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Life During and After Bankruptcy

Filing bankruptcy does not eliminate your rights. In fact, it puts you in a much stronger position in relationship to your creditors. Consumer laws like those provided for in the Bankruptcy Code serve to level the playing field between creditors and borrowers. The automatic stay and the discharge injunction are powerful protections that give you rights in addition to other state and federal consumer protection laws. If you think that one of your creditors is violating the automatic stay or your discharge, you should inform your attorney immediately.

Stay Violations

When creditors attempt to collect a debt while the automatic stay is in place, they are in violation of the automatic stay. The most common stay violations are collection calls and letters, but there are many ways that creditors can violate the automatic stay. These are serious violations of the law for which you may collect your actual damages, your attorney’s fees and, in some cases, punitive damages. This is because the automatic stay is designed to protect you from your creditors during the pendency of your bankruptcy case. It is one of the most powerful consumer protections available under the law. [i]

Proceeding With a Sheriff’s Sale

Sometimes, especially when a bankruptcy is filed shortly before a scheduled sheriff’s sale of a property, lenders will conduct the sale even though the automatic stay is in effect. So long as you provided proper notice of the bankruptcy filing to the creditor, proceeding with the sale violates the stay, even if it was an “honest” mistake. If you are filing at the eleventh hour before the sale, your bankruptcy attorney will want to provide notice directly to the creditor’s attorneys as well as the creditor.

If the sale is held, your bankruptcy attorney will need to file an adversary proceeding against the creditor to address the stay violation. In addition to unwinding the sale, you can receive the value of your actual damages and your attorney’s fees. If the violation was willful and knowing, it is possible to recover punitive damages. Punitive damages are damages in excess of your actual damages; they are designed to severely punish bad behavior.

Repossessing Your Car/Ignition Kill Switches

If the automatic stay is in effect and the owner of your auto loan repossesses your car, it is a stay violation. Some auto dealers, especially the “buy here-pay here” dealers install devices in their cars that can remotely shut the car’s ignition off. This makes it easier for the dealer to locate and repossess the car. If the automatic stay is in effect and the dealer’s disabling device is triggered, this behavior violates the automatic stay. The automatic stay protects anything that is property of the bankruptcy estate. Disabling your car is prohibited because it is both a constructive repossession and an attempt to collect a debt.

Collection Calls and Letters

The automatic stay protects you from attempts to collect on your debts. If your creditors continue to call you after you file your bankruptcy case, they are in violation of the automatic stay. Keep in mind that some correspondence is permissible even if the automatic stay is in place. For example, a creditor can send you an account statement without attempting to collect the debt. If you feel that your creditors are harassing you in violation of the automatic stay, contact your attorney to determine whether the behavior violates the automatic stay. In addition to the damages you can collect for a stay violation, you may be able to collect damages for violations of other state and federal laws, such as the Fair Debt Collection Practices Act.

Lawsuits

The automatic stay protects you from your creditors filing lawsuits against you and halts lawsuits that have already been filed. If the automatic stay is in effect and one of your creditors files a collection lawsuit against you, your creditor has violated the automatic stay. If there is a lawsuit pending against you and your creditor moves for judgment or otherwise tries to advance the case without first lifting the stay, then your creditor has violated the automatic stay.

Enforcing Judgments

The automatic stay protects you from attempts to enforce judgments already entered against you. This includes actions like filing a judgment lien against your home. A judgment lien is a lien filed against real property that you own. If a judgment lien is filed against a piece of property that you own, you will not be able to sell that property without first satisfying the judgment lien. Other attempts to enforce a judgment include garnishing your wages or bank accounts. Even a letter from the judgment creditor can violate the stay if the creditor demands a payment or requests that you contact the creditor to work out a repayment plan.

Other Offensive Conduct

The automatic stay provides broad protections. Any action that attempts to collect on claims that existed before your case was filed may be a stay violation. If creditors take actions against the property of the bankruptcy estate, there is also a likely stay violation. As with most situations, if you believe that a creditor is violating the automatic stay, you should immediately contact your attorney to determine if a violation has occurred.

Discharge Violations

Once you have received your discharge, creditors whose debts were discharged are prohibited from attempting to collect the discharged debt. However, you can voluntarily repay your debts after your discharge. Do not be fooled. If a discharged creditor contacts you requesting payment, hinting at the possibility of paying, or merely referencing the discharged debt, it is likely a discharge violation. If you believe that a creditor is violating the discharge injunction, you should contact your bankruptcy attorney. A violation of the discharge entitles you to recover damages and attorney’s fees from the creditor who is violating the discharge.

Debt Buyers

Believe it or not, there is a market for discharged debts. Companies purchase discharged debts from creditors for a fraction of the value of the discharged debt. They then attempt to collect those debts. In most cases, the debt buyer will report the debt on your credit report. If you are not monitoring your credit report, you may be completely unaware that the debt buyer has been reporting your discharged debt to the credit bureaus. Many consumers discover the trade line on their credit report when they are trying to obtain credit elsewhere, like when purchasing a car or a new home.

In many cases, the debt buyer’s entry on the credit report is the only factor preventing you from obtaining credit. Debt buyers do this in the hopes that you will voluntarily make a payment on the debt in order to obtain the credit you need. This is a violation of the discharge and other state and federal laws. If a debt buyer is reporting discharged debt on your credit report, contact your bankruptcy attorney. You are not without a legal remedy and should aggressively protect your credit and your rights under the law.

Emmet Wilson, Waukegan, Illinois: A Typical Debt Buyer Scenario

Two years ago, Emmet, a production assistant for a local television news program, filed a Chapter 7 Bankruptcy to discharge his credit card debts. Since his Chapter 7 discharge, Emmet has been using his credit responsibly. He has been under the impression that his credit score has been steadily improving. Emmet decides that it is time to get rid of his 2004 Toyota Corolla, as it has finally hit the 75,000 mile mark. When he goes to the car dealership to purchase a new car, he is denied a loan because there is an outstanding $3,000 unpaid account reflected on his credit. The car salesman informs Emmet that if he pays off the debt, he will qualify for a loan. Emmet checks his credit report and sees that a company called Account Reconciliation Specialists has reported a past-due account on his credit report. In his Chapter 7 bankruptcy, Emmet discharged a $3,000 credit card debt payable to Mastercard. Emmet contacts Account Reconciliation Specialists and inquires as to the nature of the debt. They inform him that they will remove the negative report and close the account if he pays them $300. Instead of paying the money, Emmet contacts his bankruptcy attorney, who files an adversarial proceeding against Account Reconciliation Specialists for a violation of Emmet’s discharge, a violation of the Fair Debt Collection Practices Act, the Illinois Collection Agency Act, and the Illinois Consumer Fraud and Unfair Business Practices Act. Emmet has provable damages that he may collect on these facts and his attorney’s fees will be paid as well.

Other Collection Efforts

You would think that discharge violations are the exception, but they are not. Even inaccurate credit reporting that remains uncorrected after being disputed can be a discharge violation. In some cases, creditors are aware that their computers do not properly report discharged debt to the credit bureaus. Given that many people are unaware of their rights, these creditors will maintain a cash fund for paying out settlements to the few individuals who fight them because it is cheaper than fixing their software. Some creditors may continue to send you statements after your discharge. This may be a computer error, or it may be a purposeful attempt to collect a debt. In either case, it is a violation of your discharge. If you believe that a creditor is violating your bankruptcy discharge, contact your bankruptcy attorney.

Complaints about debt collectors have dramatically increased in recent years. Illinois Attorney General Lisa Madigan has reportedly seen a rise in aggressive and illegal collection techniques. For example, Attorney General Madigan filed a lawsuit against a debt collector called PN Financial in early 2012. [ii] The company is accused of trying to collect debts that it could not legally collect, revealing information about debts to employers and people’s family members, and for threatening borrowers with fake case numbers. Attorney General Madigan’s office received 52 complaints about PN Financial before filing suit. In 2010, the Federal Trade Commission received 140,036 complaints about debt collectors. [iii] Harassing borrowers and violating the law is a cottage industry in the United States.

Credit Score Recovery

Many people think that filing for bankruptcy will ruin their credit for the rest of their lives. This is 100% false. Although your bankruptcy filing will remain on your credit report for several years after your discharge, it is not the only factor that determines your credit score. After you receive your discharge, you will start to receive credit card offers from creditors. The cards are generally high-interest, annual fee, low-limit cards. Because the Bankruptcy Code prevents you from receiving back-to-back discharges, creditors know that offering you credit after your discharge is somewhat low risk. Essentially, credit card companies perceive you to be a better credit risk because you cannot get another discharge in bankruptcy for 4 years after a Chapter 13 discharge and if you filed a Chapter 7 Bankruptcy, you are precluded from filing for another 8 years. [iv] If you continue to run up large credit card debts after your discharge, you cannot discharge them before the creditor can sue you and obtain a judgment. A smart consumer will take advantage of this cynical attitude and use the offers of credit to his advantage by using the credit and paying it off on time with the goal of rebuilding credit. Practically speaking, it is often the best idea to avoid consumer credit as much as possible. Unless it is used for housing, education, or a vehicle that you can’t pay cash for, using consumer credit is almost always a bad investment.

One of the easiest ways to improve your credit score after receiving your discharge is to accept 1 credit card offer and use the card responsibly. Since most cards will have a very low limit, it’s difficult to get in too deep at first. However, if you are paying on time every month, many card providers will raise your credit limit without being asked. So long as you are keeping your balance low, and making more than the minimum payment each month, you will see your credit score rise in short order and dramatically. Do not be fooled by this. Creditors live off of lending and the interest payments it generates. The higher the limit and the more you use, the more the creditor makes. If have graduated out of the debt, never get pulled back in.

It is also important to monitor your credit reports. You are entitled to a free credit report each year, and it is a good idea to check it yearly. You can obtain a free credit report from AnnualCreditReport.com. You may discover that creditors are incorrectly reporting your discharged debts. If they are, you should dispute the trade line with the credit reporting bureaus. Make sure to attach a copy of your discharge order to your dispute letter. You should also notify the creditor of the inaccurate reporting. By providing notice to the reporting bureaus and the creditor, you are building a stronger case for yourself if you have to bring an action against the creditor in the future. If you are having difficulty disputing an inaccurate entry on your credit report, contact your attorney.

The three credit reporting bureaus can be contacted at the following numbers:

• Experian (800) 392-1122
• Equifax (800) 685-1111
• Trans Union (216) 779-7200

If you have other recurring debts, make sure that you prioritize your payments. If you have a credit card and a student loan, and you have extra cash you can use to pay down one debt or the other, pay the credit card first. Credit cards tend to have much higher interest rates than student loans, and paying down your revolving credit has a higher bang-for-your-buck factor than paying extra towards a student loan. This doesn’t mean that you should fail to pay your student loan. However, directing extra funds in a way that helps improve your credit score is always a good idea.

Choosing a Bankruptcy Attorney

If you have decided that filing for bankruptcy is right for you, you will want to carefully choose your bankruptcy attorney. Filing for bankruptcy can be stressful for many people; you want to select an attorney with whom you are comfortable and can trust. Some firms offer more access to your attorney than others. If you are thinking of filing a Chapter 13 bankruptcy, you may be working with your attorney for several years. Is the attorney a person you can work with? Is the attorney someone who will answer your questions and take some of the worry off of your shoulders? At large bankruptcy “mills,” you may only interact with paralegals and other office staff. If you are comfortable with that approach, make sure that you are aware of what services the office will provide for the fee that it charges. What a great firm offers may be very different.

This is particularly important because you should shop around for the attorney that is best for you. You may discover that the inexpensive bankruptcy attorney only wants to handle simple cases that do not require extra effort or work. Even more expensive attorneys will only include certain tasks in their initial retainer. Other work like adversarial proceedings or disputing a creditor’s proof of claim may require a separate retainer with either an hourly fee or a contingency fee. Knowing what you’re getting up front will allow you to make an informed decision when choosing the attorney that you want to hire.

You may also want to ask your friends and family if they know of a reputable attorney. Keep in mind that not every attorney is experienced in handling bankruptcy cases, and simply because someone is recommended by a person that you know does not mean that attorney is a good fit for a bankruptcy case. Even if you meet someone who is willing to learn about bankruptcy law in order to take your case, consider whether you want to be someone’s first case. If you have a case that is more complex than a simple no-asset Chapter 7 filing, you may want to hire an attorney who has some experience with bankruptcy law. Remember, more experienced does not necessarily mean more expensive.

The Initial Consultation – What to Expect

Assuming that you are meeting with an attorney who wants to help you make an informed decision about your financial future, you can expect the initial consultation to take approximately an hour of your time. Be prepared to candidly discuss your financial affairs with the attorney. If you don’t provide accurate information, the advice you receive may not be the best possible advice. Every case is different. Your attorney can only base his or her opinion on the information that you provide. The attorney’s experience also influences his or her opinion.

The attorney will want to collect some basic information about you to determine how you are financially situated. For instance, where you live, how much money you make, and the size of your family are all important pieces of information that can help determine your eligibility to file for a Chapter 7 bankruptcy. Although you likely will not need to provide documents to your attorney until you have signed a retainer and are ready to begin the process of assembling your bankruptcy petition, it may be helpful to bring copies of collection letters, pay stubs from the last six months, a copy of your most recent mortgage statement or car loan statement, and the summons for any lawsuits to which you are a party. This will give the attorney a broad view of your financial situation. Not every person who may file bankruptcy is financially distressed. An underwater home may be the event that triggers the bankruptcy filing.

If you own a property that is $80,000 underwater, meaning the mortgage exceeds the value of the property by $80,000, do you really own the property? A home that you owe $330,000 is not likely to recover in the next five years to even what you currently owe on it. If you pay $3,000 a month between principal, interest, taxes, insurance and maintenance payments, over a course of 5 years, you would have paid $180,000 on a property currently worth $250,000. Essentially, you are merely maintaining the property on behalf of the lender.

During the same period you likely would not have paid down the mortgage significantly, considering that the vast majority of your monthly mortgage payment is just interest. Economically speaking, housing has two purposes: shelter or investment. Shelter is much easier to come by than something with investment value. Value is the main theme of conversations we have with our clients regarding their goals. Start with identifying the value of assets you own. Once you establish value, use that value to guide your decisions.

The initial consultation is a time for you to explore your options, get to know the attorney, and determine whether bankruptcy can help you achieve your long-term goals. Before attending your consultation, spend some time thinking about your goals and where you want to be in a few years. If you feel pressured or rushed to sign a retainer, odds are that the attorney is not a good fit for you. Ask lots of questions. Great attorneys are hard to come by. You will know them by their ability to not only answer your thorniest questions, but also by their ability to answer the questions that you have not thought to ask. That is the definition of experience. Find out how many cases the attorney has handled. Ask whether the retainer covers court appearances beyond the creditor’s meeting and the plan confirmation hearing (if you are filing Chapter 13). Before you sign a retainer, make sure that all of your questions have been answered.