What happens to my car loan when I file bankruptcy?

In this post we discuss what happens to a car loan when a borrower files bankruptcy.

Options in Chapter 7 bankruptcy

In Chapter 7, you have three options for dealing with a car loan. These options are to surrender the car, reaffirm the loan, or "retain and pay."

• Surrender: If you file Chapter 7 and you wish to get rid of your car with a loan, you have the option of surrendering the car to the bank. The upside to this is that you can walk away from the loan, without having to pay any deficiency (i.e. the difference between the amount of the loan and the value of the car that you would generally owe if you walk away form a car loan.) The deficiency is wiped out in a Chapter 7 case.

• Retain-and-pay: This is the most common option for car loans in Chapter 7. You get to "discharge" your car loan, which means they can never come after you personally for any unpaid amount on the loan. However, instead of surrendering the car, you keep the car, and continue making the payments for as long as you want. Both the borrower and lender act as if the bankruptcy had never been filed. Once the loan is paid off, you can get the lien released, and own the car free and clear, just as if you hadn't filed bankruptcy. Some lenders won't go for this, typically credit unions and some banks, and instead they'll demand a "reaffirmation agreement."

• Reaffirmation: Some lenders don't want to let you discharge your personal obligation on the loan, and instead demand a reaffirmation, which is a legal process where you renew your promise to pay the loan, and unfortunately you keep your personal liability. Typically, it's credit unions that tend to demand reaffirmation agreements, and a few banks out there. Ask your attorney if your lender will accept retain-and-pay or demand a reaffirmation. If you choose reaffirmation, you will likely have to go to bankruptcy court so that the judge can explain the consequences to you and make sure you understand.

Chapter 13 tools for car loans

In a Chapter 13 case, you can reduce the principal of the car loan, reduce the interest and catch up on arrears.

• Reduce principal: In Chapter 13 you can "cram down" a car loan, but only if you took the loan out more than two and a half years ago. To do this, we find the current value of the car. Then we can reduce the principal of the car loan from the current balance, to just the value of the car. So if you owe $9,000, and the car is worth $5,000, cram down reduces the balance of your loan from $9,000 to $5,000.

• Reduce interest: For many car loans in Chapter 13, you can reduce the interest rate on the car loan from an exorbitant rate to something more reasonable. In past cases we have reduced interest rates to somewhere between 4 and 6 percent, typically. This can be a big help for subprime car loans.

• Catch up on arrears: In Chapter 13, if you're behind on a car loan, you can use bankruptcy to force the lender to accept catch-up payments. So if you're $1,000 behind on the car, you can take those arrears and stretch them over a three-to-five year period, pay a small monthly payment to catch up (say, $20-35 a month in this scenario), and then resume making your regular monthly payments. This is a good option if you're facing repossession.

If you're struggling with a car loan or facing repossession, and don't know what to do, you have plenty of options inside or outside bankruptcy. Get in touch with a lawyer to learn more about the tools available.

How to stop collection calls from a harassing debt collector

The Fair Debt Collection Practices Act gives you the right to stop collection calls. All you have to do is send the debt collector a letter telling them to cease all communications. There is no magic language required--just say in plain-English that you don't want them to contact you anymore. Keep a copy of the letter for your records and mail it certified with a return receipt so you can prove that the collector received it. Once the collector receives your letter, they must stop contacting you immediately. There are a few caveats here, though:

• If you want to resolve the debt, you may not want to stop all calls. If your goal is to work something out with the debt collector, you probably want to keep the lines of communication open. But if you can't afford to pay or if the debt collector harasses you, it may make sense to cease all future calls.

• The cease request will not stop any legal action. The FDCPA only requires that the debt collector cease communications with you. Courts have found that a person's cease request does not require a collector to stop or forego any collection lawsuits or garnishments.

• The cease request only applies to the collector you send it to. Many debt collectors will respond to a cease letter by transferring the account to a different debt collector. In most cases, your cease request to the first debt collector won't apply to a subsequent debt collector. You will likely have to send that subsequent collector another cease letter.

• Debt collection scammers may not honor your letter. Unfortunately, there are a few debt collection scammers out there. These fraudsters are just trying to get your money--there may not even be valid debt. Compliance with the FDCPA is not a high priority for a scammer, so they probably won't honor your cease request. The best thing to do with these scammers is to make it clear to them that you refuse to pay.

• If a debt collector receives your cease letter and continues to contact you, they've probably violated the FDCPA. One of the most important rights the FDCPA gives a person is the right to stop collection calls. If a collector violates this right, they should be held accountable for their illegal conduct. Consider talking to a lawyer in your area who sues debt collectors under the FDCPA.

You can sue under the FDCPA even if you owe the debt

I'm often asked whether a consumer can sue a debt collector under the Fair Debt Collection Practices Act (FDCPA) if they owe the underlying debt. The answer is a resounding YES! The main purpose of the FDCPA is to protect all consumers against debt collection abuses, whether they owe the underlying debt or not. In fact, most people who sue debt collectors under the FDCPA owe the debt.

The FDCPA prohibits abusive, deceptive, and unfair debt collection practices. Some of the more common debt collection practices prohibited by the FDCPA are:

• informing third parties that you owe a debt;

• contacting you at inconvenient times or contacting you at work after you've told the debt collector not to;

• threatening you with violence;

• using abusive or profane language;

• threatening to take legal action when the debt collector has no intent to do so;

• falsely implying that you committed a crime by not paying the debt.

If a debt collector violates the FDCPA, you have the right to sue the debt collector and recover damages. You are entitled to $1,000 in statutory damages and compensation for actual damages, such as emotional distress. And if your case is successful, the debt collector must pay your attorney fees. Because of this, most consumer lawyers will accept a FDCPA case on a contingency fee arrangement. This usually means you will not have to pay any attorney fees, unless your case is successful.

Collectors are liable for emotional distress caused by illegal collection tactics

The Fair Debt Collection Practices Act prohibits debt collectors from using false, misleading, abusive, and harassing tactics to collect debts. Under the FDCPA, any person who has been subjected to illegal debt collection practices may sue the debt collector to hold it accountable and enforce the law. If successful, the plaintiff is entitled to $1,000 in statutory damages and the collector must pay her reasonable attorney fees and costs. More importantly, the collector may also be responsible for compensating the person for any emotional distress that she has suffered from the illegal collection tactics. Commons symptoms of emotional distress caused by illegal collection practices include:

• Crying

• Loss of sleep

• Loss of appetite

• Headaches, vomiting, or stomach pain

• Martial problems

• Problems concentrating at work

While many debt collectors profess cold-hearted skepticism that a person could be so upset by collection efforts, I've worked with many clients who suffered from emotional distress symptoms. I had one client who spent many sleepless nights crying in her bedroom because a collector was pursuing her for a debt she already paid. Another client suffered from severe anxiety, nausea, and headaches because a collector pursued her for a debt she didn't owe. So I know for a fact that  illegal debt collection practices cause emotional distress.

The law says that a collector has to pay for the emotional damage their harassing or abusive collection tactics caused. While medical evidence is usually helpful in proving the extent and cause of the emotional distress, most courts don't require it. In most cases, it is sufficient for the person to testify in detail about their emotional distress symptoms. Often, a witness, such as a spouse, co-worker, or friend has seen the symptoms and can corroborate the plaintiff's testimony.

Depending on the severity and duration of the emotional distress, the amount of damages awarded can be significant.

For example, in Fausto v. Credigy, the collector made repeated calls and false threats of credit reporting over a Wells Fargo account. The Faustos believed that they had already paid off the account and told the collectors to stop calling. The collector continued to call--over 90 times in total. At trial the Faustos testified that they had many sleepless nights, an inability to eat, and the stress caused problems within their family. Ultimately, a Northern California jury awarded the Faustos $100,000 for emotional distress caused by the collector's harassment.

In another case, McCollough v. Johnson, Rodenburg & Lauinger, a collection law firm filed a lawsuit that was barred by the statute of limitations. The law firm, JRL, had information from its client that the suit was time-barred, but continued to prosecute it for 8 months. At trial, McCollough testified that JRL's wrongful lawsuit caused him anxiety, pain, increased temper, and conflict with his wife. Although McCollough already suffered from a disabling pre-existing condition due a traumatic brain injury, he characterized JRL's suit as the straw that broke the camel's back. A Montana jury awarded McCollough $250,000 for the emotional distress caused by JRL.

In another case, Yazzie v. Law Offices of Farrell & Seldin, a collection law firm tried to garnish the wages of Lucinda Yazzie, despite repeated notice that the debt was actually owed by someone else with the same name but with a different social security number. The law firm had changed the social security number in its files from the SSN of the correct account holder, to Ms. Yazzie's. Farrell & Seldin's collection attempts continued for three years. The New Mexico jury awarded Ms. Yazzie $161,000 for her emotional distress suffered during the three years of being wrongfully pursued for a debt that wasn't hers.

Similarly, in Mejia v. Portfolio Recovery Associates, a debt buyer sued the wrong person for a $1,000 credit card account. Ms. Mejia repeatedly told them it wasn't her debt, but the debt buyer persisted with the lawsuit. Ms. Mejia testified that the lawsuit terrified her and that she feared she would lose her house or be arrested. A Missouri jury awarded Ms. Mejia $250,000 for emotional distress.

Of course, these cases all involved particularly egregious collection conduct and severe emotional distress. Obviously, not every case results in these kind of damages.

But if you've endured illegal collection practices that caused you stress, anxiety, fear, or other symptoms of emotional distress, the law may require the collector to be accountable for your suffering.

How to stop collection calls to your cell phone

Few things are more annoying than repeated debt collection calls to your cell phone. Often, these calls are made by an automatic dialer. It's not unheard of for people to get 10 or more of these robocalls per day. This is incredibly frustrating if you rely on your cell phone for work or to keep tabs on your children. The good news is that there are a couple ways to stop these annoying robocalls.

Verbally tell the collector to stop the robocalls

You should first figure out if the collection calls to your cell phone are being made by an autodialer. You can usually spot a robocall if there is a pause or click before a person comes on the line. An automated message is also a clear sign of an autodialed call. If the collection calls are robocalls, there is a powerful federal law called the Telephone Consumer Protection Act that protects you. The TCPA forbids anyone from using an autodialer to call your cell phone without your consent. In most debt collection situations, consent is given in the fine print of the terms and conditions of the credit agreement. Most credit agreements have language buried in them that gives the creditor your consent to robocall your cell phone. This consent is then passed on to the debt collector if you fall behind on your payments.

Fortunately, the TCPA gives you the right to revoke your consent to autodialed calls at any time and in any reasonable way. This includes revoking your consent verbally over the phone. All you have to do is tell the collection representative that you are revoking your consent to robocall your cell phone. Under the TCPA, they have to stop the autodialed calls immediately.

Write a letter demanding that the collection calls to your cell phone stop

Even though you can make the autodialed calls stop by verbally revoking your consent, there are two drawbacks to that approach. First, it can be difficult to prove a verbal statement. Second, the TCPA only allows you to revoke your consent to autodialed calls. The collector is free to continue calling your cell phone as long as they manually dial the calls.

Thankfully, there is another federal law that regulates debt collection calls: the Fair Debt Collection Practices Act. Under the FDCPA, you have the right to stop all calls from a debt collector by writing the collector and requesting that they stop calling you. This letter doesn't have to be fancy. Just make sure to include your full name and your account number if you have it so that the collector can properly identify your file. All the letter has to say is that you want the collection calls to stop. You should list the all of the phone numbers that you no longer wish to receive calls on. If you want to continue to get collection calls on a certain phone number, you should say so. If you want to only get calls at a certain time, you should say that too. Under the FDCPA, the debt collector has to comply with these requests or face possible legal action.

In some cases, you can sue the collector to make the robocalls stop

Although not all collection calls to your cell phone are against the law, some of them are. And the penalties for illegal autodialed calls are significant. Under the TCPA, the collector must pay you between $500 and $1,500 per call for each offending robocall. The court will also issue an injunction against the collector forbidding further autodialer calls. Here's how you know if debt collection robocalls are illegal:

• The collection calls were made with an autodialer. Under the TCPA, an autodialer is anything that "has the capacity to store or produce telephone numbers to be called, using a random or sequential number generator; and to dial such numbers." The Federal Communications Commission has made it clear that this definition is very broad and covers most, if not all, of the popular dialing software used by debt collectors.

• As technology advances, though, this issue is becoming more complex. Some courts have said that even if an autodialer is involved, if it requires some human intervention to make the call, then the calls aren't barred by the TCPA. It's no surprise, therefore, that debt collection industry vendors are currently designing software that requires some human intervention in an effort to evade the TCPA. The FCC, however, has signaled that it doesn't approve of these efforts to exploit the spirit of the law, so future rule making may be coming.

• The robocalls were made to your cell phone. The TCPA only prohibits robocalls to wireless phones. Most autodialed debt collection calls to a landline are permitted.

• You've revoked your consent OR you never consented in the first place. Robocalls to your cell phone are only illegal if you didn't consent to them. As noted above, in the context of debt collection consent is typically given in the credit agreement. That consent, however, can be revoked verbally or in writing. Once you've revoked your consent, all future robocalls to your cell phone violate the TCPA and you're entitled to $500 to $1,500 for each illegal call.

It's also possible that you've never given consent for the collection calls to your cell phone. This most often happens when the collector is trying to reach the previous owner of your cell phone number. Because you never consented to any of these wrong-number calls, you can enforce your rights under the TCPA without first revoking your consent.

Can a debt collector call you at work?

Jen is an administrative assistant at a small dental clinic. She recently got divorced and is struggling to keep up with her bills on just one income. She's missed a few credit card payments and got a couple collection notices in the mail.

One day, while she was sitting at her desk, a debt collector called. The collector made Jen confirm her social security number and date of birth and then asked how she planned to take care of her unpaid credit card bill. Worried that her co-workers would overhear the conversation, Jen quickly told the collector that she was at work and couldn't take personal calls.

A few days later, the same debt collector called Jen again on her work phone. This time, he threatened to garnish Jen's wages if she didn't set up payment arrangements immediately. Jen again told the collector that she was at work and couldn't talk, and said she would call him back when she was at home.

Was the debt collector's first call illegal? What about the second?

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The Fair Debt Collection Practices Act doesn't expressly forbid a debt collector from calling the workplace. But once a collector knows that someone can't take calls on the job, further calls are prohibited.

So in Jen’s case, the first call wasn’t illegal because, until that point, the collector didn’t know that Jen couldn’t talk at work. But once Jen told the collector that she couldn’t take personal calls, the collector knew not to call anymore. Therefore, the second collection call violated the Fair Debt Collection Practices Act.

Collection calls to someone else at your work are almost always illegal

What if instead of calling Jen’s direct line, the collector had called the receptionist and asked to speak to Jen about an unpaid bill?

Illegal. Big-time. Virtually every collection call to a co-worker is illegal, especially if the collector mentions the debt. There is an exception, though, if the collector calls to enforce a court judgment. For example, a collector may call your human resources department to discuss the logistics of a pending wage garnishment against you.

How to use the FDCPA to stop illegal collection calls to your workplace

The FDCPA gives you the power to sue a debt collector that violates the law. It's a great way to stop illegal collection calls to your work and to hold the debt collector accountable for its illegal conduct. Under the FDCPA, a successful claim gets you:

• Up to $1,000 in statutory damages (even if you've suffered no monetary loss);

• Provable actual damages (including for emotional distress);

• Your attorney fees and court costs must be paid by the collector

Most consumer lawyers handle FDCPA lawsuits on a contingency fee. This means that you don't pay any fees unless your attorney recovers money for you and those fees come from the collector's pocket, not yours. Congress wrote the FDCPA this way to incentivize people to enforce the FDCPA and help the government regulate debt collectors and ensure compliance with the law.

Did a debt collector illegally call you at work? Get a free consult now.

Can a debt collector call your friends and family?

Andre is a 30-year old who works in sales for a medical device company. Although he makes a decent living now, he struggled financially in his 20s and has a few debts in collections due to his over-reliance on credit cards after college.

Andre has been dating Stephanie for nearly a year now and they’ve recently talked about moving in together. Andre hasn’t figured out yet how to tell Stephanie about his credit card debt.

One night, Stephanie mentions that she’s been getting a bunch of calls from an unknown number for the last few weeks. Stephanie never answered any of the calls and the caller never left a voicemail. Until today. Curious who’s been calling her over and over, Stephanie finally answered the phone. Turns out, it was a debt collector who told Stephanie he was trying to get in touch with Andre about an unpaid credit card bill.

When Stephanie told Andre this, he was humiliated. Although she says that she understands, Andre thinks that she’s having second thoughts about moving in with him.

Were the collector’s repeated calls to Stephanie illegal?

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The Fair Debt Collection Practices Act forbids a debt collector from communicating with your friends and family. In fact, collection communications to most third-parties are illegal.

The key to understanding the extent to this rule, though, is the word “communicate.” The law defines “communicate” as the conveying of information about a debt. So, for example, a missed call with no voicemail probably is not a “communication” because no information about a debt was conveyed. Therefore, the collection calls that Stephanie didn't answer weren't illegal because the collector didn't "communicate" anything about a debt. But the call that Stephanie picked up where the collector told her about Andre's debt was an illegal communication with a third party.

Communications with certain third parties are allowed

There are a few exceptions to the general rule, though. A collector is allowed to communicate with a couple of people without breaking the law, including:

• your spouse

• your attorney

• the debt collector's attorney

• the creditor (ie. the debt collector's client)

• the creditor's attorney

• a credit reporting agency (ie. Equifax, Experian, TransUnion, etc);

A collector may also communicate with your employer if it's necessary to enforce a court judgment. For example, a debt collector who has a judgment against someone and wants to garnish his wages can call that person’s employer to confirm that he works there.

A collector may also communicate with a third-party to learn your contact information

Another exception to the general rule against third-party communications is the "location information" exception. The law allows debt collectors to call friends or family to learn your address and phone number. But this call is strictly regulated:

• the collector must identify himself and tell your friend that he is confirming your location information;

• the collector can't identify his employer unless your friend asks;

• the collector can't tell your friend that you owe a debt or discuss the details of the debt;

• in most cases, the collector can't ask your friend to have you call the collector back;

• in most cases, the collector only gets to make this "location information" call one time

Understand, however, that if the collector already knows your address and phone number, then it has no need to call a third party to get your location information.

HOW TO USE THE FDCPA TO STOP ILLEGAL COLLECTION CALLS TO third parties

The FDCPA allows you to sue a debt collector who violates the law. It's a great way to stop illegal collection calls to you friends and family and to hold the debt collector accountable for its conduct. Under the FDCPA, a successful claim gets you:

• Up to $1,000 in statutory damages (even if you've suffered no monetary loss);

• Provable actual damages (including for emotional distress);

• Your attorney fees and court costs must be paid by the collector

Most consumer lawyers handle FDCPA lawsuits on a contingency fee. This means that you don't pay any fees unless your attorney recovers money for you and those fees come from the collector's pocket, not yours. Congress wrote the FDCPA this way to incentivize people to enforce the FDCPA and help the government regulate debt collectors and ensure compliance with the law.

Did a debt collector illegally call someone that you know? Get a free consult now.

Emergency bankruptcy in Minnesota

What is emergency bankruptcy? 

An emergency bankruptcy filing is a way to stop impending collection action, like a garnishment, foreclosure sale, lawsuit or tax lien. Once the emergency case is filed, no collectors can take any action against you. And if they do anyway, we can sue them, or undo the action (at the very least). To file an emergency bankruptcy, we don't need to file as much information as we would in a full bankruptcy. The emergency filing gives us14 days to file all the remaining bankruptcy documents.

How long does emergency bankruptcy take? 

We can file an emergency case in a day or two, if it's necessary. We've even filed them the same day as the initial client meeting. But keep in mind that the closer we are to the emergency, the better chance we wouldn't be able to file it in time. Also, rush bankruptcy cases cost more than standard cases.

How to get ready

Document collection might be the hardest part of bankruptcy. The one thing that you need before filing an emergency case is a list of your creditors. As far as the full bankruptcy goes, there are a couple of things here that might be tricky. For example, you'll need to have filed your most recent taxes before filing bankruptcy (your last four years of tax returns need to be filed for a Chapter 13). Self-employed bankruptcy filers need to provide a profit & loss. The more complicated the case, the harder you'll have to work to make sure everything is filed in time. You should make sure to have these things before filing bankruptcy.

Also, you'll have to do your online credit counseling before an emergency filing. There's no room for mistakes on this one. If your online credit counseling is not completed before a bankruptcy, the case will be dismissed. Talk to your attorney about how to get the case completed on a rush basis.

The 14 day deadline

If you can't complete the full bankruptcy within 14 days of filing an emergency case, the case will be dismissed automatically by the court. On the one hand, this still achieved the desired effect—the bankruptcy still stopped the collection temporarily, which would have bought you some time. But on the other hand, it also could make it harder to re-file (the court can be a bit stricter with people who file multiple times).

If you need an emergency bankruptcy, get in touch with an attorney right away. But make sure to leave plenty of time!

Conditional delivery: how car dealers use it to scam buyers

If you've ever bought a vehicle from a dealer and financed the purchase, chances are you signed something called a conditional delivery agreement. If you read this agreement carefully, it states that the dealer has the right to cancel the sale if the dealer can't assign your auto loan to a lender on terms agreeable to the dealer. In other words, if the dealer changes its mind about the deal, it has the right to unwind the transaction. This provision, typically in the fine print of the sales contract, is the source of one of the most widespread auto frauds and applies to both new and used car sales. Here's how the scam works: you agree to buy a vehicle and you fill out a credit application for financing. The dealer tells you that you've been approved for the loan and you sign the loan agreement and other typical sales paperwork, which contains the conditional delivery language. You either don't notice this provision because it's in the fine print or the dealer tells you it's nothing to worry about. So you give them a cash down payment and turn over your trade-in. The dealer gives you the keys to your new car and you drive it home thinking you're all set.

But you're not. A few days later, the dealer calls you and tells you that your financing "fell through" and that you need to bring the vehicle back and sign a new loan agreement. If you complain, they might threaten to repossess your new vehicle or even to call the police and report it stolen. So you go back to the dealership. And you learn that your trade-in has already been sold and that the new loan that they're demanding that you sign has a higher interest rate than the one you originally agreed to. Although you don't want to sign this new agreement, you don't have a choice because your trade-in is gone and they've threatened to repossess your new vehicle and keep your downpayment if you don't agree to the new, less favorable, loan on the spot. You need the new vehicle to get to work and to drive your kids to their activities, so you reluctantly sign the unfavorable new loan.

Dealers call this practice conditional delivery or spot delivery. Consumer advocates call it a "yo-yo" scam. Either way, it's a blatantly unfair and one-sided practice. The dealer doesn't want you to think about the deal overnight, it wants the deal closed on the spot. On the other hand, the dealer wants to keep its options open after you've driven the car off the lot. It doesn't want to be rushed into a hasty deal. The conditional delivery agreement makes the deal final for the buyer, but not for the seller.

Sometimes the yo-yo scam is simply the dealer re-thinking the terms of the sale after the fact. Other times, it's a deliberate scheme from the beginning to inflate the finance costs. There's evidence that dealers target customers with poor credit or low income. In other words, dealers use the yo-yo scam to rip off people who can least afford to be ripped off.

Although the conditional delivery provision in the contract gives the dealer some legal cover, there are ways to attack this unfair practice through a lawsuit. If you've been a victim of a yo-yo scam, you should discuss the situation with an attorney right away.

Mechanical problems after buying a vehicle? What you need to know.

used car (as-is, no warranty): probably no legal protections

Minnesota law makes it challenging to bring a case for mechanical issues on used cars that were sold as is. The only clear-cut way to defeat as-is would be if the dealer provided you with a warranty or service contract. The warranty, though, likely has to be the dealer’s warranty, not a warranty through a third party.

Another possible way around “as-is” is when the dealer lies about a vehicle’s condition. But this type of case may not require a dealer to pay the buyer’s attorney fees, so you have to do a cost-benefit analysis before paying an attorney to handle the case.

The law is stronger if you vehicle has an undisclosed prior accident, flood, or odometer rollback, but mechanical issues on as-is vehicles can be difficult to do anything about.

used car (with warranty): federal law protects you

The Magnuson-Moss Warranty Act is a federal law that provides a legal claim against anyone who fails to honor their obligations under a written warranty--even if the vehicle was bought used. The MMWA only applies to consumer goods, which are goods that are normally used for personal, family, or household purposes. The MMWA gives buyers a legal claim for damages against anyone who doesn't honor their obligations under a written warranty or vehicle service contract. The Act also requires the warrantor to pay the buyer's attorney fees and costs if the buyer brings a successful case.

To bring a viable case under the Act, you will likely need to have a mechanic inspect your vehicle and be willing to testify that the problems should be covered by your warranty.

New car — Minnesota’s lemon law protects you

Most people use the term "lemon" to describe any vehicle that has repeated problems. But in Minnesota the "lemon law” is a statute that protects buyers of new vehicles that have problems that are covered by a warranty and that can't be fixed.

There are six basic elements to a lemon law claim in Minnesota:

• (1) The defect has to be covered by the manufacturer's warranty.

• (2) The defect has to arise and be reported to the manufacturer or authorized dealer within two years of the date of purchase or within the term of the manufacturer's warranty, whichever date is earlier. Although there are certain circumstances where this time period can be extended, in general, the lemon law doesn't protect you against problems that crop up after two years.

• (3) You have to give the manufacturer a reasonable opportunity to fix the defect. If you've given the manufacturer four or more opportunities to fix the same problem, or if they've had your vehicle for 30 or more days, the law presumes that they have had a reasonable opportunity to fix the issue. On one of these attempts, you have to give the manufacturer written notice of the problems. Also, if the problem affects the steering or braking systems, you may only have to allow one repair attempt.

• (4) The defect has to still be present after the manufacturer has had a reasonable opportunity to fix it. In Minnesota, at least, the court is going to want to know whether there is still a problem.

• (5) The problem has to substantially impair the use or value of the vehicle. This is a subjective test that is fact-specific and is usually decided on a case-by-case basis.

• (6) The defect can't be caused by your negligence or misuse of the vehicle. You can't abuse or neglect your vehicle and then blame the manufacturer for not being able to fix it.

Before starting a lawsuit under Minnesota's lemon law, you have to engage in an Alternative Dispute Resolution process if the manufacturer offers one. The manufacturer of your vehicle will be able to give you information about their informal dispute process. This ADR process is not binding, though, and you can bring a lawsuit in court if you believe the ADR result is unjust.

If you bring a successful lemon law claim, you have the choice of a refund or replacement. The refund has to include the full purchase price of the vehicle, although there may be an offset for the mileage you've driven the vehicle. If you elect a replacement vehicle, it has to be one of comparable to the one you're returning. In addition, the manufacturer has to pay for your attorney fees and costs for bringing the lawsuit.

Stop collection calls for someone else's debt

On of the most frequent consumer complaints received by the Consumer Financial Protection Bureau are annoying collection calls for someone else. It's unclear whether these collectors are intentionally pursuing the wrong person or that they've made a mistake. But if you're getting calls or letters from a collector for someone else's debt, you probably don't care why it's happening, you just want the collection attempts to stop. Here are some suggestions to stop collection calls for someone else.

Collection calls for someone else

If a debt collector is calling or writing you about a debt that you don't owe, the first thing you should do is tell them very clearly that they have the wrong person and that this is someone else's debt. Be polite but firm. The collector may ask you to confirm the last four digits of your social security number or a similar personal identifier. While it may be unwise to give the collector your full social security number, there probably isn't too much risk in giving them  the last four digits to confirm that the debt isn't yours. The collector may ask you if you know the actual account-holder and how to reach them. While you're under no obligation to do so, you may consider passing along the other person's information if you know it.

In addition to verbally telling the collector that it is someone else's debt, you may consider sending a follow-up letter confirming what you told them. Identify yourself in the letter and then write something like: "you called me on this date at this number. I am not the person who owes this debt. Please stop contacting me." If you know any details about the account in question, include a reference to those in your letter to be sure the collector can properly identify the account. Send this letter certified mail with a return receipt and keep a copy of the letter and receipt for your records.

You should also keep detailed records of any additional collection attempts after you've notified the collector that the debt isn't yours. Keep track of the time, dates, and duration of any additional calls and save any voice messages. If you think the calls are robocalls, make a note of that and why you think so. Also, keep copies of any letters or other documents that they send you.

It's also a good idea to check your credit reports to make sure the other person's debt isn't listed on your reports. Use Annual Credit Report to get free copies of your credit reports from the three major credit reporting agencies. Once you have the reports, make sure that the other person's account isn't showing up on your credit report. If it is, you should send a dispute letter to each of the credit bureaus incorrectly reporting that account. Take a look at this post for more information about how to dispute incorrect information on your credit report.

If you've told the debt collector that you are not the right person and continue to get collection calls for someone else, it's time to talk to a consumer rights attorney to discuss the situation in more detail. In addition to helping you stop the collection attempts, a consumer attorney can advise you whether you have any claims under the Fair Debt Collection Practices Act against the debt collector. If the debt doesn't belong to you, you've told the collector that, and the collector still keeps calling, it deserves to get sued under the FDCPA and be held accountable for harassing an innocent consumer.

Collection lawsuit for a debt that isn't yours

If you get served with a collection lawsuit for someone else's debt, you need to take additional steps. You should do everything suggested above, but you also have to submit an answer to the lawsuit. In Minnesota, the answer must be submitted within 20 days. An answer is a formal legal document that responds to each of the allegations in the complaint. If the debt isn't yours, you should be able to deny most of the allegations in the lawsuit. You should also note somewhere in your answer that the debt is someone else's. Even if you don't owe the debt, you have to answer the lawsuit. Failure to respond to the lawsuit will likely result in a default judgment against you. A default judgment can be difficult (and expensive) to overturn, even if the debt isn't yours. It may also lead to garnishments and other unpleasantness.

Because the consequences of a collection lawsuit are quite serious, you should strongly consider discussing your situation with a consumer lawyer. A consumer lawyer can help you prepare an answer to the lawsuit and also advise you if you have possible counterclaims against the debt collector for pursuing the wrong person.

Use the TCPA to stop wrong number robocalls

Unwanted robocalls and texts are one of the most frequent consumer complaints received by the Federal Communications Commission. In 2014 alone, the FCC received about 215,000 complaints about autodialer calls and texts. These calls are particularly annoying when the caller is trying to reach someone else. Often, these wrong number robocalls are from debt collectors trying to collect a debt from the previous user of a phone number or from telemarketers pushing their products. In response to the overwhelming number of consumer complaints, the FCC recently strengthened consumer protections against wrong number robocalls by clarifying the Telephone Consumer Protection Act. The TCPA is a federal law that prohibits auto-dialed calls to your cellular phone without your consent. Until recently, however, there was a loophole of sorts for wrong number robocalls. Callers could argue that they had the consent of the person they were trying to reach and that was good enough to satisfy the TCPA's consent requirement.

Thankfully, the FCC closed this loophole. The FCC has made clear that callers are liable for robocalls to reassigned numbers when the current subscriber of the number has not consented, even if the caller has no notice of the reassignment. This reaffirms the TCPA's basic premise of giving consumers control over the calls that they receive.

Under the TCPA, you can obtain an order from a court that requires the caller to stop placing wrong number robocalls to your cell phone. In addition, the TCPA provides for damages of at least $500 per illegal robocall. This $500/call penalty is designed to deter illegal robocalls and to incentivize consumers to help the FCC enforce the TCPA through private lawsuits.

When Buying a Used Car, Watch Out for Worthless Service Contracts

Buy a new or used car these days and you can expect the salesperson to pressure you to buy a service contract or "extended warranty." For a fee, which is usually rolled into the financing, these products provide repairs or maintenance for a certain period of time, say 2 years or 24,000 miles. But they rarely provide much benefit to the buyer and often only serve to pad the dealer's bottom line.

Here's an example of what I mean. In a recent case, our client bought a used vehicle with over 100,000 miles on it. The client also bought a service contract for an additional $2,500 or so. The service contract lasted for 5 years or an additional 100,000 miles. Our client rolled the cost of the service contract into his loan for about $50 a month. At this point, you might be thinking this sounds like a pretty good deal.

However, the fine print of the service contract provided for a maximum reimbursement of only $3,000, less a $100 deductible. So the maximum reimbursement was actually $2,900. Further, a great deal of possible mechanical problems were excluded from coverage.

 So, our client paid $2,500 for the right to be reimbursed $2,900. In other words, he paid $2,500 to potentially receive an additional $400, but only if: (a) a problem occurred; (b) the problem occurred during the term of the service contact and (c) the problem wasn't excluded from coverage. He would have been better of declining the service contract and putting the $50 a month into a savings account. The savings account could have been used for any repair at any time. And if no repairs are necessary, he could have used the money for something else.

Before agreeing to buy any service contract, make sure you understand the total cost (not just the monthly cost), the total amount of coverage, and what is covered and what's not. Don't rely on the salesperson to tell you these things, read the terms for yourself. And if you don't understand the terms, it probably doesn't make sense to buy it.

Bankruptcy trustees are "clawing back" tuition paid for debtors' kids

According to an article in the Wall Street Journal, Bankruptcy Trustees are using a legal argument called "fraudulent transfer" to take back tuition payments clients have made to their children's colleges. This can be a shock to people, but trustees do things like this all the time. Here's how it works:

Under bankruptcy law, all the property you have at the time of your bankruptcy filing is part of the bankruptcy estate. If you have property above certain exemption amounts, the trustee can demand turnover of that property. This would seem to incentivize people to get rid of assets before filing bankruptcy. You can understand the temptation for someone to sell their boat to their brother for $1.00.

Bankruptcy law has a way of dealing with this problem, called fraudulent transfer law. A fraudulent transfer in Minnesota can occur when someone gives away property for less than "equivalent value." This allows the trustee to "claw back" the property and distribute it equitably to all the creditors.

But is college tuition a fraudulent transfer? The trustee's theory is that if you were paying for college tuition for yourself, it wouldn't be a fraudulent transfer because you received equivalent value for the transfer. But when you pay tuition for your adult children, (which you're not legally obligated to do) you don't receive anything in return (other than children who are less likely to need your support in the future). In that way, it's like a gift, and can be pursued as a fraudulent transfer.

So if the trustee claws back the tuition, kids have a problem. The school will want its tuition, and may hold back transcripts or diplomas, or prevent registration for the next semester, until they're paid up. So this is a scenario bankruptcy filers really want to avoid.

There might be some defenses. For example, if the property would have been exempt anyway, it might not be a fraudulent transfer. But this issue hasn't been directly addressed by binding caselaw in Minnesota, and so it's no sure thing. To brainstorm other solutions to this problem, get in touch.

5 Tips for Streamlining Your Bankruptcy

The number one thing that slows down a bankruptcy case is the speed with which clients can assemble the necessary documents. By following these five tips, you can ensure that your bankruptcy moves quickly, and that you're prepared for any issues that could arise during the process.

Go Paperless

It’s time to get rid of that mountain of paperwork and bills. Sign up to receive digital statements from your bank and financial accounts, and request to receive your pays stubs digitally. It also pays to switch your utilities, mortgage, car payments and regular payments to e-bills. This allows you to stay up to date on your assets and liabilities, and makes submitting your documents to your attorney as easy as sending an email.

Track your spending

Whether or not you are planning on filing bankruptcy, it’s good practice to keep track of where your money goes each month. How much do you spend on groceries? Entertainment? How about your pets? Often, its more than our clients realize. We recommend apps like ‘Mint’ or ‘You Need a Budget’ to keep track of your expenses. This info can go straight into your bankruptcy petition and will ensure a high level of accuracy.

Separate your business and personal accounts

Many of our clients are business owners. Whether you manage your own company or sell crafts on weekends, you need to track your company’s profit and loss. It’s not only bad business to conflate your personal and professional expenses and funds – it can also get lead to you getting audited by the court after you file your bankruptcy.

Organize Your Important Documents …

Designate one spot for your important documents. It can be anything from a drawer to a folder to a safe. Whatever it is, only put important documents in it. Car titles, your social security card, birth certificates, your insurance policies and court documents are all great things to keep together. Keep things like bills, statements, and mail separate from this.

…and Shred the Unimportant Ones.

People are often afraid to throw away anything that looks ‘official’. People end up with piles of bills, collection letters, and spam mail, along with a whole lot of anxiety. Shred anything that is outdated, useless, or irrelevant. There is no reason to hold on to more than one copy of the same bill. Only keep the most recently dated one. By getting rid of excess, a seemingly enormous pile can be quickly whittled down to only the necessary things. Also, if you have already switched to paperless statements, your past statements will be readily accessible, so there is doubly a reason to hold onto them.

Divorce debts in Chapter 13 bankruptcy

In another post, we wrote about how to deal with divorce debts in Chapter 7 Bankruptcy. Chapter 13 has different rules and different ways to deal with family court debts.

Some Family Court debts can be wiped out in Chapter 13

Chapter 13 can't discharge “domestic support obligations”. Domestic support obligations (child support/maintenance) can't be wiped out in any form of bankruptcy, Chapter 7 or 13. In Chapter 13, to get a discharge the debtor must pay all child support/maintenance arrears, as well as all payments due during the three to five years of the Chapter 13 plan.

But Chapter 13 can wipe out other debts created by a divorce decree. Debts created by a divorce decree that don't count as domestic support obligations (e.g. property settlements, equalizers, or promises to pay joint marital debts) can be wiped out in Chapter 13 bankruptcy. These debts aren't always wiped out in a Chapter 7, so for people with large debts like this, Chapter 13 can be a much better choice.

Spreading family court debt out over time

Child support and maintenance arrears can be spread out over five years in Chapter 13. If you're behind on child support and maintenance, Chapter 13 gives you the ability to put those arrears into a Chapter 13 payment plan. This wouldn't relieve you from your obligation to pay child support or maintenance payments that come due after the bankruptcy is filed, but if you're facing garnishment or other collection, it can buy you breathing room to pay arrears over time. This may also reduce the amount you're required to pay your other, unsecured creditors.

As discussed above, Chapter 13 has many advantages over Chapter 7 when it comes to dealing with divorce debts. If you have questions about how to deal with your family law debts in bankruptcy, get in touch.

Divorce debts in Chapter 7 bankruptcy

Divorce is one of the leading causes of bankruptcy. People often have questions about how to deal with debts from their divorce. Depending on how a debt is categorized in the divorce decree, you might be able to wipe it out in bankruptcy, or it might stick around.

1. Child support and maintenance cannot be discharged in Chapter 7 bankruptcy. Certain debts in bankruptcy are called "domestic support obligations," including child support and spousal maintenance/alimony. These debts can never be discharged in bankruptcy, and are also "priority" debts, meaning that if the trustee gets any money from you, those debts are paid off first.

2. Debts incurred in a divorce cannot be discharged in Chapter 7 bankruptcy (although they can be in Chapter 13). Any other debt created by a divorce cannot be discharged in Chapter 7. This includes property settlements or "equalizers." Also, certain obligations by one spouse to pay marital debts can be considered non-dischargeable. To figure this out, you'll want to look for "hold harmless" language in your decree, which describes what obligations won't be discharged.

3. Some divorce lawyer fees are dischargeable in Chapter 7, some are not. If you owe fees to your divorce lawyer when you file bankruptcy, that debt is wiped out in bankruptcy. You may be ordered to pay your ex-spouse's attorney's fees by the court, and that debt might be non-dischargeable in bankruptcy because you're paying attorney's fees to "support" the ex-spouse.

4. Family lawyers should pay attention to the wording they use in divorce decrees. As described above, words matter in a divorce decree. Depending on how a debt is described, it might be dischargeable or non-dischargeable in bankruptcy. Make sure your lawyer is thinking about these issues when going through a divorce with a significant amount of debt.

I forgot to add a creditor to my bankruptcy

As hard as we try to find all of your creditors before a bankruptcy, every once in a while one slips through the cracks. What happens when a creditor gets left out?

1. First of all, don't get any ideas. All creditors are "included" in bankruptcy. You can't leave one out, purposely or accidentally. So there's no point in "forgetting" to list a creditor, for example, in hopes that you can keep a credit card open. And remember, you sign your bankruptcy under penalty of perjury, so it's illegal to leave any information out of your bankruptcy papers. And as your attorney, I know better and won't let it happen. So don't try.

2. In a no-asset Chapter 7 case, all debts are discharged whether listed or not. If a debt is dischargeable, then it's wiped out in a typical Chapter 7 bankruptcy whether it's listed or not (as long as it wasn't left out intentionally.) Typically when a creditor has come out of the woodwork after a Chapter 7, we just send them a letter notifying the of the bankruptcy, and that's enough to protect you. After that, any attempts to collect the debt would be illegal.

3. In a Chapter 7 cases with assets, debts may not be discharged unless listed. Unlike a no-asset case, in which a creditor generally has nothing to gain from being listed in the bankruptcy, in a case where assets are going to be distributed to creditors, it does harm the creditor to be unlisted. Section 523(a)(3) of the Bankruptcy Code makes a debt like this non-dischargeable if it wasn't listed in the bankruptcy.

4. In a Chapter 13 case, a creditor must at least be added before the case is finished. In a Chapter 13 case, a creditor must have been listed in the plan to be discharged.  So if you've forgotten to add a creditor, and you're already in your Chapter 13 plan, it's probably wise to go back and add the creditor. This is probably fixable, since Section 523(a)(3) doesn't apply to Chapter 13.

Same-sex married couples can file bankruptcy together

We wrote about the evolving status of same-sex couples in bankruptcy here and here. Now that the Supreme Court has struck down the Defense of Marriage Act, the federal government must recognize same-sex marriages valid in the state in which they were performed. Although this specific issue hasn't come to bankruptcy court, it's clear that the bankruptcy system will have to follow the Supreme Court's ruling and allow same-sex married couples to file joint bankruptcy cases.

1. Anyone legally married in Minnesota can file bankruptcy together in Minnesota. Any married couple can file a joint bankruptcy case if their bankruptcy was legally performed in Minnesota. This includes same-sex couples whose weddings were performed on or after August 1, 2013.

2. Anyone legally married in another state can file bankruptcy together in Minnesota. Any couple married in Iowa, New York, or any of the other 11 states allowing same-sex marriage can file a joint bankruptcy. It's not clear how a Canadian marriage, for example, would shake out in U.S. bankruptcy court, but I'm sure this is something we'll learn soon.

3. Anyone who's legally married in any of these states can file bankruptcy together anywhere in the U.S. The full faith and credit clause of the Constitution basically says that a public act (such as marriage) valid in one state is also valid in any other state. This means that any same-sex couple married in any of the 13 states allowing same-sex marriage can file a joint bankruptcy anywhere in the U.S.

4. Filing a joint bankruptcy has benefits. Most attorneys will price a joint case lower than two individual cases. Instead of paying two attorney's fees, a same-sex married couple can now pay one. The same thing goes with for the court's filing fee. Plus it's much easier to provide an attorney one set of information, rather than having to handle each case separately. This is a BIG deal.

Watch out for fraudulent transfers in bankruptcy

A fraudulent transfer is a transfer of property before filing bankruptcy that may get you in trouble. If you've given away or sold any property in the six years before filing a bankruptcy case. you might be on the hook after your bankruptcy.

1. When you're actively trying to screw your creditors. An actual fraudulent transfer is where the bankruptcy debtor transfers property actually intending to evade his creditors. So for example, a bankruptcy filer gives away a car to her nephew three months before filing bankruptcy because she doesn't want her creditors to be able to seize it. That may be a fraudulent transfer. And the bankruptcy trustee can go after the bankruptcy filer and her nephew to get back the car (or the cash value of it.) An actual fraudulent transfer can also result in the bankruptcy discharge being taken away.

2. When you're not trying to screw your creditors, but do it anyway. A constructive fraudulent transfer is where the bankruptcy debtor gives away property and doesn't get fair value for it. So the bankruptcy filer isn't trying to evade creditors, but sells her car to her nephew for $1,000 when it's really worth $10,000. The bankruptcy trustee may have a claim against the filer and her nephew for the remaining $9,000 value of the car. Because this kind of transfer isn't made with bad intent, it won't be a basis for taking away the bankruptcy discharge. The trustee must show that the bankruptcy filer (1) was insolvent; and (2) didn't get fair value back for the transfer.

3. The person who received the transfer may also be on the hook. The bankruptcy debtor isn't the only one who can be chased by the trustee for a fraudulent transfer. The person who received the goods can also be sued. The best defenses the recipient may have are (1) that the property wasn't actually worth anything in the first place; and (2) the transferee accepted the property in good faith and gave back fair value for the property.

4. The trustee can look back six years to find fraudulent transfers. The bankruptcy forms require a filer to disclose any transfer made within the two years before filing. However, the trustee can go after any fraudulent transfer made up to six years back. So people who have a fraudulent transfer in their past often wait until the time limit is passed before filing a bankruptcy.

We deal with fraudulent transfer issues all the time. If you have questions about a fraudulent transfer you made before your bankruptcy, or if you're being sued by a trustee, get in touch.