Consumer Debt Advocacy

Consumer Debt Advocacy

Consumer debt is composed of student loans, credit card debt and home mortgages. Credit card debt totaled $7,800 per credit card holder in 2010. In that year, student loan debt surpassed credit card debt and represents a third wave of default in this country after the home mortgage crisis.Each of those areas of debt present different legal and social issues. Effective advocacy requires that an attorney be familiar with all the practice areas, as consumer debt is seldom limited to one area. Individuals who cannot make ends meet due to a high mortgage often rely on credit cards to see them through, thereby adding debt upon debt.Individuals with student loans often find themselves unable to meet all their obligations and having to choose which debts to default on.

1. BANKRUPTCY

The purposes of bankruptcy are two-fold: a fresh start for the debtor and equity among creditors. “The central purpose of the Code is to provide a procedure by which certain insolvent debtors can reorder their affairs, make peace with their creditors, and enjoy ‘a new opportunity in life with a clear field for future effort, unhampered by the pressure and discouragement of pre-existing debt.’”

CHAPTER 7 BANKRUPTCY FILING

• Favors consumer debtors in most cases, because there are typically few assets to be distributed, equitably or otherwise, to the creditors involved.• There is an income limit.• There is no debt limit: All secured and unsecured debt may be discharged.

CHAPTER 13 BANKRUPTCY FILING

•  There is a debt limit.•  There is no income limit.•  The debtor must commit to a 3 to 5 year repayment plan. In practice, debtors tend to pay a fraction of their debt.•  You can protect non-exempt assets.

2. DEBT COLLECTION DEFENSE

a. Dispute debts. Good record keeping on behalf of the client is central to these efforts. Demand an accounting or verification of the debt and match it to the client’s records.b. Defend against law suits and garnishment efforts

i. Check the statute of limitations.

ii. FAIR DEBT COLLECTION PRACTICES ACT (FDCPA), 15 U.S.C. § 1692 et seq., is a statute added in 1978 as Title VIII of the Consumer Credit Protection Act. Its purposes are to eliminate abusive practices in the collection of consumer debts, to promote fair debt collection, and to provide consumers with an avenue for disputing and obtaining validation of debt information in order to ensure the information’s accuracy. The Act creates guidelines under which debt collectors may conduct business, defines rights of consumers involved with debt collectors, and prescribes penalties and remedies for violations of the Act.

iii. FAIR CREDIT REPORTING ACT codified at 15 U.S.C. § 1681 et seq. Regulates the collection, dissemination, and use of consumer information, including consumer credit information. Under § 616 of the Act, (15 U.S.C. § 1681n), a consumer may recover either actual damages or a minimum of $100 and a maximum of $1000 plus punitive damages and reasonable attorney’s fees and costs for willful noncompliance with the Act. Under § 617 of the Act, (15 U.S.C. § 1681o), recovery for a negligent violation is of actual damages, plus attorney’s fees. Under § 618, a consumer may file suit in state or federal court to enforce the Act, and the statute of limitations is the earlier of 2 years from discovery and 5 years from the violation. (15 U.S.C. § 1681p.)

iv. Consumer Protection Act. Designed to keep the market free of unfair and deceptive business practices.

3. DEBT SETTLEMENT

• Negotiate payment settlement with creditors. Debts must generally be in default before a creditor will settle them for a lump sum payment. Settlements can be as favorable as ten cents on the dollar. Credit unions will rarely settle debts for less than the full value of the loan.

4. DEBT SETTLEMENT SCAMS

a. Credit Card Debt Settlement Scams:Protection under the Debt Adjusting Act.A debt adjusting agency under Washington State law subject to the provisions of Revised Code of Washington. Section 18.28 defines “debt adjusting” as “the managing, counseling, settling, adjusting, prorating, or liquidating of the indebtedness of a debtor, or receiving funds for the purpose of distributing said funds among creditors in payment or partial payment of obligations of a debtor.” RCW § 18.28.010(1). A debt adjuster or debt adjusting agency is any person or business that engages in the business of debt adjusting for compensation.There are fee limitations for the provision of debt adjusting services. The Washington Supreme Court has recently ruled that an entity that provides debt adjusting services may not charge more than fifteen percent of any one payment made by or on behalf of the debtor. Carlsen v. Global Client Solutions, LLC, 171 Wn.2d 486, 499 (2011). The Court held that fee limits apply when the entity is either a debt adjuster or providing debt adjusting services.Exemption: “Solely incidental to the practice of Law.”Relief Offered: Any violation of the Debt Adjusting Act entitles the consumer to the disgorgement of all fees paid. Protection under the FTC’s Telemarketing Sales Rule. That rule prohibits companies from making misrepresentations about any product or service, including claims about financial products or services. The statute also requires that companies have competent and reliable evidence to back up key claims about their financial products or services.There are two main areas where the debt settlement company is vulnerable to the Telemarketing Sales Rule. First, their business model is generally flawed. Debt settlement companies typically order a consumer’s debt from greatest to lowest debt owed, but then pay the creditor who is owed the least first. This approach is inherently flawed as the creditor with the greatest amount of debt is the one most likely to sue on that debt. Further, the debtor will be told to ignore notices of pending litigation or even summons and complaints: the debt settlement company will handle it. They do not.The second problem with a debt settlement company’s business model is that they often claim that the debtor will be represented by an attorney. In fact no attorneys involved, or if they are, they merely “review” the file. When legal action does occur, the company will inform the debtor that they cannot represent them.b. Home Loan Modification Rip-Offs: Protection under the FTC’s MARS rule and other regulations. The MARS Rule requires that Attorneys must place money in trust fund and bill against. Others may only be paid after modification is achieved.5. FORECLOSURE ADVICE AND DEFENSEa. Foreclosure Advice Short Sales. The lender allows a property to be sold for less than the amount owed on a mortgage and takes a loss. This usually occurs when the market drops and the property is worth less than what the current mortgage is. There are three important aspects to a short sale that must be accounted for: it takes about three months to conclude; there is substantial damage to the debtor’s credit, and; there are tax or deficiency issues that must be accounted for. If the lender “writes off” the deficiency, there are tax implications. If the lender does not write it off, then the lender can seek a deficiency judgment. Trustee Sales: means “a nonjudicial sale under a deed of trust undertaken pursuant to” the Deeds of Trust Act RCW 61.24. The Act provides that the first lien holder’s claim is satisfied by the sale of the property. Specifically, the Act states that:Except to the extent permitted in this section for deeds of trust securing commercial loans, a deficiency judgment shall not be obtained on the obligations secured by a deed of trust against any borrower, grantor, or guarantor after a trustee’s sale under that deed of trust.RCW 61.24.100 (1). Accordingly, if a debtor only has a first mortgage on their primary residence, and they do not wish to retain the property, then they should allow it to go into foreclosure. That process takes on average 19 to 23 months from the time of default. During that time, the debtor will benefit from not having to pay a mortgage.However, if there is a second mortgage then bankruptcy or debt settlement (if the debtor has money for a lump sum payment) should be considered.b. Foreclosure DefenseGenerally involves claims based on statute of frauds, RESPA, TILA, breach of contract, and Fraud.

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