BANK SETOFFS

Before filing a bankruptcy we often advise clients to move bank accounts to another lender to which they don't owe any debts. The problem is that when a borrower defaults on a debt to a lender that same lender can offset the defaulted debt against any funds they're holding in an account. So $500 in a bank account can be offset or taken to apply to a defaulted $1000 personal loan. There are restrictions on a lender's right to setoff funds however. One of the most important is that the Fair Credit Billing Act prohibits a credit card issuer from offsetting funds in an account to satisfy a credit card bill. So if you have a bank account at Wells Fargo the bank is prohibited from offsetting funds in that account against a Wells Fargo issued credit card. An exception to this rule is where you've given the bank written authorization to take automatic payments from your account. Another restriction on the ability to offset is where the bank account contains only exempt funds, such as Social Security or child support funds.

Some credit unions may try to assert a security interest in the deposit accounts that would allow them to offset funds but the requirements for having a valid security interest in an account are strict. If you've suffered an offset from a bank or are contemplating bankruptcy and owe a debt to a lender where you also have an account be sure to talk to us about it in advance.

SALLIE MAE FAILING TO HELP STUDENT LOAN BORROWERS

The Income-Based Repayment (IBR) Program allows borrowers to repay their federal student loans with a monthly payment that reflects their overall financial circumstances. Borrowers in the IBR program can even have the remainder of their loans forgiven after years of current payments. It's probably the best option for people struggling to repay federal student loans, which now exceeds $1 trillion nationally. Unfortunately, the nation's largest servicer of federal student loans, Sallie Mae, is failing to enroll as many borrowers into the program as are eligible. An analysis by the Huffington Post shows that relatively few of the loans serviced by Sallie Mae and eligible for IBR are enrolled in the program. The exact cause of Sallie Mae's poor performance in enrolling borrowers into the program is unknown but Sallie Mae's president suggested that helping borrowers take advantage of the income based repayment plan is too expensive.

According to the Huffington Post article, Sallie Mae has other problems also. The U.S. Department of Education has announced that of the four companies used by the Department to service federal student loans, Sallie Mae will be given the fewest number of loans to administer next year. Sallie Mae's contract with the Department of Education also expires next year and there are many people recommending that the contract not be renewed because of the company's poor performance in helping borrowers. If you're facing student loan problems contact us to discuss what options, including the IBR might be available.

FORMER BANK OF AMERICA EMPLOYEES CLAIM THEY LIED ABOUT MORTGAGE MODIFICATIONS

It probably won't come as a shock to homeowners with a Bank of America mortgage loan, but in affidavits filed in federal court in Boston last month, several former Bank of America employees claimed they were told to lie to homeowners about the status of their mortgage modification applications. According to the former employees, Bank of America instructed them to lie about whether mortgage modification documentation had been received, whether their application was being reviewed and whether they were eligible for a modification. In some instances the Bank would instruct employees to conduct a "blitz" denial where hundreds of applications would be denied at the same time for fictitious reasons, such as that no documentation had been received when in fact it had been. One employee claimed that about twice a month they were ordered to deny any application more than 60 days old. Similar allegations of mass modification application denials were made last year by a former employee of Litton Loan Servicing. 

The former Bank of America employees also claimed that the Bank rewarded them for denying applications and referring mortgages for foreclosure. Employees who placed ten or more mortgages into foreclosure in one month would receive a $500 bonus. Employees with high foreclosure referrals could also be rewarded with gift cards. For more information about the allegations of the Bank of America employees go to www.propublica.org. If you're still struggling with mortgage modification issues contact us to discuss your options.

GOING TO COURT IN CHAPTER 13?

People who file bankruptcy almost never "go to court" in Chapter 13 or see a judge. The only mandatory hearing is usually a meeting with the Chapter 13 trustee that will take place about a month after filing. That meeting with the trustee provides him or her an opportunity to ask questions about the budget and proposed repayment plan. Creditors are also allowed to attend these hearings but rarely do. I am at this meeting with my clients and their portion of the meeting usually lasts no more than five minutes, although they may have to be there longer to wait their turn. The hearings are nothing to be anxious about and my clients have frequently told me afterwards that they've been surprised at how easy they were and how well prepared they were to answer any questions that arose. You can view a clip of what to expect at a meeting with the trustee (also known as a 341 meeting) here. Occasionally debtors might have to appear before a judge if something is being done to modify the plan or a dismissal is being sought for failure to make payments, but even these instances are rare. Most Chapter 13 bankruptcy clients go the entire five years of their plan without ever appearing in court.

RIGHT TO CURE CREDIT CARD DEBTS

Iowa law requires a creditor to provide a debtor with a written notice of their right to cure a delinquent amount before a lawsuit can be filed to collect a consumer debt such as a credit card, line of credit or personal loan. The notice must provide the debtor at least 20 days to pay the defaulted amount. The notice to cure also has to include a statement of the total amount to be paid, plus an itemization of the charges. Failure to correctly itemize the total payment due can lead to a dismissal of the lawsuit.

A recent ruling from the Iowa District Court in Fremont County shows the consequences of a creditor failing to provide an adequate notice to cure. Capital One Bank and its attorneys had sent a notice to cure that failed to itemize the amount owed. Although the notice said how much was due in total, it failed to say how much of the amount was for late charges, interest, overlimit fees and actual credit card charges. The lawsuit brought by Capital One was also filed in a county that was neither the residence of the defendant debtor nor the county where the loan was made, another requirement of Iowa law. Lastly, at the time the debtor received the Capital One credit card she was not old enough to enter into a binding contract. As a result of all these errors by Capital One, the Court dismissed the lawsuit brought by Capital One and awarded the debtor damages and costs and ordered Capital One to pay the debtor's attorney's fees. If you're facing similar debt collection tactics contact us at Nancy L. Thompson Law Office.

STUDENT LOANS IN YOUR BUDGET

A recent blog article from usnews.com titled How Much Student Loan Debt Is Too Much? includes suggestions for how much student loan debt is reasonable for a borrower's level of income. For example, student loan debt of $25,000 is affordable for a single person with an annual income of $30,000 to $40,000 but if the debt increases to $50,000 someone earning only $40,000 to $50,000 annually is going to face budget problems. At that amount of debt, student loan payments would be about $450/month, almost equal to what would be spent on food. Student loan balances of $75,000 require an annual salary of $60,000 or more for a single person and if the student loans increase to $100,000 the blog author suggested a borrower needs to be earning over $80,000 annually. At that level of debt the monthly loan payment would exceed $1,000/month. Borrowing to finance a better education often makes sense but be careful that the student loans don't exceed an amount that your chosen career can reasonably anticipate repaying.

In other student loan news-- the commissions paid to private companies that collect student loans has been cut from 16% to 11%. More importantly, the commission is now earned regardless of the size of the student loan borrower's monthly payment. Previously, the higher commission was earned only if the debt collection company got the borrower to make high monthly payments. This led many companies to mislead borrowers into thinking the high payments were required. Federal law allows student loan borrowers to make payments that are "reasonable and affordable" and there is no minimum payment, despite what a debt collection company might say. Unfortunately, the new policy on commissions applies only to companies collecting on behalf of the federal government, not state guarantee agencies that collect student loans (even though the law is the same on these state guarantee loans). Private student loans also are not covered by the new policy because payments on private student loans are established by the lender, not federal law.

DEBT SETTLEMENT SCAMS

Several times each year one of our clients discloses that before contacting us about bankruptcy they had tried to settle their debts with the help of a debt settlement company they had found, usually online or on television. In every case the company led our clients to believe their debts could be settled without the need for bankruptcy. Our clients had frequently paid thousands of dollars to the companies with little relief to their overall financial situation. Even if one or two of the debts were settled it didn't prevent bankruptcy because lawsuits, garnishments and other forms of debt collection continued despite their participation in the program. The debt settlement companies usually fail to make it clear that debt collection will continue and some creditors refuse to even negotiate with the companies. By the time a client has paid enough money into the "account" that will supposedly be used to pay a creditor off, the fees paid to the company far exceed what it would cost to file bankruptcy and be on the way to recovery.

In the last few months several of these debt settlement companies have finally started facing the scrutiny they deserve. In July 2012 one of the largest of these companies, Legal Helpers Debt Resolution, reached a $2.1 million settlement with the Illinois Attorney General over their misleading practices. And a class action settlement against Freedom Debt Relief was reached in May 2012 that will hopefully reimburse its former clients at least a portion of what they paid. Nancy L. Thompson Law Office, P.C. has been able to recover some of the funds paid my clients to these companies but some have gone out of business before reimbursement can be made. Before you agree to participate in one of these debt management programs contact Nancy L. Thompson Law Office, P.C. to discuss your options.