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Limited-Time Offer — Free Consultation With Consumer Law Attorney

Published on January 10, 2010 by Robert A. Kraft

The lawyers and staff at Kraft & Associates have been helping Texas consumers for more than 30 years with their personal injury and Social Security disability claims. But we have only recently added an experienced bankruptcy and consumer law attorney to our team. So for the early part of 2010 we are going to offer you a special “Get To Know Us” deal.

If you are having financial problems — facing possible foreclosure, receiving harassing phone calls from debt collectors, confronting bills you just can’t pay, considering filing for bankruptcy — we will give you a FREE telephone consultation with our bankruptcy and consumer lawyer, Ms. Kathleen Munden. Ms. Munden has represented hundreds of clients with financial problems over the past 14 years, and she wants to help you too.

Just Contact us now and ask for the special “Get To Know Us” free consultation.

Call Us — We’re Easy To Talk To.

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Obama May Compromise on Consumer Agency to Pass Financial Regulation

Published on March 1, 2010 by Robert A. Kraft

The Obama administration is no longer insisting on the creation of a stand-alone consumer protection agency as a central element of the plan to remake regulation of the financial system, according to an article in the Washington Post. The article is lengthy, but interesting and important. Here are the opening paragraphs:

In hopes of quick congressional approval of a reform bill, White House officials are opening the door to compromise with lawmakers concerned about creating a new bureaucracy, according to congressional and some administration sources.

President Obama’s economic team is now open to housing the consumer regulator inside another agency, such as the Treasury Department, though they still prefer a stand-alone agency. In either case, they are insisting on a regulator with political autonomy and real teeth so it can effectively enforce rules designed to protect consumers of mortgages, credit cards and other financial products.

The administration may also have to compromise on Obama’s recent proposal for a rule to limit risky activities at banks by prohibiting them from engaging in many kinds of speculative investments.

Treasury officials are preparing to send Capitol Hill a toughly worded measure that would bar banks from making certain investments that benefit only the firms’ bottom line rather than their customers. But there is little support among either Democratic or Republican lawmakers for this proposal, known as the “Volcker rule,” and Senate leaders are now closing ranks around legislation that would leave it to banking regulators, rather than the law, to decide which activities to ban.

From the start of the Obama presidency, administration officials have made far-reaching financial reform one of their highest priorities, along with overhauling the nation’s health-care system. Officials have vowed to put in place new rules and regulators to prevent a repeat of the abuses that precipitated the financial crisis.

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New Credit Card Rules Take Effect Today

Published on February 22, 2010 by Robert A. Kraft

As many people know, today is the effective date of the largest section of the new federal law regarding credit cards, and especially the parts governing what the credit card companies can do and say. This excellent page of official information is from the government Web site of the Federal Reserve:

The Federal Reserve’s new rules for credit card companies mean new credit card protections for you. Here are some key changes you should expect from your credit card company beginning on February 22, 2010.

What your credit card company has to tell you

  • When they plan to increase your rate or other fees. Your credit card company must send you a notice 45 days before they can
    • increase your interest rate;
    • change certain fees (such as annual fees, cash advance fees, and late fees) that apply to your account; or
    • make other significant changes to the terms of your card.

    If your credit card company is going to make changes to the terms of your card, it must give you the option to cancel the card before certain fee increases take effect. If you take that option, however, your credit card company may close your account and increase your monthly payment, subject to certain limitations.

    For example, they can require you to pay the balance off in five years, or they can double the percentage of your balance used to calculate your minimum payment (which will result in faster repayment than under the terms of your account).

    The company does not have to send you a 45-day advance notice if

    • you have a variable interest rate tied to an index; if the index goes up, the company does not have to provide notice before your rate goes up;
    • your introductory rate expires and reverts to the previously disclosed “go-to” rate;
    • your rate increases because you are in a workout agreement and you haven’t made your payments as agreed.
  • How long it will take to pay off your balance. Your monthly credit card bill will include information on how long it will take you to pay off your balance if you only make minimum payments. It will also tell you how much you would need to pay each month in order to pay off your balance in three years. For example, suppose you owe $3,000 and your interest rate is 14.4%–your bill might look like this:
New balance $3,000.00
Minimum payment due $90.00
Payment due date 4/20/12

Late Payment Warning: If we do not receive your minimum payment by the date listed above, you may have to pay a $35 late fee and your APRs may be increased up to the Penalty APR of 28.99%.

Minimum Payment Warning: If you make only the minimum payment each period, you will pay more in interest and it will take you longer to pay off your balance. For example:

If you make no additional charges using this card and each month you pay. . . You will pay off the balance shown on this statement in about. . . And you will end up paying an estimated total of. . .
Only the minimum payment 11 years $4,745
$103 3 years $3,712
(Savings = $1,033)

New rules regarding rates, fees, and limits

  • No interest rate increases for the first year. Your credit card company cannot increase your rate for the first 12 months after you open an account. There are some exceptions:
    • If your card has a variable interest rate tied to an index; your rate can go up whenever the index goes up.
    • If there is an introductory rate, it must be in place for at least 6 months; after that your rate can revert to the “go-to” rate the company disclosed when you got the card.
    • If you are more than 60 days late in paying your bill, your rate can go up.
    • If you are in a workout agreement and you don’t make your payments as agreed, your rate can go up.
  • Increased rates apply only to new charges. If your credit card company does raise your interest rate after the first year, the new rate will apply only to new charges you make. If you have a balance, your old interest rate will apply to that balance.
  • Restrictions on over-the-limit transactions. You must tell your credit card company that you want it to allow transactions that will take you over your credit limit. Otherwise, if a transaction would take you over your limit, it may be turned down. If you do not opt-in to over-the-limit transactions and your credit card company allows one to go through, it cannot charge you an over-the-limit fee.
    • If you opt-in to allowing transactions that take you over your credit limit, your credit card company can impose only one fee per billing cycle. You can revoke your opt-in at any time.
  • Caps on high-fee cards. If your credit card company requires you to pay fees (such as an annual fee or application fee), those fees cannot total more than 25% of the initial credit limit. For example, if your initial credit limit is $500, the fees for the first year cannot be more than $125. This limit does not apply to penalty fees, such as penalties for late payments.
  • Protections for underage consumers. If you are under 21, you will need to show that you are able to make payments, or you will need a cosigner, in order to open a credit card account.
    • If you are under age 21 and have a card with a cosigner and want an increase in the credit limit, your cosigner must agree in writing to the increase.

Changes to billing and payments

  • Standard payment dates and times. Your credit card company must mail or deliver your credit card bill at least 21 days before your payment is due. In addition
    • Your due date should be the same date each month (for example, your payment is always due on the 15th or always due on the last day of the month).
    • The payment cut-off time cannot be earlier than 5 p.m. on the due date.
    • If your payment due date is on a weekend or holiday (when the company does not process payments), you will have until the following business day to pay. (For example, if the due date is Sunday the 15th, your payment will be on time if it is received by Monday the 16th before 5 p.m.).
  • Payments directed to highest interest balances first. If you make more than the minimum payment on your credit card bill, your credit card company must apply the excess amount to the balance with the highest interest rate. There is an exception:
    • If you made a purchase under a deferred interest plan (for example, “no interest if paid in full by March, 2012″), the credit card company may let you choose to apply extra amounts to the deferred interest balance before other balances. Otherwise, for two billing cycles prior to the end of the deferred interest period, the credit card company must apply your entire payment to the deferred interest-rate balance first.
  • No two-cycle (double-cycle) billing. Credit card companies can only impose interest charges on balances in the current billing cycle.
Categories: Consumer Law Basics, Consumer Law News Comments (0) »

10 Things Every Lawyer Should Know About Bankruptcy: #4 Most People Keep All of Their Property

Published on February 18, 2010 by Kathleen Munden

One of the many common bankruptcy myths is that a debtor in a bankruptcy case will lose much of their property. Recently, one of the financial “experts” on the Today Show stated that in a Chapter 7 bankruptcy case, “you lose all of your property except for your retirement accounts.” Now, millions of people believe this, and it is completely untrue.

In fact, most bankruptcy debtors do not lose any of their property. Particularly in Texas, the bankruptcy exemptions are very generous. In most cases, the debtor’s entire homestead, a vehicle for every adult, all retirement accounts, and up to $30,000 of personal property (such as furniture, clothing, jewelry, and other household goods) are completely protected.  In the case of a married couple, the exemption rises to $60,000.

The purpose of the bankruptcy laws is to protect a debtor’s assets and allow them to get a fresh start. Stripping a debtor of all of their property would do nothing to advance that goal. The last thing a bankruptcy trustee wants is a truckload of used furniture and used vehicles to liquidate and distribute to creditors.

It is true that if a person has a large amount of cash available, either in bank accounts or hidden under the mattress, it may have to be turned over to the trustee to distribute to creditors. However, an experienced bankruptcy attorney can advise a potential debtor with regard to appropriate pre-bankruptcy planning in order to avoid having such assets seized. For example, if the debtor is behind with house payments or car payments, it is completely appropriate to bring those payments up to date. Also, the debtor may have needs such as visiting the dentist, buying new glasses, making household repairs, or otherwise using the money to stabilize their family’s financial well-being before filing a bankruptcy case.

However, care should be taken not to spend such assets inappropriately. For instance, if a debtor repays loans to family members or business associates shortly before a case is filed, the trustee can retrieve that money and distribute it equally to all creditors. Therefore, it is important for any person who is considering bankruptcy to consult with an experienced bankruptcy attorney before repaying any debts or otherwise spending down their assets.

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10 Things Every Lawyer Should Know About Bankruptcy: #3 Claims May Be Lost If Not Pursued

Published on February 17, 2010 by Kathleen Munden

If you have a client who is listed as a creditor in a bankruptcy, the debt may be discharged automatically, even if it falls into one of the categories of non-dischargeable debt. If a debtor lists your client’s claim as a general unsecured claim, it could be discharged unless your client asserts his or her rights to it being classifed as non-dischargeable.

Some of the most common scenarios where this occurs are debts arising from breach of a fiduciary duty, damages from injuries caused by drunk driving, or debts arising from a divorce settlement.

If you are unsure whether or not your client’s claim will be discharged in a bankruptcy case, you should refer your client to a lawyer who is experienced in the representation of creditors in bankruptcy, so the proper treatment of your client’s claim can be determined.

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10 Things Every Lawyer Should Know About Bankruptcy: #2 List It Or Lose It

Published on February 16, 2010 by Kathleen Munden

If the debtor in a bankruptcy case fails to list a lawsuit or possible claim in which they are the plaintiff, they may lose the ability to proceed on that claim. For example, if a debtor has a personal injury lawsuit pending and fails to list it as an asset in the bankruptcy case, they have essentially committed bankruptcy fraud, and may be prohibited from prosecuting the case after the bankruptcy case has been concluded.

Debtors are required to list all of their property in their bankruptcy schedules, and a claim against another party is considered an asset. Unless the proceeds of the claim are exempt under the Bankruptcy Code, the trustee in the bankruptcy case may be entitled to step into the shoes of the debtor and receive any money that is collected. That money will then be distributed to the debtor’s creditors.

You should be careful to tell all your clients that they should inform you if they are currently or later become involved in a bankruptcy case, and also to inform their bankruptcy lawyer of any possible claims or lawsuits they have. You may be required to apply to the bankruptcy judge for approval of your employment to continue with a lawsuit in which you represent the plaintiff if your client becomes a debtor in a bankruptcy case.  The best course of action is to contact your client’s bankruptcy attorney as soon as you become aware that the client plans to file a bankruptcy case, so you can work together to protect your client’s rights.

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10 Things Every Lawyer Should Know About Bankruptcy: #1 Stay Means “Stay”

Published on February 15, 2010 by Kathleen Munden

If you receive notice that an opposing party in your litigation has filed bankruptcy, you should immediately stop what you are doing in the case and contact the debtor’s bankruptcy attorney. The moment a bankruptcy case is filed, an “automatic stay” goes into effect, protecting the debtor from most forms of prosecution, including suits for collection of money judgments, some family court actions, and the imposition of liens.

Even if you or your client has not received official notice of the bankruptcy case filing, actual knowledge is enough to support damages for violation of the automatic stay.

Some types of cases are not stayed by the bankruptcy filing, such as child support enforcement actions, paternity suits, and some other types of actions. But state court judges often want a “comfort order” from the bankruptcy court that specifically states the litigation will be allowed to continue, and under what conditions. If in doubt, it is best to consult with a bankruptcy attorney or reach an agreement with the debtor’s bankruptcy attorney before continuing to prosecute any action against a bankruptcy debtor.

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Will New Credit Card Rules Increase Bankruptcies?

Published on February 7, 2010 by Robert A. Kraft

Jonathan Ginsberg, Atlanta Bankruptcy Attorney, has an interesting post at the Bankruptcy Law Network blog. His theory is that the new credit cards rules taking effect later this month may cause personal bankruptcy filings to rise. This in spite of the fact that the purpose of the new rules is to benefit consumers. Please read the entire post, but here is the primary point:

I think that before we begin celebrating these common sense changes, we should recognize that from the credit card companies’ perspective, these new regulations will negatively impact profits. And credit card companies have many smart lawyers on staff advising them how to recapture those profits by taking actions that are not prohibited by the new laws.

I predict that when these new laws go into effect we are going to see more instances where credit lines are closed and demand for payments made. We will see more aggressive collection efforts sooner. We will see faster triggers on interest rate hikes because of the delays in hikes set out in the law. And we will see less inclination by credit card lenders to “work with” debtors who have always paid their bills but now need a little breathing room.

In my experience, any squeeze on credit card profits will equal a squeeze on consumers struggling to pay debt, and that will mean more consumers will end up looking at bankruptcy as a way out.

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Dealing With Bill Collectors

Published on January 10, 2010 by Robert A. Kraft

Dallas Morning News business columnist Pamela Yip published an excellent article about dealing with debt collectors. We recommend you read the entire article if you are having debt collection problems, but here are a few highlights. We will be glad to answer any questions you have in this area.

No one likes to be dogged by a bill collector, and there are steps you should take to ensure that you resolve your situation quickly and aren’t bullied by unscrupulous collecting firms:

1. Don’t ignore calls or written communications from collectors.

2. Make the collector prove you owe the debt.

3. If a collector calls about a bill you already paid, show proof that you met that obligation.

4. Don’t tolerate abuse from debt collectors.

5. Take action if collection calls go over the top.

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Bankruptcies Jumped 32 Percent in 2009

Published on January 5, 2010 by Robert A. Kraft

As Dallas bankruptcy lawyers, we were not surprised by any of the facts reported today by the Associated Press, but the story is interesting. Consumers and businesses filed so many bankruptcy petitions in 2009 that it became the seventh-worst year on record, with more than 1.4 million petitions filed. This is an increase of 32% from 2008. Texas ranked No. 32 among the states, with a 25 percent increase in filings. Here are excerpts from the article:

While experts believe some of the increase is due to a natural recovery as consumers and attorneys become accustomed to a recent overhaul of bankruptcy laws, the numbers indicate clear correlations to recession-weary regions. Arizona saw the fastest increase, a jump of 77 percent from the year before, followed by Wyoming (60 percent), Nevada (59 percent) and California (58 percent).

For three years, filings have been steadily rising back toward levels reached early in the decade before Congress overhauled the nation’s bankruptcy laws. The 2005 alterations made bankruptcy filings more cumbersome, a move that followed fears from lenders that some consumers were abusing the system to wipe away debts.

John Pottow, a bankruptcy professor at the University of Michigan, said the return to the highs of earlier this decade illustrates the failures of the 2005 overhaul bill. He said the measure largely made filings more costly and time-consuming by forcing consumers to undergo a paperwork-heavy test to determine eligibility for Chapter 7 bankruptcy and adding liability for attorneys who provide help.

“It never made sense in the first place that you could change the laws and make all these bankruptcies go away,” said Pottow, who would like to see the 2005 law changes repealed. “If people are encountering financial distress, you can only scare them away for so long before they come back again.”

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Consumer Alert: FinallyFast.com

Published on December 22, 2009 by Kathleen Munden

As many of you in the Dallas area may have seen lately, a company called “FinallyFast” is heavily advertising on television. Their product is a program that they promise will speed up your computer by clearing out the junk files that accumulate on computers over time.

You would think that as a bankruptcy lawyer, I would never fall victim to a scam. Unfortunately, I saw one of the commercials while I was waiting impatiently for a webpage to load on my laptop, which has become increasingly slow over the past few months. In a weak moment, I went to the website and downloaded the program, after paying $30.00 for the privilege.

At first, I was pleasantly surprised. My computer did indeed speed up noticeably, and I was very happy with the result. However, when I turned on my computer the next morning, I was greeted by a succession of Viagra ads, porno websites, and warnings that I needed to go back to the website and download the company’s anti-virus program. For another $30.00, of course.

Fortunately, I wasn’t that gullible, and I tried to go to the websites for Microsoft, Norton, and McAfee to download a reputable anti-virus program. The FinallyFast program blocked all my efforts to go to those websites, and I had to give up and go buy a program to load manually.

When I told the salesman at the computer store what was going on, he told me that the program might not allow me to load the Norton software I had purchased. He was right. My first attempts to load the program failed. Fortunately, Norton had a fix for that on the CD, and I was finally able to load the program.

Instantly, the virus was detected and eliminated. I was so relieved, and immediately did what I should have done to begin with — researched the website from which I had downloaded the program. I found hundreds of consumer complaints, and added my experience to every website I could find that addressed the problem.

And, of course, I should already have had a good anti-virus program installed on my computer. The program I had expired a few months ago, and I had planned to buy a new computer, so I didn’t resubscribe. Then I forgot about it, until I needed it. Never again. I hope my experience will keep a few people from the same expense and frustration.

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Discharging Student Loans In a Bankruptcy Case

Published on December 21, 2009 by Kathleen Munden

Student loans can only be discharged in a bankruptcy case by obtaining a favorable ruling in an adversary proceeding, which is essentially a mini-lawsuit filed within the bankruptcy case. Courts use the factors set out in Brunner v. NY State Higher Educ. Serv. Corp., 831 F.2d 295 (2nd Cir. 1987) to decide if a discharge of the student loan is appropriate. The three elements of the Brunner test are:

1.    the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for himself and his dependents if forced to repay the loans;

2.    additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and

3.    the debtor has made good faith efforts to repay the loans.

I have succeeded in having student loans discharged in two of my bankruptcy cases. In one, the debtor was a 72-year-old man who was in the beginning stages of Alzheimer’s disease. In the other, the debtor was a 57-year-old grandmother who was raising three of her grandchildren, while also caring for her terminally ill mother.  In both cases, the debtors had made payments on their student loans in the past, had very limited income, and their circumstances were unlikely to improve in the foreseeable future.

I have been contacted in the past by people in their 20s or 30s who were interested in discharging their student loans in bankruptcy, but I have never pursued those cases. The courts will not grant a discharge of a student loan if the person has many productive years ahead of them in which to repay the loan.

The Department of Education will sometimes forgive a student loan if a person has attended a school that provided a worthless degree, the school has gone out of business, or some other situation exists that indicates fraud by the school. If you feel that your situation falls into this category, contact the U.S. Department of Education to pursue a possible forgiveness of your loan or to get a forbearance or other help in repaying your loan.

Categories: Bankruptcy Basics, Chapter 13 Bankruptcy, Chapter 7 Bankruptcy Comments (0) »

Beware Credit Card Changes As You Charge Into Holiday Shopping

Published on December 10, 2009 by Robert A. Kraft

As Dallas bankruptcy lawyers we see far too many clients who have gotten into financial trouble by misusing their credit cards. Pamela Yip, the personal finance columnist for the Dallas Morning News had an excellent article recently on the hazards of using credit cards for holiday shopping. The gist of the article is that there are many new charges that credit card companies have slipped into their contracts in advance of stiffer federal laws that take effect in February. Consumers need to be aware of these additional charges or may find themselves in over their heads with debt. Here are excerpts from the article:

Running up your credit card bills could be extra costly this year as card issuers scramble to change many terms before federal rules restricting their practices take effect in February.

They’re raising annual percentage rates, instituting fees, slashing credit limits and even closing some accounts, all of which could put consumers who carry large balances in a bind.

Consumers “need to really think twice about how they’re paying for the holidays this year,” said Todd Mark, vice president of education at Consumer Credit Counseling Service of Greater Dallas. “If you’re planning on carrying a balance and you’re going to charge up a bunch of things during the holidays, today’s [credit card] terms may not be tomorrow’s terms.”

Translation: The purchases you make now and in December could have a higher annual percentage rate in January.

If you do use a credit card, don’t charge anything that you can’t pay off in three months.

“Credit card rates are now too high to just charge something and assume you will be able to pay for it,” said Bill Hardekopf, chief executive of LowCards.com, a credit card information Web site.

Don’t even think about just making the minimum payment.

“If you charge $1,000 on a credit card with an interest rate of 15 percent and just pay $25 of your balance each month, it will take you until May of 2014 to pay off this Christmas, and you will pay an additional $370 in interest,” Hardekopf said.

Avoiding credit cards

To protect yourself from having to use credit cards, develop a spending plan before you venture out to the mall. This isn’t as restrictive as you might think. In fact, it can be quite liberating because it will keep you from making impulse purchases.

Mark suggests making a list of the people you’re buying for, how much you’re spending on them and what you want to purchase.

“Every aisle is going to be filled with impulse purchases, so you don’t want to fall prey to that,” he said. “It’s usually the minor expenses that ruin our budgets, so creating a list for each and every item will help keep your budget in line.”

Pay in cash or through a debit card. But if you use a debit card, keep track of your spending and your bank balance so you don’t overdraw your account.

“It’s really hard to outspend the cash you have,” Mark said. “You can’t have $600 and end up spending $1,000.”

Studies have shown that consumers typically spend 12 percent to 18 percent less when they pay with cash, Hardekopf said.

“Counting out and handing over cash is a sobering reminder of how much items really cost,” he said. “It makes you pause and consider if the purchase is really worth your labor.”

Don’t procrastinate

Retailers are going into this holiday season with leaner inventories than last year because they don’t want to be forced to give huge discounts to move the goods.

That means door-buster deals may be more limited this year.

Take advantage of coupons and promotion codes from retailers.

Finally, remember that you don’t have to spend money to give to others.

“If you’re thinking, ‘I don’t have enough cash or credit,’ remember that money does not equal love at the holidays, and you can supplement that with gifts of time and love,” Mark said.

SHOP WITH SELF-RESTRAINT

To keep your finances under control this holiday season, follow these tips:

•Create a detailed budget.

•Don’t wait until the last minute to shop; many retailers already are offering great deals.

•Collect coupons.

•Use credit cards prudently. Don’t charge anything that you can’t pay off in three months.

•Make your gift instead of buying it. It will hold special significance for the recipient.

•Give of yourself. Consider doing a chore for a friend or offer to baby-sit. Do things that don’t require money but still convey the spirit of giving.

SOURCE: Consumer Credit Counseling Service of Greater Dallas

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Fannie Mae Introduces “Deed For Lease” Program

Published on November 6, 2009 by Kathleen Munden

Home foreclosure is one of the biggest fears our Dallas and Fort Worth bankruptcy clients face. Potential foreclosure is often the triggering factor in causing people to contact a Dallas bankruptcy attorney. Now the federal government has taken a small step forward in helping homeowners attempt to avoid foreclosure.

In a bid to avoid an overload of foreclosed houses in its inventory, Fannie Mae has introduced a new program that would give homeowners facing foreclosure the option of leasing their houses for one year. The program could keep thousands of families in their homes, but critics worry that the Government-backed lender, which has received billions of dollars in bail-out funds, could end up losing even more money.

The “Deed For Lease” program would allow homeowners to transfer title to their homes back to Fannie Mae, in exchange for a one-year lease, with possible extensions after that lease term ends. The goal is to allow homeowners to remain in their homes, and for Fannie Mae to avoid the expensive and lengthy process of foreclosing on the homes.

The program helps “eliminate some of the uncertainty of foreclosure, keeps families and tenants in their homes during a transitional period, and helps to stabilize neighborhoods and communities,” Jay Ryan, a Fannie Mae vice president, said in a statement.

It also does less harm to the borrower’s credit record. “It shows that you put your best effort to work out a solution,” said Gabe Del Rio, director of homeownership at Community HousingWorks of San Diego.

However, Mike Himes, director of homeownership services at NeighborWorks Sacramento, said the industry should push harder to modify loans at lower monthly payments. “The preferred option is allowing people to retain ownership,” he said.

Fannie Mae executives said the rental program is designed to help delinquent homeowners who don’t qualify for a loan modification, but still want to stay in their homes.

To qualify, homeowners have to live in the home as the primary residence and prove that they can afford the market rent, which will be established by the management company running the program. Rents are based on current market rates.

This program will be particularly attractive to homeowners who owe more on their house than it is worth. By paying the market rate of rent in their area, they may actually be paying less per month in rent than they were paying on their inflated mortgage.

During the first nine months of 2009, Fannie Mae foreclosed on over 90,000 homes, and accepted 2,000 “deeds in lieu of foreclosure,” where the homeowners deeded the homes back to Fannie Mae and then walked away.

While Fannie Mae executives say the company’s motives are community-minded, critics say the company is simply gambling that the properties will eventually sell for a higher price. “That’s folly,” says Peter Schiff, president of Euro Pacific Capital in Darien, Conn., and a longtime bearish investor.

“Taxpayers are now going to own all these houses that (Fannie Mae) should have unloaded,” he said. “It’s going to cost a fortune.”

The announcement came as Fannie Mae asked for an additional $15 billion in government aid after posting another big loss in the third quarter as the taxpayers’ bill from the housing market bust keeps getting bigger. The mortgage finance company, seized by federal regulators in September 2008, posted a quarterly loss of $19.8 billion, including $883 million in dividends paid to the Treasury Department.

Pessimists like Schiff say the recent stability in the housing market is just temporary, and argue that there is a huge backlog of foreclosed homes that haven’t gone on the market. Refusing to sell those homes, they say, only prolongs the problem.

But other experts say that Fannie Mae’s new policy could make sense, even if prices don’t rebound quickly. The company will get rental income while avoiding costly foreclosure expenses. It will also help to safeguard the homes, which are less likely to be vandalized when occupied.

“There are a whole lot of costs you avoid,” said Thomas Lawler, a former Fannie Mae economist. “You don’t necessarily have to believe that home prices a year from now will be higher than today.”

Fannie Mae’s sibling company, Freddie Mac, launched a similar effort in March. That policy, however, requires the foreclosure to be completed and only allows month-to-month leases. Freddie Mac declined to detail how many borrowers have participated.

The two companies purchase loans from banks and sell them to investors. Together, they own or guarantee almost 31 million home loans worth about $5.5 trillion, about half of all U.S. mortgages. They have been badly hurt by the housing bust and have required $96 billion in federal aid since being seized by government regulators 14 months ago.

To find out whether your home loan is owned by Fannie Mae or Freddie Mac, try these Web sites:

Fannie Mae http://loanlookup.fanniemae.com/loanlookup/

Freddie Mac: http://www.freddiemac.com/mymortgage

If you have questions about foreclosure or any related legal matters, please contact our bankruptcy and consumer law firm. There is no charge for that first phone call.

Categories: Consumer Law Basics, Consumer Law News Comments (0) »

What Happens To My Car In a Chapter 13 Bankruptcy?

Published on October 20, 2009 by Kathleen Munden

When you file a Chapter 13 bankruptcy case, you must propose a plan to repay your creditors. Usually, your unsecured creditors (such as credit cards, personal loans, medical bills, and other debts for which no collateral is pledged) will be discharged without any payment. However, if you want to keep your secured assets, such as your home, vehicles, or other assets you are buying on credit, such as furniture, you must arrange to pay for those assets.

You have three options regarding your vehicles in a Chapter 13 bankruptcy:

  1. Surrender the vehicle. If you cannot afford to pay for a vehicle, you can surrender it in your Chapter 13 Plan, and will be under no obligation to make any further payments or have any liability for the balance that remains after the surrendered vehicle is sold by the creditor.
  2. Pay the current value of the vehicle. If you purchased your vehicle more than 910 days prior to filing the bankruptcy case, you can propose to pay the current market value of the vehicle in your Chapter 13 plan, regardless of the amount actually owed on the vehicle. Depending upon where you file your bankruptcy case, you may also be able to reduce the interest rate considerably. For example, in the Northern District of Texas, you will only be required to pay interest of about 4.25% on the vehicle balance.
  3. Pay the balance at a lower interest rate. If you purchased your vehicle less than 910 days before the case was filed, you will have to pay the full balance owed on the vehicle. However, your interest rate may be reduced to a rate as low as 4.25%, depending upon where your case is filed.

It is very important for you to consult with a lawyer in the district where your case will be filed to obtain advice about how vehicles are handled in a Chapter 13 case in your district.

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What Happens To My Car When I File a Chapter 7 Bankruptcy?

Published on October 19, 2009 by Kathleen Munden

When you file a Chapter 7 bankruptcy case, all creditor actions, including repossession of vehicles, is prohibited. In fact, if your vehicle has been repossessed shortly before the case is filed, it may be possible to force the creditor to return it. However, if you wish to keep your vehicle, you must bring the payments current quickly, or the court may allow the creditor to continue with repossession efforts.

You have three options concerning your vehicle when you file a Chapter 7 case:

  1. Reaffirmation. If you reaffirm the debt on your vehicle, it means that you agree to continue making payments and that if you stop doing so, the creditor can repossess the vehicle. If you reaffirm a loan on a vehicle and it is repossessed after your bankruptcy discharge, you will be held responsible for any balance remaining after the car is sold at auction. You should not reaffirm the debt unless you are sure you will be able to make future payments. I also advise my clients not to sign reaffirmation agreements unless the creditor offers them better terms under the reaffirmation agreement (which is essentially a new contract on the vehicle), such as lowering the interest rate and/or reducing the balance owed. In the vast majority of cases, creditors will not repossess a vehicle even if you fail to sign a reaffirmation agreement, so long as you continue to make your required monthly payments.
  2. Redemption. You may also consider redeeming your vehicle, if you have the resources to do so. Under a redemption, you pay the creditor the present value of the vehicle all at once, and are not responsible for the unsecured portion of the debt, which is the amount over the value of the vehicle. For example, if your vehicle is worth $5,000 and you owe $10,000 on it, you can pay the creditor $5,000 and the remaining balance is discharged in your bankruptcy.
  3. Surrender. If you simply cannot afford your vehicle, the best option may be to surrender it. If you surrender the vehicle, the creditor must accept the vehicle as full satisfaction of the debt, and may not pursue you to collect any balance remaining on the debt after the vehicle is auctioned.

Often, it makes more sense to purchase an inexpensive vehicle for cash and surrender your vehicle if you can no longer afford it. You can then trade in that vehicle after your bankruptcy is completed, and purchase a vehicle on credit. While you will probably have to pay a high interest rate on a vehicle after your bankruptcy is over, it may be more affordable than the vehicle you have surrendered. Additionally, making on-time payments on a vehicle, whether a new one or one reaffirmed in your bankruptcy, will improve your credit score relatively quickly.

For advice about how to handle your vehicle in a bankruptcy case, you should consult with a reputable bankruptcy attorney who can explain your options and help you decide the best course for you.

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Failure By Mortgage Companies To Modify Mortgages May Reawaken Bankruptcy Cramdown Legislation

Published on October 15, 2009 by Kathleen Munden

According to an article in the Journal of the American Bankruptcy Institute, the failure by mortgage companies to pursue voluntary modifications of mortgages may renew the push to allow judges to modify mortgages within bankruptcy cases. Since the “Home Affordable Mortgage Program” (HAMP) went into effect in March 2009, only about 360,000 homeowners have seen their mortgage payments lowered by their mortgage companies. The goal set by the Obama administration was to have 500,000 mortgages modified by November 1st, and it is estimated that 2.7 million homeowners are eligible for modifications under the program.

In June, HAMP officials began conducting rigorous reviews of mortgage servicers, and have now started a “second look” program, under which servicers’ decisions to approve or deny HAMP modifications will be scrutinized. Compliance officers are also analyzing HAMP-modified loans to track error rates with servicers.

Government officials have tried to stimulate the rate of modifications several times. The Treasury Department has set a goal of 4 million mortgage modifications by 2012, but estimates indicate that only about half that number will actually be modified.

Barney Frank (D-Mass.), chairman of the House Financial Services Committee, said, “The best lobbyists we have for getting bankruptcy legislation passed are the servicers who are not doing a very good job of getting mortgages modified.” He may insert a cramdown provision into legislation that would overhaul the financial system, which would allow bankruptcy judges to lower the balances on mortgages to the market value of the property and set new interest rates. That bill will become a top priority in early 2010.

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Top 10 List of Consumer Complaints

Published on October 13, 2009 by Kathleen Munden

According to the National Association of Attorneys General, the top three topics for consumer complaints to state attorney general offices are debt collection, auto sales, and home repair/construction. Complaints regarding credit cards tied for fourth place with complaints regarding goods and services provided over the internet.

Complaints concerning predatory lending and mortgage practices were sixth, with complaints about telemarketers, automobile repair, automobile warranties, and telecom slamming rounding out the top 10.

“With the recession and increased foreclosure rates, consumers need to be on high alert. Too many people are being swindled out of their hard-earned money by scam artists,” said Hawaii Attorney General Mark Bennett, who co-chairs the NAAG Consumer Protection Committee with Montana Attorney General Steve Bullock.

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Pre-Paid Utility Meters Pose Danger to Consumer Rights

Published on October 9, 2009 by Kathleen Munden

Traditionally, utility service has been extended on credit, remained connected until a serious delinquency occurred, and would not be disconnected during severe weather or where elderly  or sick individuals were in the household. Pre-paid meters are now being introduced in several states, including Texas, and require cash up front to obtain and maintain service. When the pre-paid amount is depleted, disconnection is automatic.

Utility companies that use pre-paid meters effectively avoid state utility commission regulations. Such consumer protections as notice before disconnection and discretion to allow utility service to continue for elderly or sick residents disappear. Lower-income households are typically the users of pre-paid meters, and severe pressure may be put onto families to find cash to feed the meter. The situation can cause such families to become victims of predatory small lenders and even loan sharks.

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Housing Crash Not Yet Over

Published on October 6, 2009 by Kathleen Munden

Amherst Securities Group analysts predict that the crash in U.S. home prices will probably resume because about 7 million properties that are likely to be seized by lenders have yet to hit the market. The “huge shadow inventory” reflects mortgages already being foreclosed upon or now delinquent and likely to be, which compares to 1.27 million such mortgages in 2005.

Assuming no other homes were on the market, it would take 1.35 years to sell the properties, based on the current pace of existing-home sales. A change in the mix of foreclosures and traditional sales over different parts of the year raised prices in the period, as the distressed share shrank. Accounting for efforts to have more loans reworked to avert foreclosure will not make much of a difference in the shadow inventory, with optimistic assumptions leading to a reduction in the amount by 1 million.

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