Debt Collector Abuse on the Rise

We've seen article after article about debt collector abuse recently.  As the recession continues, and more people default, those in the collection business go into overdrive.

The Federal Trade Commission reports that consumer complaints to the FTC for debt collector harassment have increased from 27, 413 complaints in 2008 to 41,028 complaints in 2009.  The number of complaints regarding attempted collection of debts discharged in bankruptcy has increased as well, from 25,684 to 27, 420.  You can read the FTC report here.  If you are being harassed by debt collectors, please read our article on stopping creditor harassment.

According to an AOL article, some creditors are now  taking advantage of the legal system to create a pseudo debtor's prison.  Debtor's prison was abolished in America in the 1800's.  But the court can still jail people for contempt if they fail to show up for hearings.  Debt collectors are using these contempt proceedings to jail debtors until the debt is paid.

First, the debt collector sues the debtor for an unpaid credit card bill.   Because the debtor does not answer the complaint or appear in court, the debt collector obtains a judgment against the debtor.  In order to collect the judgment, the debt collector schedules hearing for a “judgment debtor’s exam” in which the debt collector is allowed to inquire into the assets of the debtor to determine if the debtor has accounts that can be levied or wages that can be garnished (though such actions can be taken without a judgment debtor’s exam as long as the debt collector is aware of the debtor’s place of employment or bank accounts).  If the debtor fails to appear at the hearing, the judge can hold the debtor in contempt of court and issue a warrant for their arrest.  The judge typically sets the amount of bail at the amount of the debt collector’s judgment, which is then turned over to the debt collector.

The article reports that the arrest rate in Minnesota for such contempt violations has risen 60% over the past 4 years, and similar asserts have been reported in Wisconsin, New Jersey, Arkansas, and Washington.  California has a similar system for debtors exams.  So if you receive paperwork about a judgment against you, even if you think it is an error or mistake, take it to an attorney right away.

"Debt Relief Agency" Agrees to Pay Consumers Back

Like most “debt relief agencies”, Freedom Debt Relief, a California based firm, instructed consumers to stop making payments to their creditors and to give Freedom some amount of money that Freedom would hold in the consumers’ account.  When enough money was received, Freedom would use the money to settle the accounts and to and deduct its fees. 

According to a March 8, 2011 article, Freedom failed to inform the consumers of the impact such a program would have, such as ruining the consumers’ credit.  Freedom also appears to have taken fees greater than what certain states allowed to be collected for such services or even before the services were rendered. 

After such accusations against the company emerged, Freedom entered into a settlement agreement in which they would be required to refund a total of $2 million to consumers who utilized their services in New York and Washington State.  The settlement also prevents Freedom from accepting new clients without notifying the Attorney General and can't suggest that its program is for everyone that wants to simply reduce their debt, misrepresent any statistics relating to its negotiations on behalf of consumers or withdraw or transfer any funds saved by consumers in their accounts.  Freedom can, however, take fees allowed by law and continue to negotiate with creditors.

California has certain laws which limit the amount of fees that can be charged by debt settlement companies and requires most debt settlement companies to be licensed by the California Department of Corporations.  The Federal government has also enacted the Debt Settlement Consumer Protection Act of 2010, which requires that debt settlement companies provide consumers with clear disclosures regarding the fees that will be charged in connection with the services and the consumer’s right to cancel the debt settlement contract.

While these protections have been put in place, many debt settlement companies are either unaware of the stringent requirements or simply ignore them.  If you have fallen victim to a debt relief program, we can evaluate your case for little or no cost.  In some cases, we may be able to obtain a full or partial refund of the funds paid into the program. 

Banks Shouldn't Freeze Your Checking Account When You File for Bankruptcy

The Bankruptcy Appellate Panel for the Ninth Circuit has just ruled that Wells Fargo Bank, N.A. violated the automatic stay by freezing a bankruptcy debtor’s bank accounts, despite the fact that the debtor did not owe Wells Fargo any money.  Even after the debtor’s attorney sent Wells Fargo a letter instructing Wells Fargo to release the funds to the debtor, Wells Fargo continued the freeze, arguing that only the bankruptcy trustee could request the funds to be “unfrozen” and turned over into his/her possession.

The filing of a bankruptcy case causes the commencement of an “automatic stay” which prohibits creditors from doing things such as collecting debts, garnishing wages, continuing with foreclosure proceedings, or repossession of assets.  The automatic stay also prohibits creditors from “exercising control” over all of the property owned by the debtor at the time his or her bankruptcy case was filed, otherwise known as the “bankruptcy estate.”  Because Wells Fargo’s hold on the account was viewed by the Court as an exercise of control over the debtor’s money, Wells Fargo was found to be in violation of the automatic stay.

What does this mean for you?  With certain exceptions (which you should discuss with your attorney), banks are prohibited from freezing your account simply because you have filed bankruptcy.  If you feel that your bank has improperly frozen your account because you filed bankruptcy, you should speak to an attorney who can advise you of the appropriate steps to “unfreeze” the accounts and whether any damages resulting from the freeze may be available to you.

FTC settles claim against Countrywide for overcharging struggling homeowners

The FTC complaint states that Countrywide (now owned by Bank of America) charged borrowers who fell behind on their payments with charges for property inspections, lawn mowing and other services to protect the lender's interest in the property.  However, Countrywide would dramatically mark up the cost of these services- sometimes by 100% or more.

Also, the complaint charges Countrywide with making false or unsupported claims to borrowers about amounts owed or the status of their loans while borrowers were in Chapter 13 bankruptcies to save their homes.  Countrywide also aded new fees and escrow charges and then imporperly attempted to collect these amounts after the bankruptcy closed.

The settlement requires Countrywide to pay $108 million which will be refunded to homeowners who Countrywide overcharged before July 2008. 

For information on the refund program, visit http://www.ftc.gov/countrywide

Read full article here: FTC.gov