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I've just read a news article about yet another horrifying set of crimes by Wells Fargo Bank. They've just settled with federal regulators (the Consumer Financial Protection Bureau) for yet again taking advantage of their customers.
Apparently cars were illegally repossessed, mortgages were wrongfully foreclosed, and inappropriate overdraft fees were charged to customer deposit accounts. The CFPD is ordering Wells Fargo to refund $2 billion to its customers, and pay a $1.7 billion fine.
This of course follows the 2016 misconduct by Wells Fargo whereby employees set up stealth checking, debit card and credit card accounts for existing customers without their consent in order to meet internal sales goals.
If you believe you have suffered any of these incidents from Wells Fargo Bank I urge you to investigate; contact the CFPB at your earliest convenience. Here's a link to CFPB's website: https://www.consumerfinance.gov/about-us/contact-us/
Here's a link to the article: https://www.cnbc.com/2022/12/20/wells-fargo-agrees-to-3point7-billion-settlement-with-cfpb-over-consumer-abuses.html
Apparently cars were illegally repossessed, mortgages were wrongfully foreclosed, and inappropriate overdraft fees were charged to customer deposit accounts. The CFPD is ordering Wells Fargo to refund $2 billion to its customers, and pay a $1.7 billion fine.
This of course follows the 2016 misconduct by Wells Fargo whereby employees set up stealth checking, debit card and credit card accounts for existing customers without their consent in order to meet internal sales goals.
If you believe you have suffered any of these incidents from Wells Fargo Bank I urge you to investigate; contact the CFPB at your earliest convenience. Here's a link to CFPB's website: https://www.consumerfinance.gov/about-us/contact-us/
Here's a link to the article: https://www.cnbc.com/2022/12/20/wells-fargo-agrees-to-3point7-billion-settlement-with-cfpb-over-consumer-abuses.html
Chapter 7 Debtors must select a course of action with respect to secured debts like mortgages on houses. I most frequently recommend "retain & pay", which means you keep the house and continue making the mortgage payments. When my clients are preparing to file bankruptcy we discuss which choice is best for them; it is complex and can be confusing.
Reaffirmation is a contract debtors can sign that cancels the bankruptcy for one debt. Since the whole point of filing bankruptcy is to get a discharge, it rarely makes sense for the Debtor to reaffirm. During the runup to the massive 2005 bankruptcy amendments car lenders convinced Congress that "retain & pay" (previously the obvious choice for secured debts) shouldn't be allowed. They convinced Congress that Debtors should either reaffirm (so that if cars got repossessed after bankruptcy car lenders could sue them for any deficiency (and there is always a deficiency, at least until the car is almost paid off) and garnish their salaries. That's a poor "fresh start", but of course Congress is more likely to listen to national banks than individual debtor's attorneys. Fortunately mortgage lenders didn't get this provision of the law changed for them; "retain & pay" is still the obvious choice and isn't prevented by the 2005 bankruptcy amendments; in fact it is pretty rare for a mortgage company to even bother to prepare a reaffirmation agreement and send it to me. Car lenders still do it fairly often, but it's been a while since I've seen a reaff from a mortgage lender.
The change in the law in 2005 actually didn't create that many problems. Most debtor's attorneys refuse to allow their clients to reaffirm even car loans where they are arguably required to do so; although Ford Motor Credit will sometimes repossess a current car loan for lack of a reaffirmation, pretty much every other car lender ignores the problem and allows "retain & pay" as a practical matter, even though it is technically not allowed. It's simply more cost effective to accept payments than it is to repossess a bunch of cars worth less than the balance due.
Mortgage lenders don't like this reality. They'd prefer to have all their customers on the hook for potential deficiencies, even though their collateral rarely depreciates and it isn't really objectively necessary. They often engage in petty harassment such as disabling online payment options, refusing to report current mortgages to credit reporting agencies, and refusing to refinance mortgage debts that weren't reaffirmed in a bankruptcy.
When you try to refinance your mortgage that you had before filing bankruptcy, the lender will often tell you to "go get a reaffirmation". That isn't statutorily possible; once discharge is issued there is no way to reaffirm. I would translate what they often say, "your lawyer never got a reaffirmation" as "We never bothered to prepare a reaffirmation and send it to your lawyer because he's too smart to commit malpractice against your best interests." It is absolutely NOT the case that the loan doesn't exist because of bankruptcy (which they sometimes also say); if it didn't exist we'd ask them to release the mortgage and you'd own the house free and clear. If it didn't exist they'd return your monthly payments, and I assume that hasn't happened.
If you really need to refinance a mortgage you carried through bankruptcy, the simplest solution by far is to go to another bank. They may complain "these mortgage payments aren't reported by your previous mortgagee"; you can provide proof of payments, either by handing them check copies or by asking the previous mortgagee to provide you with a full payment history. The new bank won't be surprised that your previous mortgagee isn't reporting; it's pretty common in the industry.
As always, call your lawyer for more specific information.
Reaffirmation is a contract debtors can sign that cancels the bankruptcy for one debt. Since the whole point of filing bankruptcy is to get a discharge, it rarely makes sense for the Debtor to reaffirm. During the runup to the massive 2005 bankruptcy amendments car lenders convinced Congress that "retain & pay" (previously the obvious choice for secured debts) shouldn't be allowed. They convinced Congress that Debtors should either reaffirm (so that if cars got repossessed after bankruptcy car lenders could sue them for any deficiency (and there is always a deficiency, at least until the car is almost paid off) and garnish their salaries. That's a poor "fresh start", but of course Congress is more likely to listen to national banks than individual debtor's attorneys. Fortunately mortgage lenders didn't get this provision of the law changed for them; "retain & pay" is still the obvious choice and isn't prevented by the 2005 bankruptcy amendments; in fact it is pretty rare for a mortgage company to even bother to prepare a reaffirmation agreement and send it to me. Car lenders still do it fairly often, but it's been a while since I've seen a reaff from a mortgage lender.
The change in the law in 2005 actually didn't create that many problems. Most debtor's attorneys refuse to allow their clients to reaffirm even car loans where they are arguably required to do so; although Ford Motor Credit will sometimes repossess a current car loan for lack of a reaffirmation, pretty much every other car lender ignores the problem and allows "retain & pay" as a practical matter, even though it is technically not allowed. It's simply more cost effective to accept payments than it is to repossess a bunch of cars worth less than the balance due.
Mortgage lenders don't like this reality. They'd prefer to have all their customers on the hook for potential deficiencies, even though their collateral rarely depreciates and it isn't really objectively necessary. They often engage in petty harassment such as disabling online payment options, refusing to report current mortgages to credit reporting agencies, and refusing to refinance mortgage debts that weren't reaffirmed in a bankruptcy.
When you try to refinance your mortgage that you had before filing bankruptcy, the lender will often tell you to "go get a reaffirmation". That isn't statutorily possible; once discharge is issued there is no way to reaffirm. I would translate what they often say, "your lawyer never got a reaffirmation" as "We never bothered to prepare a reaffirmation and send it to your lawyer because he's too smart to commit malpractice against your best interests." It is absolutely NOT the case that the loan doesn't exist because of bankruptcy (which they sometimes also say); if it didn't exist we'd ask them to release the mortgage and you'd own the house free and clear. If it didn't exist they'd return your monthly payments, and I assume that hasn't happened.
If you really need to refinance a mortgage you carried through bankruptcy, the simplest solution by far is to go to another bank. They may complain "these mortgage payments aren't reported by your previous mortgagee"; you can provide proof of payments, either by handing them check copies or by asking the previous mortgagee to provide you with a full payment history. The new bank won't be surprised that your previous mortgagee isn't reporting; it's pretty common in the industry.
As always, call your lawyer for more specific information.
If you have been reading this website you already know that there are two types of bankruptcy; liquidation and reorganization. The first thing you notice about any type of bankruptcy is peace and quiet; the Bankruptcy Court enters an anti-debt collection injunction called the "Automatic Stay" as soon as you file a bankruptcy. If you haven't paid your mortgage on your house in a long time, the mortgage company can file a lawsuit against you called a Foreclosure lawsuit. The goal of the foreclosure lawsuit is to transfer ownership of your house from you to the mortgage company. Then the mortgage company can sell your house and reduce the loss it suffered when you stopped paying the mortgage.
If your mortgage company has filed a foreclosure lawsuit against you, a bankruptcy will stop that lawsuit in its tracks. In a Chapter 7 liquidation case, that is only a 3-4 month delay. In a Chapter 13 reorganization case, it might just be a permanent solution.
Chapter 13 allows you to catch up on a defaulted mortgage. If you're $12,000 behind in your mortgage payments, you can file a Chapter 13 bankruptcy to stop the mortgage company from foreclosing. Using the Chapter 13 repayment process you can take up to 5 years to catch up the missing $12,000 in payments, so that when you emerge from Chapter 13 your mortgage is all caught up and you're current. There are of course drawbacks, Chapter 13 is expensive in a couple of different ways. First, your lawyer charges you more than for a Chapter 7 case, because he has to do a lot more work. Second, you have to make Chapter 13 plan payments, which the Trustee will use to catch up the missed mortgage payments. Finally you have to make all of the regular monthly mortgage payments; it wouldn't make sense to catch up missed mortgage payments and then fall even further behind during the bankruptcy case!
A Chapter 7 bankruptcy doesn't let you catch up, but it buys you some time and protects you from a deficiency judgment. A deficiency is where the mortgage company sells your home for less than you owe it. Whatever is left over is called the Deficiency, and a mortgage company could try to collect it from you. A Chapter 7 bankruptcy would discharge that deficiency, so the mortgage company would not be allowed to write you, call you, sue you or garnish your salary.
Which type of case makes the most sense for you is a pretty individual decision. The amount of equity in the property, your ability to fund a repayment plan under Chapter 13 and the condition of the home are factors you and your attorney will use to make a decision. Either way, remember there are always options!
If your mortgage company has filed a foreclosure lawsuit against you, a bankruptcy will stop that lawsuit in its tracks. In a Chapter 7 liquidation case, that is only a 3-4 month delay. In a Chapter 13 reorganization case, it might just be a permanent solution.
Chapter 13 allows you to catch up on a defaulted mortgage. If you're $12,000 behind in your mortgage payments, you can file a Chapter 13 bankruptcy to stop the mortgage company from foreclosing. Using the Chapter 13 repayment process you can take up to 5 years to catch up the missing $12,000 in payments, so that when you emerge from Chapter 13 your mortgage is all caught up and you're current. There are of course drawbacks, Chapter 13 is expensive in a couple of different ways. First, your lawyer charges you more than for a Chapter 7 case, because he has to do a lot more work. Second, you have to make Chapter 13 plan payments, which the Trustee will use to catch up the missed mortgage payments. Finally you have to make all of the regular monthly mortgage payments; it wouldn't make sense to catch up missed mortgage payments and then fall even further behind during the bankruptcy case!
A Chapter 7 bankruptcy doesn't let you catch up, but it buys you some time and protects you from a deficiency judgment. A deficiency is where the mortgage company sells your home for less than you owe it. Whatever is left over is called the Deficiency, and a mortgage company could try to collect it from you. A Chapter 7 bankruptcy would discharge that deficiency, so the mortgage company would not be allowed to write you, call you, sue you or garnish your salary.
Which type of case makes the most sense for you is a pretty individual decision. The amount of equity in the property, your ability to fund a repayment plan under Chapter 13 and the condition of the home are factors you and your attorney will use to make a decision. Either way, remember there are always options!
One common experience I have over the 32 years I have been practicing in the area of bankruptcy law is clients complaining about all the detailed, fussy little questions I ask while I am preparing their bankruptcy schedules. It can take a lot of time, and I am very thorough (annoyingly so, many clients believe). There is some method to my madness. First of all, the more information I have the more accurate your bankruptcy disclosures will be. Secondly, very disparate pieces of information can often combine in unexpected ways to help me better understand your financial situation. Better understanding your finances makes me better at defending your interest. Thirdly and possibly most importantly of all, there are consequences to inadequate financial disclosures on bankruptcy schedules.
People filing bankruptcy must disclose all of their assets. Sometimes it can be confusing figuring out exactly what is an asset and what is not. The purpose of disclosing all assets is that the Bankruptcy Court may take some assets from bankruptcy debtors and use them to pay back their debts. If you have a million dollars in cash in your bank account (to use a silly example), your bankruptcy Trustee will take that money and pay your creditors. If you only have $100 in your bank account, the Trustee will leave it for you. If you lie about your assets, however, the Trustee can't make an informed decision about whether there are assets he or she should use to pay your creditors. Part of my reason for being very thorough and asking so many questions is so I can be sure you don't have any consequences for leaving assets off your schedules.
Some people, however, take the risk of lying on their bankruptcy schedules. These people can lose their bankruptcy discharge, lose the hidden assets, and can even be sent to jail. Here's a recent story about one of them.
https://kdvr.com/2019/03/17/colorado-doctor-sentenced-to-prison-for-bankruptcy-fraud/
People filing bankruptcy must disclose all of their assets. Sometimes it can be confusing figuring out exactly what is an asset and what is not. The purpose of disclosing all assets is that the Bankruptcy Court may take some assets from bankruptcy debtors and use them to pay back their debts. If you have a million dollars in cash in your bank account (to use a silly example), your bankruptcy Trustee will take that money and pay your creditors. If you only have $100 in your bank account, the Trustee will leave it for you. If you lie about your assets, however, the Trustee can't make an informed decision about whether there are assets he or she should use to pay your creditors. Part of my reason for being very thorough and asking so many questions is so I can be sure you don't have any consequences for leaving assets off your schedules.
Some people, however, take the risk of lying on their bankruptcy schedules. These people can lose their bankruptcy discharge, lose the hidden assets, and can even be sent to jail. Here's a recent story about one of them.
https://kdvr.com/2019/03/17/colorado-doctor-sentenced-to-prison-for-bankruptcy-fraud/
When you file bankruptcy, everything that you own becomes bankruptcy estate property. The Bankruptcy Court appoints a Trustee to "administer" (figure out what is worth keeping, sell that to pay creditors, ignore the rest of it) all of the bankruptcy estate property. That can be pretty scary; you don't want to lose the shirt off your back to get relief from your creditors! Luckily there are a couple of things that prevent bankruptcy Trustees from taking assets from Debtors (people who file bankruptcy) in most cases. First of all, Congress and the New Mexico Legislature both recognized that people filing bankruptcy need to keep some assets or the bankruptcy doesn't really help them all that much. Each legislature composed a list of exemptions. Exempt property is property your Trustee can't take from you because it is necessary for a reasonable standard of living. Your attorney will help you pick which set of exemptions (state or federal) fits your situation the best. Secondly, as a low per capita income state, New Mexicans by and large don't have as many assets in the first place as folks in more prosperous states.
Until your attorney knows which of the two exemption schedules fits you best, he or she probably can't answer the question about whether or not you'll keep your tax refund. The Cliff Notes version is that the New Mexico exemption schedule is better at protecting home equity ($60,000 per spouse in home equity is exempt; only $23,000 per spouse is exempt under the federal exemption schedule), but the federal schedule is better at protecting liquid assets like bank accounts or tax refunds (up to $13,000 per spouse can be exempt). The topic is a lot more complex than this paragraph suggests; you'll need to discuss it with your attorney in detail.
The second question your attorney needs answered is when you receive your tax refund compared to the date you file bankruptcy. If you spent your tax refund a month ago, you probably don't have to worry about your Trustee sticking his or her hand out to intercept that refund. If you prepared your tax returns, you'll be getting a massive tax refund, but you haven't filed the tax returns yet, the refunds are available to the Trustee, and you'll have to think about exemptions as described in the paragraph above.
Finally you should think about your payroll withholdings. If you get a refund every year of $1200 from the IRS, you are giving the IRS an interest free loan! They'll charge you interest, by the way, if you owe THEM any money! You can ask your payroll department to take $100 per month less from your check, so that at the end of the year there isn't any refund to worry about losing! Of course many Americans do like having a sizable refund once a year; they treat it as forced savings.
Either way, this is a topic you need to discuss with your attorney!
Until your attorney knows which of the two exemption schedules fits you best, he or she probably can't answer the question about whether or not you'll keep your tax refund. The Cliff Notes version is that the New Mexico exemption schedule is better at protecting home equity ($60,000 per spouse in home equity is exempt; only $23,000 per spouse is exempt under the federal exemption schedule), but the federal schedule is better at protecting liquid assets like bank accounts or tax refunds (up to $13,000 per spouse can be exempt). The topic is a lot more complex than this paragraph suggests; you'll need to discuss it with your attorney in detail.
The second question your attorney needs answered is when you receive your tax refund compared to the date you file bankruptcy. If you spent your tax refund a month ago, you probably don't have to worry about your Trustee sticking his or her hand out to intercept that refund. If you prepared your tax returns, you'll be getting a massive tax refund, but you haven't filed the tax returns yet, the refunds are available to the Trustee, and you'll have to think about exemptions as described in the paragraph above.
Finally you should think about your payroll withholdings. If you get a refund every year of $1200 from the IRS, you are giving the IRS an interest free loan! They'll charge you interest, by the way, if you owe THEM any money! You can ask your payroll department to take $100 per month less from your check, so that at the end of the year there isn't any refund to worry about losing! Of course many Americans do like having a sizable refund once a year; they treat it as forced savings.
Either way, this is a topic you need to discuss with your attorney!
What is a Junk Debt Buyer?
A growing industry in America today is the junk debt buying industry. A lot of first tier creditors, like Citibank or JPMorgan Chase Bank or Wells Fargo, don't want to be in the debt collecting business. If you owe them a credit card debt that you aren't paying, they'll send you statements and maybe a few more or less polite letters over the next four or five months; they are not usually interested in suing you or chasing you for the next few years. So what do they do? They find a junk debt buyer and sell all of their old defaulted credit card accounts to him for pennies on the dollar. Some creditors like Discover and American Express, keep their defaulted accounts, but my experience is they are in the minority.
So here's the way it works. Midland Credit Management or Portfolio Recovery gives $200,000 to Citibank. In return Citibank gives them a spreadsheet with some very basic account information on it for defaulted credit card accounts with a face value of $20 million (yes, they really only pay pennies on the dollar). Let's assume one of your defaulted credit card accounts is included on the spreadsheet. Now the junk debt buyer can do the collection work that the first tier lenders don't like to do. They can call you, send you demand letters, hire attorneys or collection agencies, and even sue you. If the balance on your Citibank credit card was $5,000, Portfolio paid $50 for that account, and if they beat $100 out of you they made a profit! Of course junk debt buyers don't generally agree to such inexpensive settlements, mostly because a large number of the defaulted accounts they buy are worthless. Some account debtors may have moved to another state and not been located, some may have filed bankruptcy, some may have retired and not have wages that could be garnished, and some of the accounts may be so old that the statute of limitations has expired.
That initial transfer is not the end of debt collection roulette. It is common for junk debt buyers to work a spreadsheet they buy for a few months or a year, collect what they can, and sell it to another junk debt buyer for even less money. Junk debt buyers have even been known to sell the same spreadsheet more than once! The record keeping is generally atrocious, and junk debt buyers who sue people really as a matter of law can't win those lawsuits if the consumer puts up a vigorous defense. Think about it. Trial witnesses are supposed to have personal knowledge of anything they testify about. If I call you as a witness at my car accident trial, you are only useful if you testify "I saw the car accident on July 10th, and it was Mike's fault." Junk debt buyers don't have any personal knowledge. They often get their employees to testify "Mike owes us $3500." How do they know that? Well they'll say they bought a credit card account from Citibank, and Citibank told them Mike owed Citibank $3500. That is hearsay. Junk debt buyers aren't Citibank employees and don't know anything about Citibank's business records. In a court of law with a knowledgeable judge and a good defense they basically can't win the lawsuit. Maybe that is why junk debt buyers only have to pay a penny on the dollar for defaulted credit card accounts!
Why do junk debt buyers sue if they can't win? First of all, it is a real tragedy that in the US over 80% of all lawsuits are won "by default", meaning that the Defendants don't defend the lawsuit and the junk debt buyer wins without having to prove a thing. That might be because they have old addresses for Defendants and they don't know they have been sued, or it might be because people are anxious and stressed out and don't know how to defend. Once they get a default judgment, they can garnish salaries, garnish bank accounts and put liens on houses. This is why the junk debt buying industry is increasing; even with lots of dead accounts and losing a few lawsuits to a good defense, there is still a lot of cash out there. And the dirty little secret is that the atrocious record keeping means that junk debt buyers sue people they shouldn't sue. They sue people who discharged the debt in bankruptcy, people who paid some or all of the debt and people whose debt is too old to be sued. That is why they call it Zombie Debt.
Call a local lawyer right away if you are contacted by a junk debt buyer. Learn your rights. ESPECIALLY if you are sued by one of them!
A growing industry in America today is the junk debt buying industry. A lot of first tier creditors, like Citibank or JPMorgan Chase Bank or Wells Fargo, don't want to be in the debt collecting business. If you owe them a credit card debt that you aren't paying, they'll send you statements and maybe a few more or less polite letters over the next four or five months; they are not usually interested in suing you or chasing you for the next few years. So what do they do? They find a junk debt buyer and sell all of their old defaulted credit card accounts to him for pennies on the dollar. Some creditors like Discover and American Express, keep their defaulted accounts, but my experience is they are in the minority.
So here's the way it works. Midland Credit Management or Portfolio Recovery gives $200,000 to Citibank. In return Citibank gives them a spreadsheet with some very basic account information on it for defaulted credit card accounts with a face value of $20 million (yes, they really only pay pennies on the dollar). Let's assume one of your defaulted credit card accounts is included on the spreadsheet. Now the junk debt buyer can do the collection work that the first tier lenders don't like to do. They can call you, send you demand letters, hire attorneys or collection agencies, and even sue you. If the balance on your Citibank credit card was $5,000, Portfolio paid $50 for that account, and if they beat $100 out of you they made a profit! Of course junk debt buyers don't generally agree to such inexpensive settlements, mostly because a large number of the defaulted accounts they buy are worthless. Some account debtors may have moved to another state and not been located, some may have filed bankruptcy, some may have retired and not have wages that could be garnished, and some of the accounts may be so old that the statute of limitations has expired.
That initial transfer is not the end of debt collection roulette. It is common for junk debt buyers to work a spreadsheet they buy for a few months or a year, collect what they can, and sell it to another junk debt buyer for even less money. Junk debt buyers have even been known to sell the same spreadsheet more than once! The record keeping is generally atrocious, and junk debt buyers who sue people really as a matter of law can't win those lawsuits if the consumer puts up a vigorous defense. Think about it. Trial witnesses are supposed to have personal knowledge of anything they testify about. If I call you as a witness at my car accident trial, you are only useful if you testify "I saw the car accident on July 10th, and it was Mike's fault." Junk debt buyers don't have any personal knowledge. They often get their employees to testify "Mike owes us $3500." How do they know that? Well they'll say they bought a credit card account from Citibank, and Citibank told them Mike owed Citibank $3500. That is hearsay. Junk debt buyers aren't Citibank employees and don't know anything about Citibank's business records. In a court of law with a knowledgeable judge and a good defense they basically can't win the lawsuit. Maybe that is why junk debt buyers only have to pay a penny on the dollar for defaulted credit card accounts!
Why do junk debt buyers sue if they can't win? First of all, it is a real tragedy that in the US over 80% of all lawsuits are won "by default", meaning that the Defendants don't defend the lawsuit and the junk debt buyer wins without having to prove a thing. That might be because they have old addresses for Defendants and they don't know they have been sued, or it might be because people are anxious and stressed out and don't know how to defend. Once they get a default judgment, they can garnish salaries, garnish bank accounts and put liens on houses. This is why the junk debt buying industry is increasing; even with lots of dead accounts and losing a few lawsuits to a good defense, there is still a lot of cash out there. And the dirty little secret is that the atrocious record keeping means that junk debt buyers sue people they shouldn't sue. They sue people who discharged the debt in bankruptcy, people who paid some or all of the debt and people whose debt is too old to be sued. That is why they call it Zombie Debt.
Call a local lawyer right away if you are contacted by a junk debt buyer. Learn your rights. ESPECIALLY if you are sued by one of them!