consultation is how much bankruptcy costs. Obviously, every case is different, but here's a rough version of what we tell clients about how much bankruptcy costs.

1. We charge a flat fee. If you're considering Chapter 7 bankruptcy, you don't want to worry about your lawyer running up the fee as he churns hours on your case. Flat fee billing gives our clients predictability--we quote you a fee before you sign up with us, and that's what you'll pay.

2. The amount of the fee depends. For a basic Chapter 7 for a single filer paid in full, we charge $2,250, including all filing fees. Our prices do increase with the complexity of your case.

Your fee will be based on our best prediction of the complexity of your Chapter 7 case. One example: if a client is above median income, involving a much more detailed analysis under the means test, that case may cost more. There are other factors that may affect the complexity of your case, so here's my advice on price-shopping--if a bankruptcy attorney can quote you a one-size-fits-all price before understanding your particular issues, run away. That lawyer probably doesn't understand just how complex some cases can be.

3. Your Chapter 7 bankruptcy fee must be paid before we file your case. If we file your bankruptcy case and you haven't paid our entire fee, the debt to us is discharged along with all your other debts. We're out of luck. You might not want to hire the lawyer who doesn't understand this concept and offers to let you pay after the bankruptcy is filed.

Last tip--you may not want to bargain-hunt on bankruptcy. The best lawyers will quote you a fair price, but the worst ones will probably discount their fees to try to take business from the good ones. You want a lawyer who's experienced enough to understand a lot of the tricks and traps of bankruptcy. You also want someone who'll be available to answer your questions, and won't blow you off because they're too busy with all their other cases. And you want someone who's willing to use the bankruptcy law creatively to help you improve your situation.

Do I have to include all my debts in my bankruptcy?

One of the questions we are asked most frequently is whether you need to include all your debts when you file bankruptcy. It often arises in the context of debts to family members or other people you wouldn't want to disappoint. The answer is YES, you must include each and every debt you have when you file. The rationale is that if you were selective about which debts to include in your bankruptcy, some creditors might be treated preferentially.  The Bankruptcy Code is written to ensure that if you are able to discharge some or all of your debts, each of your creditors is treated equally. This means that, in the event you'll be paying back some percentage of your unsecured debt (typically, this would be a Chapter 13 bankruptcy), each creditor will take a pro rata share of what you pay. If your case is a "no-asset" bankruptcy (most Chapter 7s), you may not be paying anything to your unsecured creditors, but it is still essential that they be listed on your bankruptcy schedules and that they receive formal notice that you've filed.

One thing we suggest if you owe debts to friends or family is to call them and let them know that you're filing. While bankruptcy may wipe out your legal obligation to pay back your debts, you are not freed from your moral obligations. You can tell your friends or family, if you wish, that you intend to pay them back after your bankruptcy case closes. This can be a tough conversation, but it is definitely better that you tell them rather than have them hear of it for the first time when they receive notice in the mail from the Bankruptcy Court.

It is very important that you don't pay back friends and family once you make the decision to file bankruptcy. In fact, one of the questions that you'll be asked by the Bankruptcy Trustee is whether you have paid back any friends or family in the past year. If you have, the trustee could potentially sue that person and take the money back.

As always, this isn't intended as specific legal advice.  We recommend you contact a bankruptcy attorney to discuss your situation.

Can I run up my credit cards before filing bankruptcy?

Chapter 7 Bankruptcy will often wipe out your credit card debt. But people who are looking to file bankruptcy are often still living off their credit cards, or at least using them on a regular basis. So our clients ask us, "can we use our credit cards before filing bankruptcy?" There are a couple of basic rules to follow:

1. Don't buy a jet ski on your credit card right before your bankruptcy. The bankruptcy law says a debt is non-dischargeable (meaning that it won't be wiped out in bankruptcy) if the debt was incurred under false pretenses. False pretenses may include the fact that you didn't intend to pay the debt when you incurred it. But the creditor will have to prove that you didn't intend to pay the debt, which is usually an uphill battle for them.

This is why the law gets more specific. Purchases greater than $550 made on a credit card for luxury goods and services within the 90 days before filing are presumed to be non-dischargeable—meaning that to get them discharged, you'll have to prove that the jet ski was necessary for the health and welfare of you or your family. That'd have to be one special jet ski.

2. OK, so you can't buy a jet ski, but you can probably buy diapers. "Luxury goods and services" isn't defined in the bankruptcy code, but the law does say that the term doesn't include "goods or services reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor." So although I can't promise you a judge will think your particular purchases were necessary, I'd guess you'd be able to make a strong argument that food, medicine, diapers, or gas station purchases would normally pass the test.

3. Don't take large cash advances right before your bankruptcy either. Cash advances more than $825 from a single creditor within 70 days before filing bankruptcy are presumed nondischargeable. Which brings up an important point. If you try to avoid the presumption limits (such as taking $824 in cash advances 71 days before filing your bankruptcy case) the creditor can still try to prove false pretenses generally, and if you're trying to skirt the presumptions, it may look like you're hiding something and attract unwanted attention from your creditors and the court.

4. Once you file bankruptcy, you won't be able to use your credit cards. So why not start living on cash right now? We usually recommend that our clients cut up their credit cards and see if they can make their monthly expenses for roughly three months before the bankruptcy. Living without credit can be hard after you've become accustomed to it, so it makes sense to get some practice before you file bankruptcy.

Questions about non-dischargeability? Don't make these decisions without an experienced attorney.

What happens to my credit score when I file bankruptcy?

If you're considering filing bankruptcy, you're probably concerned about what will happen to your credit--and rightfully so. Credit scores may temporarily be trashed when a client files bankruptcy, but the real question to ask is--who cares? Credit scores are based on the last 7-10 years of reporting information, but according to the credit scoring formula, things that happened in the recent past are weighted far more heavily than things that happened a long time ago. This is great news for the potential bankruptcy filer--your score may dip in the short term, but you can build your credit back quickly by opening new, positive credit accounts and letting that old stuff fade into the distance.

If you're considering bankruptcy, your credit score is probably on the brink anyway

There are alternatives to bankruptcy (working with debt management nonprofits or their more unsavory cousins, debt settlement and credit repair companies)--but anyone who tells you that these alternatives are gentler on your credit score is probably trying to sell you something. Once you have late payments, defaults and collection accounts on your credit, it's hard to get them to come off, and paying off collection accounts actually doesn't improve your score at all. Think about whether your credit score can be saved before you pay someone to save it.

it's time you and credit take a little break from each other

If you're considering bankruptcy, you're probably not planning to take out a mortgage or open a bunch of credit cards in the near future, and so you probably don't need to have a sky-high credit score right now. Your credit score may be a factor for renting apartments or finding new jobs, but having a recent bankruptcy may be less of a big deal to most people than if you haven't resolved your issues and have a bunch of debt collectors clawing after you. Sure--you'll need your credit to rebound eventually, but for now, explain your situation to a potential landlord or employer. If you're honest and upfront, you'll likely find that people are willing to overlook your earlier problems.

We have strategies for building back your credit

Remember, the recent past is much more important than the distant past when it comes to credit. The credit scoring models will reward you for opening new, positive credit accounts and paying on time every month. By stopping all new reporting on old accounts, bankruptcy cleans the slate so that your creditors don't keep dragging down your credit score month after month.

Once you file bankruptcy, you'll be inundated with new credit solicitations. But these offers aren't the ones you want--they tend to be expensive and predatory. We can point you toward safe credit building products--credit building loans and secured credit cards--that will help you build your credit back up slowly and surely. We also meet with you at no charge six months after your bankruptcy to make sure that all the negative information that was on your credit report pre-bankruptcy was cleaned up the right way. If you build new credit and pay on time, banks will begin to consider you for low-interest car loans and mortgages as soon as a year or two after your bankruptcy.

My ex is filing bankruptcy. What does that mean for me?

One of the questions we are most frequently asked is, "What happens to me if my former spouse declares bankruptcy?" The answer is, as always, it depends. Mainly it depends on whether you are obligated on any of your ex's debts. These could be credit cards, car loans, or mortgages that the two of you entered into jointly or that you are a co-signer for. A proactive first step is to pull your credit report and see if any of your ex's debts appear on it.  You are entitled to get one free copy of your credit report each year from each of the three credit reporting agencies. You can get yours online at www.annualcreditreport.com.

If you find debts on your credit report that relate to your former spouse, it may be smart to review your divorce decree and see if they were, or were supposed to be, resolved as a term of the divorce. You may want to call your divorce attorney for clarification.

If you have taken out joint debts and your ex files bankruptcy, you may be facing liability for 100% of them.  If you find yourself in this position it is probably worth your time to come in for a free consultation.  It is possible that your ex is filing bankruptcy due to an imminent creditor lawsuit.  As soon as s/he files, that creditor may turn their attention toward you.

What if I incur new debt during my bankruptcy?

Someone we know recently called to ask for help. She had filed bankruptcy with a big local firm, and about a month and a half after filing her case, her son had a medical emergency and they needed to call an ambulance. The bill was going to be high. But since the debt was incurred after she filed her case, the debt wouldn't be discharged in bankruptcy. We told her that she may be able to dismiss her bankruptcy case and then file a new case. But her bankruptcy attorney had made a mistake. When she completed her second credit counseling course, the attorney filed it with the court right away, even though it didn't need to be filed for more than a month. Once the credit counseling certificate was filed, the case was put on track for a discharge, making it much more difficult to dismiss the case.

We're always looking out for our clients, and we want to make sure we can take care of it when there's an unexpected emergency. We almost always wait until the last possible day to file the credit counseling certificate, just in case something bad happens to the debtor and they need to dismiss their case. If they need to dismiss, we just let the deadline pass without filing credit counseling, which automatically dismisses the case.

Every once in a while, a little procrastination can pay off.

How to stop fraudulent debt collection calls

I occasionally get calls from people dealing with debt collection scammers. The scammers acquire an innocent consumer's contact information and begin bombarding him with debt collection calls. The callers, who usually call from overseas with a VOIP phone line, make blatantly illegal threats, such as threatening to have the consumer arrested. When I talk to victims of this scam, I usually explain the nature of the scam and tell them that an FDCPA lawsuit isn't appropriate because there's no way to identify the scammers. But I've never really had a good answer for making the annoying calls stop. Until now, that is, thanks to "Steve". Steve (it's not his real name) was an innocent consumer suffering from this very problem. Rather than live with the harassing calls, Steve decided to set up a website with information about how to put a stop to the calls. Here's his tips for protecting yourself:

• Inform your employer.  You are likely getting calls at home and/or at work, so make sure your employer is aware the calls are part of a scam and to not take them seriously.  Advise the callers that they are no longer allowed to call you at work.  If they continue to call, document the date and time of the calls you received.  Save voice mails left if at all possible.

• Change your number(s).  For some this may not be an option, for others a one-time number change can be done free of charge.

• Use Google Voice.  Google Voice is a great replacement voice mail system for just about any phone number you use.  Messages can be transcribed and voice mail recordings can be saved as mp3 files. Pro Tip - call the fraudsters with a Google Voice number before turning off your old phone numbers.  Make sure when you call you identify yourself so they can start up their script.  At any point after they have your information pulled up just hang up.  They will then start religiously calling your Google Voice number.  At this point, you are free to change your regular phone number(s) and enjoy not having these people ever call you again. 

Can a debt collector call my parents about my debt?

Under the Fair Debt Collection Practices Act, debt collectors can only communicate with you or your attorney about your debt. There's a very narrow exception that allows debt collectors to contact third parties, such as your parents, but only to obtain location information. Location information means your address and telephone number. During this conversation, the debt collector must tell your parents that he is attempting to confirm your location information, he can't tell them that you owe a debt, and he is only allowed to identify his employer if asked. Of course, your parents have no obligation to give the debt collector your address and telephone number. And once the debt collector has your location information, there is no permissible reason under the FDCPA to contact your parents, or any third party for that matter. In other words, if you've already talked to a debt collector and he knows how to contact you, it's a violation of the FDCPA for him to call a third party because he already knows your location information.

It's fairly common for debt collectors to contact people's parents about their debt. And it's not just college students and recent college graduates. I've had clients in their 40's and 50's whose elderly parents were called by debt collectors. I suppose it's possible that some debt collectors contact consumers' parents by mistake. But I also think that some debt collectors call people's parents as a collection tactic to put pressure on the consumer to pay the debt. Either way, its a violation of the FDCPA, unless it falls under the very narrow "location information" exception described above.

Dealing with secured debts in bankruptcy

One of the really great features of bankruptcy is that you can use it to get rid of the financial anchors that have been weighing you down. These often include houses that are worth significantly less than you owe on them (very, very common in the current housing market) or cars (also common as cars often depreciate ahead of the payoff schedule). These types of debts are called "Secured," because the property that is the subject of the loan is used as collateral. When you file bankruptcy, you will have some choices with regard to to secured debts. You'll generally have three options:

Surrender the property

This, quite literally, involves handing the keys over to the bank. You are then freed from any liability relating to that debt.

Reaffirm the debt

After you file bankruptcy, the party that holds your mortgage or car loan may reach out to you through your attorney. They may propose that you sign a Reaffirmation Agreement. This means that you would agree to repay a debt that would otherwise be discharged in the bankruptcy. As a general rule, we discourage our clients from signing these agreements, because they aren't always in the client's best interest. There are some instances where a reaffirmation makes sense. Sometimes lenders will agree to reduce the interest, the principal or the term of the loan. Of course every situation is different.

Retain and pay

Retain and pay is the most common solution. Essentially, this occurs when you do not sign a reaffirmation agreement, but keep using the collateral and making your scheduled payment to the lender. The lender has the right to foreclose/repossess, but they don't have any incentive to do so, because they are getting paid. The advantage to retain and pay is you can use the collateral as long as it suits you (even through payoff), and still decide to surrender it with no consequence if it ceases to meet your needs (if your car blows a transmission you may not want to keep paying for it)..

Foreclosure fallout

Thousands of Minnesotans have lost their homes to foreclosure in recent years. For many it is a gut-wrenching experience filled with fruitless attempts to get caught up on payments or negotiate a short sale. One would hope that the pain ends with the handing over of the keys to the bank. Unfortunately, this is not always the case. Minnesota permits what is called Non-Judicial Foreclosure or Foreclosure by Advertisement.  This means that instead of going through a formal legal proceeding to foreclose (Foreclosure by Action), the mortgage holder merely needs to publish a conforming notice in a local newspaper for six weeks prior to the foreclosure sale. This method is less costly for the mortgage holder than Foreclosure by Action, so it is quite common.

One benefit for consumers of Foreclosure by Action is that foreclosing mortgaging holders cannot sue them for a deficiency judgment (a deficiency arises when the sale price of the property is less than what is owed on the mortgage).  This means that they will ONLY get the proceeds from the sale of the foreclosed property. This can be good news for the person losing their house, BUT, and this is a very significant BUT... most home buyers in recent years financed their homes with a first and second mortgage.

If the holder of the first mortgage forecloses and the sale price of the property isn't enough to pay off both the first and second mortgage, the holder of the second mortgage can sue the homeowner for the deficiency. That was a pretty convoluted sentence, so let me use an example:

Mortgage 1: $160,000

Mortgage 2: $40,000

Property sells at Sheriff's Sale for $150,000.

Even though the holder of Mortgage 1 lost $10,000, it cannot go after the homeowner for the deficiency

The holder of Mortgage 2 can still go after the homeowner for the full $40,000

This situation adds insult to injury for people who have just lost their home.  We frequently have clients come and ask what they can do about it. Of course every individual's situation is different, but one possibility to consider is Chapter 7 bankruptcy. Since the second mortgage is no longer secured by the home, it is simply another unsecured debt, which can be discharged in bankruptcy.

Why you should stay out of the bankruptcy bargain bin

As bankruptcy filings have been on the rise, it seems like the legal market has been flooding with new bankruptcy practitioners. And with the intense competition, we're seeing what looks like a price war, which is generally great for the consumer. But as we're seeing prices cut drastically, we also suspect providers are cutting corners on quality. That's why it might not be a good idea to go bargain hunting when there are serious issues at stake.

• "Limited scope representation" and petition preparers. You'll find these services scattered across Craigslist--they advertise bankruptcy for $300-$600 and offer significantly less service than a specialist attorney would. But it's not like you can just check some boxes in a bankruptcy case and head off to have tea with the trustee. Don't believe it when someone says bankruptcy is simple--your bankruptcy may be simple, but you won't know that until you discuss your situation with an experienced practitioner.

• Pre-bankruptcy planning issues. There are several things that can possibly derail an entire Chapter 7 case. For example, cash advances on a credit card made in the month before filing may be nondischargeable. Or if the client has sold property to a family member at a discount price before filing, the trustee might argue fraud. An experienced attorney can help you avoid these pitfalls.

• The means test is tricky. Pop quiz, petition preparer. On the means test, do you count expenses on a six-months-in-the-past basis or do you deduct expenses ongoing? How do you treat the $600/month the client is sending home to Africa? Can you count the car ownership deduction if the client owns the car outright? If someone gives you a quick answer to any of these questions, be cautious.

• 341 meetings can be scary. Getting grilled by the trustee at the meeting of the creditors is no fun. We prepare our clients by letting them know what kinds of questions the trustee will ask--and we know it's different from one trustee to the other. If practitioners are not accompanying clients to the 341 meeting on a routine basis, they don't know what sorts of issues trustees have been digging at. For example, I heard one trustee recently ask whether the filer had any credit card points that could be cashed in (because if the filer didn't exempt those, the trustee could seize them as part of the bankruptcy estate.) Nobody would know to look out for that issue unless they'd been there hearing the trustee ask about it. You need an attorney who knows all the potential traps.

These issues only scratch the surface of the legal analysis an experienced bankruptcy attorney will undertake when they represent you. If you're skipping this level of detail in your case, you may be leaving yourself vulnerable to having your case dismissed or your property seized.

How to kill 'zombie debt' using the statute of limitations

They call it zombie debt because it's so old that by the time a debt collector picks it up, you've totally forgotten about it. Creditors sell old, uncollected debt to debt buyers for pennies on the dollar--that's why you may be getting phone calls or letters on a debt you don't even remember having. Just as there are very specific ways to kill a zombie (click here only if you don't scare easily), there are specific defenses you may have against zombie debt. One of these is the statute of limitations.

Statute of limitations: The statute of limitations is the legal term for how long a party can sue you on a debt. The statute of limitations for suing for breach of a credit card contract in Minnesota is six years. This means that a creditor or debt buyer can sue you anytime up to six years from the date of your last purchase or last payment, whichever was later. There are some exceptions to this, so you'll want to consult an attorney.

Special statute of limitations: There may be a shorter statute of limitations if the debt was a store credit card. It's a store card if you could only use it at one store (store-branded cards with Visa or Mastercard logos don't count.) Those lawsuits are governed by a different law, called the Uniform Commercial Code (UCC), and they may have a shorter statute of limitations of only four years.

Super-special bonus statute of limitations: Minnesota has a borrowing statute. In short, this means that if a legal claim "arises" in another state with a shorter statute of limitations, that shorter statute of limitations may apply. This may be relevant for credit card companies based in states such as Delaware, which has a three-year statute of limitations. But be warned, the law is tricky on this. We would recommend you only try this defense under supervision of an experienced attorney.

Can my employer run a credit check on me?

If you've had financial issues, you might not want a potential employer to know--and you sure don't want the jerk that's your boss to know your private business. But more often employers and potential employers are pulling credit reports on you. This is especially common in workplaces where you may handle money, like a bank. Under the federal Fair Credit Reporting Act (FCRA), an employer can only perform a credit check on you if you have given your permission. They may get it by adding a line into your job application, something like "by signing below, you authorize Acme Inc. to obtain credit reports." If you are already employed and not sure whether your boss has authority to run a credit report on you, you can ask your human resources department.

But here's the tricky part for employers. If they decide to take an "adverse action" (i.e. not hiring you, not promoting you, or firing you) as a result of information contained in a credit report, there are rules they have to follow:

• The employer must provide you with a copy of the report they used before they take the adverse action

• The employer must provide you with a notice explaining which credit reporting agency supplied the negative information, and that you have a right to dispute the accuracy of your credit report

• You are entitled to a free credit report within sixty days of the adverse action--even if you've already gotten your free credit reports from annualcreditreport.com. Just contact the credit reporting agency to order it

If they fail to give you the required notice, they may have violated the FCRA. Violations can result in being awarded actual damages, statutory damages between $100-$1000, and attorneys fees, which means you may only have to pay your attorney if you win your case.