Alabama Consumer Law Blog

On April 14, 2008, we filed suit on behalf of an Alabama consumer against Bank of America (FIA Card Services, N.A.) related to its false reporting of an account which had been discharged in bankruptcy several years earlier. Bank of America received notice of a bankruptcy and instead of following the law and properly updating the account to show that it is discharged in bankruptcy and has a zero balance, Bank of America deleted the account and then created a new account with a different account number (which was, in fact, the same as the original account) and reported it with a large balance that was past due.

We have previously blogged about errors in post-bankruptcy discharge reporting. In other words, oftentimes when you receive a discharge, the creditors refuse to follow the law and instead will either leave a balance (known as “Parking”) or will update the account but refuse to tell the credit reporting agencies (Equifax, Experian, TransUnion) that the account has been discharged and should have a zero balance.

We will be curious to know what the explanation from Bank of America is as to why a new account number was put in which certainly gives every indication that this was an attempt to avoid having to comply with the law. Of course, anytime your attempt to comply with the law is based upon providing false information, that in and of itself violates the law.

As we often point out, we suggest that everyone should check their credit reports, review them for errors, and dispute them if errors are present. There are situations where it is appropriate to sue before a dispute when it is apparent that the furnisher/creditor has put false information on your report. If you have any questions about a Bank of America Account or how account should be reporting after bankruptcy, or credit report errors in general, please do not hesitate to contact us for a free consultation.

As we have mentioned before, we don't file bankruptcies but we are asked about bankruptcies from time to time. Matt Dunaway has a good explanation and overview of the Chapter 13 ("Debtor's Court") on his blog. Please read this to get a good feel for what a Chapter 13 bankruptcy involves.

When you file for bankruptcy protection, an automatic "stay" goes into effect that prohibits the creditors from taking collection action against you. Often times, this stay is violated by both small companies and huge national banks. The question that is often asked is "Why?" Why would this be done. Chuck Newton devotes his practice to fighting stay violations and in a recent post on his excellent blog he has answered this question. Please read the entire post but here are some key points he makes:

Are they intentionally violating the automatic stay?

Well, the answer is often no. They are not intending to violate the stay. It is usually based upon institutional arrogance. No one person is handling the entire matter, the person who is confronted with the issue does not have the complete authority, training, experience, or will to stop what is happening. The person taking the demand to stop hears so many complaints and explanations it just goes in one ear and out the other. One cog is given instructions on how to perform and it dare not do anything else. Sometimes it is based upon a misunderstanding of the law or the remedies available to the creditor or collector, the creditor or collector dares to rely on its own instincts and not consult a bankruptcy attorney as to whether it is right in its assumptions. A creditor or collector too often finds it is fine to rely on its own opinion that requires you or your attorney to prove them wrong.

Ironically, one of the biggest reasons companies continue to violate the stay is:

What does not help is that many of the misconceptions harbored by creditors and collectors are not as a result of bad legal advice. It is a result of bankruptcy attorneys continually letting them off the hook for past indiscretions. I cannot tell you how many times, especially from carry-the-note car lots, I have heard the refrain that I have always done this in the past and I never got sued.

As Chuck points out, it doesn't really matter "why" it was done - you simply have to show the following and you will have proved your case:

The good news is that an aggrieved debtor does not have to prove (or for that matter disprove) the intend to the creditor or collector who violated the automatic stay. This is the willfulness standard, and it is followed by nearly every jurisdiction in the country. Under 11 U.S.C. § 362(h) of the pre-BABCPA Code, or 11 U.S.C. § 362(k) of the post-BABCPA Code, damages are mandatory, including attorneys' fees and costs upon the finding that (1) one or more of the automatic stay provisions of 11 U.S.C. § 362(a) were violated, (2) there is not an exception for the action pursuant to 11 U.S.C. § 362(b), (3) the creditor or collector had notice of the bankruptcy filing, and (4) the creditor intended the action it undertook to violated the automatic stay.

If your creditors are violating the automatic stay, please get with your bankruptcy attorney as there are options on how to deal with it - including suing the creditor as described above. Thanks again to Chuck for such a good posting on this important issue.

Credit Slips is a wonderful blog written by professors about consumer issues. The most recent post is by Elizabeth Warren, a Harvard professor. The title is The New Politics of Bankruptcy.

We recommend you read this article as it discusses the beginnings of a backlash against those in Congress who voted for the change in the bankruptcy law that has harmed so many consumers across the country. Here is a brief excerpt:

Recently Albert Winn, a long-time Congressman from Maryland, was challenged in the primary for his seat. His opponent, Donna Edwards, campaigned on several issues, but among the most prominent was her opponent's vote for the 2005 bankruptcy legislation. He had ignored the needs of his constituents, she argued, and favored the financial interests whose executives (not coincidentally) gave his campaign financial support. Ms. Edwards defeated that incumbent in a landslide (60%-32%).

Read the rest of this article and be sure and let your elected officials what you think about them not taking into account the needs of consumers. The big banks may have the money, but we still can be felt by voting and expressing our opinions....

While we don't practice bankruptcy law, we do get calls from time to time to help bankruptcy attorneys who are dealing with various types of improper conduct from creditors and particularly from junk debt buyers. In this fascinating post by Michael Doan, he talks about a proof of claim filed by a debt scavenger who, amazingly, did not even own the debt but was planning on buying the debt. Here is an excerpt:

So while you may have listed Sears, Citibank, and a Shell mastercard in your case, instead you now have claims from Asset Acceptance Corp, B-Line, eCast, Resurgent, and the like. The biggest problems with these claims is that most these debts are VERY OLD and past the statute of limitations to collect upon. Of even greater significance, is the fact that these debt scavengers may have the WRONG DEBTOR or may not have even bought the proper account in the first place!

Stay involved in your bankruptcy case and ask your bankruptcy lawyer what your options are if you have a false proof of claim filed. Often we can go after the junk debt buyers who do this and sometimes that can mean money to you or at least money paid into your plan which helps you get through the bankruptcy quicker.

We enjoy reading Chuck Newton's Stay Violation website as it contains a wealth of information about what is and what is not considered a stay violation in bankruptcy court. A recent post discusses how a court viewed numerous letters and phone calls by GMAC to a homeowner regarding the homeowner's mortgage. This was during the bankruptcy so GMAC should have been very careful not to violate the automatic stay which prohibits creditors from collecting against the debtors.

From this post:

Despite this Order lifting the automatic stay, GMAC sent the Debtors 11 different letters and called the Debtors approximately 22 times over a 6 month period without foreclosing on the home.

In a close review of the letters the Court found that none of the letters "clearly" constituted a prohibited demand for payment. Although, I think most attorneys would understand that 11 letters is excessive.

But, the Court could not excuse the 22 phone calls because phone calls to the Debtors are NOT required by other federal laws in order to proceed with a foreclosure. The Court found that "It may very well be that the lender was simply trying to contact Debtors were fully aware of all of their options to avoid foreclosure. However, it does not take 22 calls to do so, and many of the phone calls threatened to take legal action. Furthermore, Debtors (through their attorney) made it very clear that the lender should discontinue such contacts and the lender was fully aware that Debtors had vacated and surrendered the Property".

Chuck then provides this closing comment which has been proven repeatedly to be disturbingly accurate:

As shown time and again in these cases, once a large creditor organization has unleashed the hounds of hell, they cannot seem to control the situation. Computers take over and start directing calls and connecting them with the call centers.

If you have been the victim of a stay violation, please seek good legal advice to know what all of your options are in your particular situation.

Our good friend Matthew Dunaway, bankruptcy and consumer lawyer in Birmingham, Alabama, recently blogged about the growing problem of false entries on a credit report. As Matthew puts it,

Also, if the account continues to show a balance is owed, and the debtor eventually attempts to purchase a home or car, or refinance an existing home loan, the debtor will many time be forced to pay-off the old debt in order to get the loan approved. Thus, the debtor is strong-armed into paying off a debt that was legally discharged in a bankruptcy proceeding. Creditors collect millions of dollars each year with this tactic.

One solution is to

Dispute the errors. Send a letter, via certified mail, to the credit reporting agency (Experian, Equifax or TransUnion) explaining why you are disputing the account. The credit reporting agency must respond to the dispute within 30 days. If the credit reporting agency refuses to correct the error after sending them a dispute, you may need to contact an attorney to discuss your other options.

There are other solutions beside disputing through the credit reporting agencies which we would be glad to discuss with you. We also recently blogged about this growing problem - please go to here or here to read more about this. If you find you are the victim of this type of problem, please contact us so we can advise you of your rights and options which include suing the creditors who are defaming you by putting false information on your credit reports.

We often see Alabama consumers filing bankruptcy for the sole reason of getting abusive collection agencies or debt collectors to leave them alone. The harassment from law breaking debt collectors can become unbearable for many Alabama consumers who then feel their only choice is to file bankruptcy. Filing bankruptcy normally hurts your credit score and in particular when creditors refuse to follow the law on accurately reporting your accounts that have been discharged. Sometimes there is no alternative but to file bankruptcy but other times the best option to deal with abusive collection agencies is simply to sue them. That's what we do - we sue debt collectors who break the law.

The abuse by collection agencies became so bad that Congress passed the federal law of Fair Debt Collection Practices Act to deal with the illegal conduct of abusive debt collectors. While there are numerous ways that debt collectors break the law - in general they do so in the following ways:

1. Lying to consumers
2. Abusing consumers by calling more often than allowed, using abusive language, calling neighbors and co-workers to harass the consumer, etc.
3. Putting false information on credit reports.
4. Suing consumers when the collector has no basis to do so.

We'll quickly examine these areas and then deal with them in more detail in later posts.

Continue reading "Suing Debt Collectors Instead Of Filing Bankruptcy" »

We are seeing more and more Alabama consumers who are being mistreated either during or after a bankruptcy. We have written about discharged creditors (who cannot collect money from the debtor - its been discharged) still trying to collect the money even though it is illegal to do so. You can read about it here and here. Amazingly, abuse even happens by creditors during the bankruptcy process.

The Wall Street Journal has reported that Judge Jim Pappas has sanctioned Countrywide (or its subsidiaries) for wrongful conduct - in this case not answering discovery or showing up to depositions. Please click here to read the rest of this interesting story by WSJ reporter Amir Efrati.

If you are being mistreated by any creditor during or after a bankruptcy, please consult with your bankruptcy lawyer to help determine your rights. Over the years we have been brought into a number of cases by bankruptcy attorneys to help stop abusive creditors (during and after bankruptcy) who are breaking the laws in their obsession to collect money they are not entitled to collect.

We have been seeing lots of problems with Alabama consumers who have discharged debts but the debts are still on their credit reports showing up with a balance owed. No balance is owed. There was a major article in Business Week that came out that helps explain why this happens. Please read this article in its entirety by Robert Berner and Brian Grow. But here are some excerpts that will give you a good sense of the problem and why it exists.

Here is another excerpt:

This kind of failure by creditors to update credit reports happens with some frequency, consumer lawyers and court-employed bankruptcy trustees say. And it can have consequences: In September, 2003, when Rathavongsa tried to close on a $274,650 mortgage for a new house, his would-be lender, Wachovia (WB ), said he would either have to pay Capital One or show proof from the credit-card company that the debt had been discharged. Despite several calls and a letter from his attorney, he says, Capital One never revised the credit report. To obtain the home loan, Rathavongsa eventually did what many consumers in this situation do. He gave in and paid Capital One $9,523 he no longer legally owed.

Continue reading "Why Discharged Accounts Still Show Up With Balances On Credit Reports" »

Earlier we discussed how to determine if debts that have been discharged are being reported accurately. If these accounts show a balance, then you should dispute them. This post shows one way of disputing.

One way is to write to the consumer reporting agencies (Equifax, Experian, and Trans Union) and tell them that the accounts listed in your letter should have a "zero balance". Do not mention anything about bankruptcy. You can read here for general information about disputing inaccurate accounts.

There are other ways to dispute (such as including all bankruptcy papers to the agencies) but this way seems effective. The agencies send a notice to the furnishers you have listed in the dispute letter that you claim the balance should be zero. The furnishers get that notice and investigate (or they are supposed to investigate). Obviously the furnishers know that the account should have a zero balance - they have received notice that the account was discharged. We trust they take federal orders, such as discharge orders, seriously. When they see the account was discharged, they will finally do what they should have done immediately after the discharge - report your account as "included in bankruptcy" and show a zero balance.

If they don't, then you should consult an experienced consumer lawyer and consider suing the creditor/furnisher. Here is an example of one of our many cases where we have sued the furnisher/creditor for not investigating and correcting an account that was discharged in bankruptcy.

We have several clients who received a bankruptcy discharge (from a Chapter Seven) but yet the discharged creditor continue to call or write letters demanding payment. What should you do if this happens to you? We suggest you give them a choice - either stop or get sued.

First, make sure the debt was listed in your bankruptcy petition. If you don't have your petition, call your bankruptcy lawyer. If it was not listed, at least in Alabama (and most other places), the debt is discharged but you need to let the creditor know about this.

Second, send the creditor a letter by certified mail, return receipt requested. Keep a signed copy (not just a word document on your computer). The letter can tell the creditor to leave you alone, the debt was discharged (give the case number and where it was filed), and that if they bother you again you will hold them accountable.

Normally this works but occasionally it does not. We just received a call from a bankruptcy lawyer who has a client still being harassed by a collection agency that knows the debt was discharged. This type of arrogance of collectors and creditors in trying to illegally collect debts must be challenged. We will make this expensive for them by suing them...

(Click here to read more information on our website about this illegal practice of harassing you after discharge).

We read an interesting post by a well respected consumer and bankruptcy lawyer Jay Fleischman where he argues that he can help his bankruptcy clients by avoiding arbitration of claims with creditors after bankruptcy. Here's the gist of what he does:

I typically put a clause in my Chapter 13 plans that specifically rejects the arbitration provisions contained in any consumer credit agreements.

We are not sure if this will work but bankruptcy lawyers should consider trying this - no downside and lots of upside for the clients.

Read the full post here in Jay's blog.

When an Alabama consumer has received a bankruptcy discharge, this means the debts included in bankruptcy must NOT show a balance. (Click here to read the FTC commentary - excerpt included below). Studies show that approximately 70% of all accounts which should show a zero balance actually show a balance as owing. This means that a potential lender, apartment complex, employer, etc. looking at the credit report will think that the consumer not only filed bankruptcy but now also owes all of this additional money. This violates the Fair Credit Reporting Act and also state law.

The reason creditors do this may be simply negligence in updating the credit reports but given the level of violations, it sure looks like the real reason this is done is to extort the consumer into paying this debt. Here's how this scam works -- the account has a balance and is "parked" on your credit report. You go to refinance your house, get an apartment, get insurance, apply for a job involving credit checks, etc. and you get turned down because of this account balance. Or the mortgage broker says you have to pay off this balance before you can get the loan.

What do you do? Most people will be forced to pay this balance off even though it was discharged. Otherwise, they won't get the loan, the job, the apartment, etc. What do the creditors say when you pay this off even though you don't owe it? Extortion? No - they say it was "voluntary" payment.

The solution is if you have filed for bankruptcy and received a discharge, pull your credit reports and then dispute the items that show a balance. We have updated this post to show the link to one way that we recommend disputing discharged items - click here to read this new post.

In the meantime, if you have received a discharge in the last 7 years or so, pull your credit reports to see if balances are showing up on accounts that you discharged.

The full quote from the FTC commentary is:

6. Content of Report

A consumer report need not be tailored to the user's needs. It may contain any information that is complete, accurate, and not obsolete on the consumer who is the subject of the report. A consumer report may include an account that was discharged in bankruptcy (as well as the bankruptcy itself), as long as it reports a zero balance due to reflect the fact that the consumer is no longer liable for the discharged debt. A consumer report may include a list of recipients of reports on the consumer who is the subject of the report.