January 24, 2019

Do You Want to Give Money You Don’t Owe to a Credit Card Company?

This is not a trick question.

I received this letter today from American Express regarding the balance owed by one of my Chapter 13 bankruptcy clients whose case was dismissed.  The letter acknowledges that because of the age of the debt, Amex cannot sue my former client, nor can they report the unpaid balance to the credit bureaus.  Yet they are giving him the opportunity to “settle” this debt for 45% of the balance.

Can you think of any reason why anyone would pay Amex anything on this stale account?  I can’t.  But I wonder how many people agree to make payments and possible waive the statute of limitations bar to collections.  If you get a letter with a notice that the debt is stale, don’t even think about making a payment.

Georgia Supreme Court Rules in Favor of Mortgage Lenders Over Homeowners in Important Decision

A 2017 ruling by the Georgia Supreme Court most likely represents a significant weakening to a consumer protection provision contained in Georgia’s home foreclosure law.

Georgia law allows what is known as a non-judicial foreclosure. This means that if you fall behind on your mortgage payments, your mortgage company does not have to go to court to seize possession of your home.

Instead, buried deep in the fine print of your mortgage paperwork is language that allows your lender to foreclose on your property simply by giving you written notice and thereafter advertising a foreclosure sale in the legal newspaper of the county where the property is located.

In Georgia, a lender can seize your house in less than 40 days if you are in default. Compare this to a home foreclosure process that typically lasts a year in a judicial foreclosure state like Florida. [Read more…]

Georgia’s Likely New Pre-Garnishment Notice Not All Good News

wage garnishment; bank account levyGeorgia may soon have a new law governing wage garnishments and bank account levies.  But the news is not all good.

You may recall that back in September, 2015, I reported that federal judge Marvin Shoob had issued a ruling that invalidated on Constitutional grounds bank account levies in Gwinnett County, Georgia. A man named Tony Strickland sued the Gwinnett County clerk of court after his bank account containing workers compensation and Social Security funds was seized by a credit card company that had sued him. Mr. Strickland argued, and Judge Shoob agreed, that the credit card company had an affirmative obligation to notify debtors like Mr. Strickland that certain funds (like workers’ compensation benefits, Social Security benefits, welfare payment and similar benefits) were exempt from garnishment. [Read more…]

Don’t Fall Prey to Illegal and Immoral Behavior by Debt Buyers

debt buyerIf you have never heard the term “debt buyer,” you might be amazed to learn that large companies exist solely for the purpose of buying and selling consumer debt. These companies buy and sell billions of dollars of debt. Some are part of public companies that trade shares of stock on stock exchanges.

In other words, credit card companies, hospitals, personal loan companies, banks and other lenders regularly sell and resell debt – and this may include debt owed by you.

Here’s how it works. Let’s say that you open a Mastercard or Visa account with a local bank. Over the years you may start running a balance – perhaps $2,000 or $3,000. You are able to make the minimum monthly payment but the balance grows slowly. At some point, you find yourself with a problem – you miss one or two monthly payments and your account becomes two or three months past due. The credit card company cancels your account and starts sending you collection letters.

At that point, the credit card company may decide that it would rather sell your delinquent debt for cash before it gets too much older. Depending on how delinquent the debt is, a debt buyer may pay only 4 or 5 cents on the dollar. Your 2 month delinquent debt of $3,000 will be packaged along with other similar debt and sold in bulk to a debt buyer at this discounted rate.

The debt buyer may attempt to collect the debt by dunning you (calling repeatedly) or the buyer may retain a lawyer and sue you. [Read more…]

Giant Collection Law Firm Sued by Government for Deceptive Practices

collection lawsuit millThe Consumer Financial Protection Bureau (a federal agency) has filed a lawsuit in federal district court against Frederick J. Hanna & Associates and its three principal partners for operating a “collection lawsuit mill” that uses illegal tactics to intimidate consumers into paying debts they may not owe.

According to the CFPB, Hanna & Associates violated federal law which prohibits deceptive practices in the consumer financial marketplace. The Agency wants compensation for victims, a civil fine and an injunction against the firm and its partners.

The allegations in the complaint include:

  • intimidating consumers with deceptive court filings. Hanna & Associates allegedly used automated processes to generate lawsuits with little or no involvement by attorneys. One of the firm’s lawyers, for example, “signed” more than 130,000 collection lawsuits in a two year period.
  • introducing faulty or unsubstantiated evidence. Lawsuits filed by Hanna & Associates included sworn statements about a particular individual’s debts. These sworn statements were issued by officers of the banks, credit card issuers and debt buyers who had hired the Hanna firm. The CFPB argues that these officers could not possibly have had personal knowledge about the individual cases and that the Hanna firm has dismissed over 40,000 suits in Georgia alone when these sworn statements were challenged by defendants.

In a statement, Hanna & Associates denied any wrongdoing and stated that it has followed all state and federal laws. [Read more…]

Appeals Court Denies Damage Claim for Clear Violation of the Automatic Stay

stay violation distress claimOn May 8, 2014 the 11th Circuit Court of Appeals released an interesting ruling denying a claim for damages filed by Chapter 13 debtors against their mortgage company. The Lodge v. Kondaur Capital Corporation and McCalla Raymer arose when a mortgage company started foreclosure proceedings against Mr. & Mrs. Lodge who were then debtors in an active Chapter 13 case.

Under the automatic stay provision of the Bankruptcy Code, of course, lenders cannot initiate or continue collection activity against a debtor who has filed Chapter 13 unless and until the lender first convinces the bankruptcy judge to lift the automatic stay.

In Georgia, most foreclosures are non-judicial meaning that to start foreclosure a lender needs to notify the debtor and run a written notice of the pending foreclosure in the legal newspaper of the county where the property is located. In the Lodge case, the mortgage company started the foreclosure process and bought the ad.

The day after purchasing the ad, the lawyer for the mortgage company, McCalla, Raymer, recognized the mistake and immediately canceled the foreclosure process. Unfortunately for them, however, it was too late to stop the ad from running. [Read more…]

Debt Consolidation Not Always a Good Idea


exchange secured debt for unsecured debt

The New York Times recently ran an article in its business section entitled The Risk of Transferring a Car Loan to a Credit Card.  The Times reported noted that several credit card issuers now promote programs in which you can transfer the outstanding balance on your car loan to a credit card.


At first blush, this seems like an interesting concept.  Car loans are secured debts, while credit cards are unsecured loans.  If you default on a car loan, you run the risk of repossession, whereas a credit card issuer would have to sue you to collect a default, thereby giving you months to refinance or find additional money.

Further, some of the credit card lenders are offering teaser rates such as zero interest for up to 18 months.

Credit card issuers are desperate for new business.  The great credit crunch of 2008 and new federal consumer protection laws have resulted in a significant decline in consumer credit.  Credit card lending is an extremely profitable business but it depends on numbers – specifically, it depends on borrowers who pay, but who sometimes pay late, thereby racking up late fees and interest charges.

And these late fees and interest charges are exactly why trading your car loan for a credit card balance may not be such a good idea.

If you are extremely disciplined and can pay off the transferred balance in full when interest rates are zero or very low, you could save hundreds or thousands of dollars of interest charges.

However, credit card agreements usually contain “gotcha” provisions that jack up interest rates if you are late, along with hefty late fee charges.  A $10,000 loan at zero percent is one thing, but a $10,000 loan with a 25% interest rate is something else entirely.  You could find yourself making minimum payments for years and never see the principal balance go down.

Further, the psychology of credit card debt works against you.  When you have a car loan, you know that if you start missing payments, you car or truck is going to be repossessed.   Repossession is costly and embarrassing and if you are facing a cash flow shortfall you are likely to do what is necessary to protect your transportation.

By contrast, credit card debt does not have the same urgency.  Since you have the option to pay a minimum payment, and you know that losing the vehicle is months away, it is far more likely that you will end up with a large, high interest credit card debt.

I have not seen these debt transfers yet in a bankruptcy context but one of these transfers would be considered recent use of unsecured debt and could be deemed non-dischargeable if you filed bankruptcy within a few months after making the transfer.

My sense is that this type of transfer deal could make sense for a person with excellent credit, steady income and financial discipline.  Such a person could also, presumably, pay off his car loan early anyway, which makes the credit card transfer option less likely anyway.  My gut tells me that there are no free lunches in life and this looks like a “free lunch” proposal.  So I say “stay away.”

Why Some People Face More Bill Collection Harassment than Others

bill collection harassmentWere you aware that credit reporting agencies (Equifax, Experian and Trans Union) have assigned you a score which reflects the likelihood that you will pay a delinquent bill?  This collection score 1 helps bill collectors decide where to focus their collection efforts.

Credit reporting agencies also offer “bankruptcy risk scores” which offer credit grantors a numerical rating score to determine whether a customer or potential customer is more or less likely to file bankruptcy.

Financial data that may be buried in credit applications or public records can now be analyzed instantly by computer and reduced to a simple score 2 [Read more…]

  1. The collection score product is described in more detail here, in a brochure published by the Fair Isaac Company, the organization that also provides credit scoring algorithms for the credit reporting agencies.
  2. My professional colleague, Long Island, New York bankruptcy lawyer Craig Robins writes more about bill collection and bankruptcy in his excellent Long Island Bankruptcyblog.  Thanks to Craig for his excellent post about automated bill collection systems, which you can read here.

Never Ignore a Lawsuit that is Served on You

made a mistakeLast week, my secretary left me a message that read as follows:

John Smith called about a possible illegal wage garnishment.  He says that his employer notified him that his wages will be garnished by a credit card company that had never sued him and that he has not heard from in over 10 years.

This sounded interesting.  Was there an FDCPA claim here?  When I called Mr. Smith back, he told me that he moved from the Atlanta area 5 years ago and that he did not remember being sued by the ABC Credit Card Company when he did live in the Atlanta metro area.  His employer, however, was in receipt of a notice of wage garnishment and would be withholding funds from his wages.

Mr. Smith had a copy of the wage garnishment order, which had a case number on it, which meant that a lawsuit had been filed.  The county where the lawsuit was filed has online access and I plugged in the case number.  It turns out that the lawsuit was filed back in 2002 and a judgment issued in 2003.  Under Georgia law judgments expire after 7 years unless renewed and the online record also indicated that this judgment had been renewed prior to the expiration of 7 years. [Read more…]

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