Consumer Advice

Written by Craig D. Robins, Esq.

Last Week Top Federal and State Officials Announced a Broad Crackdown on Mortgage Modification Scams 

It almost seems too good to be true. You respond to a fancy-looking ad promising to substantially reduce your monthly mortgage payment. All you have to do is pay a few thousand dollars up front to a mortgage modification company. If you fell for this you were probably scammed.

Homeowners who have fallen behind with their mortgage payments are in a very vulnerable position, desperate to find a way out of their financial predicament.  They become easy prey for scammers trying to take advantage of them.

A number of disreputable mortgage modification consultants have sprung up.  These illegitimate companies often have official-sounding names to make homeowners think that they are taking advantage of President Obama’s efforts to help borrowers modify or refinance their mortgages. See my post: “President Obama Announces Foreclosure Remedy”

Most Loan Modification Companies are Fraudulent

However, such operations are often fraudulent, and help is available for free from government-approved housing counselors. The loan modification companies usually charge excessive amounts of money for assistance that they promise but do not deliver.

“These predatory scams callously rob Americans of their savings and potentially their homes,” Treasury Secretary Timothy Geithner said last week. “We will shut down fraudulent companies more quickly than before. We will target companies that otherwise would have gone unnoticed under the radar.”

The Federal Trade Commission has sent warning letters to 71 companies it says were running suspicious advertisements and has filed five new civil cases to halt illegal loan modification scams. Attorney General Eric Holder says the FBI is investigating about 2,100 mortgage fraud cases.

Homeowners Are More Vulnerable During a Recession

Con artists will always take advantage of vulnerable people, and the recession has certainly created its share of vulnerable consumers who are barely coping with making their mortgage payments.

During most of the past decade the con artist du jour was frequently one who promised to reduce credit card debts, by making unsubstantiated promises that could not be kept. Today, the con artist du jour is often a “loan modification consultant” who makes unsubstantiated promises about lowering mortgage payments.

Over the past year, homeowners have been flooding state attorneys general with complaints about loan modification consultants. While some may be legitimate, authorities say many are con artists.

With Long Island and the nation facing a harsh real estate slump, many brokers and others who were in the real estate business are out of work. Some of the more unscrupulous ones have quickly become supposed loan modification experts, virtually overnight.

In my Long Island bankruptcy practice, I frequently represent homeowners in Chapter 13 bankruptcy cases who had been taken advantage of by a loan modification company prior to coming to my office. These clients usually tell me that they were promised the moon, but after they paid the loan modification company several thousand dollars, they hardly heard from them again.

Homeowners relying on the advice of a loan modification consultant must be extremely careful as they can end up losing their homes if they get so far behind that it becomes impossible to resolve the mortgage arrears.

Lenders Are to Blame for Part of the Problem

The Obama administration, during the past two months, in an effort to alleviate the nation’s mortgage crisis, urged mortgage companies to renegotiate loan payments, and many of them have offered to do so. However, this strategy is failing.

The unfortunate truth is that most mortgage lenders are not cooperating with providing loan modifications. I, myself, have long given up trying to help clients with mortgage modifications. Lenders simply will not take responsibility for cutting loan payments. Efforts to do so are frustrating and fruitless. It is very rare that a lender will agree to a loan modification.

As a result, using a loan modification firm often means paying several thousand dollars for them to make a simple phone call, to which the answer will predictably be “no.”

Thus, a large part of the problem is caused by uncooperative mortgage lenders who would rather foreclose on consumers’ homesw, than take responsibility for lowering interest rates, forgiving principal or reducing monthly payments.

On Long Island, Chapter 13 Bankruptcy is Often the Most Viable Solution

Homeowners have to be realistic about the slim prospects for successfully obtaining a loan modification. If the homeowner has fallen behind with their mortgage payments, a Chapter 13 payment plan bankruptcy will usually enable a family with sufficient income to stop foreclosure and pay back their arrears over a five year period.

What Else Should Consumers Do?

Homeowners should NEVER pay any up-front fees to loan modification companies and should avoid any high-pressure sales tactics. New York law provides that fees may only be collected AFTER services are completed.  However, this does not stop many scammers from trying to take your money in violation of the law.

Homeowners should first try talking to their lenders or a lawyer before contracting with any third-party company for rescue or modification services.

If a homeowner believes that he or she has been taken advantage of by a disreputable mortgage modification company, he or she should contact the New York State Attorney General’s Office.

When you have to fight off creditors who have just sued you, sometimes bankruptcy is your best option, rather than litigating

Writtten by Craig D. Robins, Esq.

When you owe a substantial amount on a credit card and fall many months behind, it is almost inevitable that the credit card company will sue you. Most suits are brought by local high-volume collection law firms on Long island that bring such lawsuits by the thousands.

Many of my Long Island bankruptcy clients tend to contact me for the first time right after they are sued, as they are uncertain about what to do.

The Credit Card Lawsuit

The suit is commenced when a process server personally serves you with papers called a “summons and complaint.” Sometimes the papers will be left at your door and mailed to you. Commencement of a lawsuit often prompts consumers to consider bankruptcy as the best way to deal with the lawsuit.

Should I Answer the Complaint?

New York law gives you 20 days to answer the complaint if it is served on you personally, or 30 days if it is left for you.

Once you are served, it is important to take action. If you do not do anything, the creditor will be entitled to get a default judgment against you.

If a creditor gets a judgment, it can freeze your bank account, garnish your wages and put a lien on any real estate that you own. The judgment can also be reported on your credit report as a public record, even if you later file for bankruptcy.

Answering the complaint involves filing a document with the court called an “answer” and serving a copy of it on the attorney for the creditor. In the answer you can dispute any of the allegations in the complaint. If you file an answer, the creditor cannot get a default judgment, but it will still proceed with the case and seek a judgment later on.

Sometimes filing an answer is the best way to get additional time to determine your best debt solution.

Filing for Bankruptcy as a Remedy

If you qualify for bankruptcy, the lawsuit will be immediately stopped by the filing of the bankruptcy petition.

If the creditor has already gotten a judgment, you can negotiate with the creditor for the payment of the judgment. Sometime it is possible to engage in debt negotiation and pay a very discounted amount.

 Even if the creditor obtains a judgment against you, it is just as dischargeable as the same debt prior to entry of judgment. However, the judgment can be reported on your credit report.

Also, if the creditor obtains a lien against your real estate, the bankruptcy will not, by itself, remove the judgment lien. In many cases, however, you can bring a special motion in the bankruptcy proceeding to remove the judgment lien.

Will Bankruptcy Stop Wage Garnishments and Frozen Bank Accounts?

Yes. As soon as a bankruptcy petition is filed, wage garnishments will come to a halt and frozen bank accounts can be unfrozen.

Is Bankruptcy the Best Debt Solution?

The decision to file bankruptcy should be based on an overall assessment of your entire financial situation, after analyzing all of your debts and assets. This is best done by a qualified bankruptcy attorney. Other debt relief options include debt negotiation.

Written by Craig D. Robins, Esq.

There is a cure for handling medical debt

The three most common reason consumers file for bankruptcy on Long Island are divorce, loss of a job, and illness.

Un-reimbursed medical debts caused by serious health issues can be overwhelming. Even the medical insurance co-pays can become incredibly costly. And many Long Islanders do not even have sufficient health insurance.

The financial burden of health care on Long Island can definitely challenge your finances. Fortunately, consumers have some options.

Working Out a Payment Arrangement with the Hospital

Many hospitals have special payment arrangements for qualifying low-income individuals. In some cases, hospitals may even consider waiving some of the bill. Hospitals will often give special reductions to anyone who is below 300% of the federal poverty level.

Charitable Hospitals Often Have Special Programs

Many hospitals on Long Island are affiliated with charities. These nonprofit religious and charity-oriented hospitals have special care programs that pick up all or part of the cost of care for indigent or special needs families. Sometimes all it takes is simple phone call to the hospital administrator to find out about these programs.

Negotiating Medical Debt

 Law firms such as ours that specialize in debt relief can negotiate on your behalf to reduce the balance. Frequently, you can reduce medical debts substantially.

Eliminating Medical Debt with Bankruptcy

Even when medical insurance covers most medical expenses, the loss of income from dealing with family illness can strain a person’s finances. When you or a loved one have suffered from an illness, that has left you with medical bills, doctor bills, hospital charges, or any other type of medical debt, you often have the option to resolve those bills in bankruptcy.

Depending on whether you file a Chapter 7 bankruptcy or Chapter 13 bankruptcy, medical bills can either eliminated or reduced to pennies on the dollar.

In bankruptcy proceedings, medical debt is the same type of unsecured debt as credit card debt. For those who are eligible to file for Chapter 7 bankruptcy, all unsecured debt can be totally eliminated.

In those cases where Chapter 7 is not a possibility, Chapter 13 Bankruptcy often forces unsecured creditors like medical providers, hospitals, and doctors to accept pennies on the dollar.

Last month, I wrote a post about a new bill that was introduced into Congress which is designed to provide a special safety net for individuals who are in a financial crisis due to a personal or family medical debts.   See my post about the Medical Bankruptcy Fairness Act.

Don’t Ignore Medical Bills

Medical debt is still debt that doctors and hospitals will aggressively seek to collect by suing you. If you ignore medical bills, then it is often a question of time before you will be sued.

However, just like there are cures for illness, there are cures for overwhelming medical debt. Our Long Island bankruptcy lawyers and debt negotiation attorneys help many Long Islanders resolve their medical debts.

If you have hospital bills, medical bills, doctor bills, medical collections, or any other debt problems, don’t wait until you lose everything before you get financial help. Feel free to contact our office for a free consultation.

Writtten by Craig D. Robins, Esq.

It’s a great idea to review your credit report on a regular basis. As a result of federal legislation several years ago, consumers can get a copy of their credit report for free.

CREDIT REPORTS. A credit report contains information about your consumer finance creditors, how you pay your bills, where you live, and whether there may be judgments against you. All credit reports are prepared by three national credit reporting bureaus — Equifax, Experian, and TransUnion.

GETTING A REPORT FROM US. We regularly obtain copies of credit reports for our Long Island bankruptcy clients. However, the reports we obtain are different than the reports that you can get for free. When we order a report, we can usually get it in a matter of minutes. The report that we get is a “three bureau merged report” consisting of all information from each of the three credit reporting bureaus — Equifax, Experian, and TransUnion. When we order a report for you, it becomes automatically linked to our bankruptcy petition computer program and makes preparing your petition quicker, more efficient and error-free. However, we have to pass on the cost of getting this report.

GETTING A REPORT FOR FREE. You can also get free individual reports. The Federal Credit Reporting Act (FRCA) requires each of the nationwide consumer reporting companies — Equifax, Experian, and TransUnion — to provide you with a free copy of your credit report, at your request, once every 12 months. To order your free annual report from one or all national consumer reporting companies, do one of the following:

1.  Visit www.annualcreditreport.com

2.  Call toll-free 877-322-8228; or

3.  Complete an Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P. O. Box 105281, Atlanta, GA 30348-5281. The form can be obtained from ftc.gov/ credit.

Written by Craig D. Robins, Esq.

Hyundai says buy one of our cars  —  If you lose your job you can return the new car

 Hyundai has a new “Assurance Program” that seems to be taking car buyers by storm.

Under the program that began last month, Hyundai allows buyers who lose their income to return their new car to the dealership they bought it from and walk away from the payment with no penalty, no obligation to pay the depreciation costs, and no hit to their credit report.

As a result of the Assurance Program, Hyundai was essentially the only major automaker to report a sales increase in January, when nearly all of its rivals reported huge losses.

Now Hyundai is now taking its Assurance Program to the next level with the “Hyundai Assurance Plus Program.” The Plus means that owners who suffer a disability or lose their job will get payment relief for 90 days or three car payments. The rest of the deal still applies – after 90 days, buyers can decide to return the car at no penalty, or resume making payments.

There are, of course, a few stipulations. Hyundai will assume a maximum liability of $7,500, and you have to make at least two payments before filing a claim. The cap is meant to keep people from returning damaged cars or ones with tens of thousands of miles on them.”

The Plus program will run through the end of April, while the larger Assurance program continues through the end of 2009.

I am not necessarily endorsing Hyundai cars, but can’t help but comment that many Long Island consumers facing potential layoffs later this year might benefit by having this extra degree of financial flexability.

Even without a program such as this, a consumer who files for Chapter 7 bankruptcy on Long Island can generally surrender any vehicle and discharge their obligation on the car loan or lease.

Written by Craig D. Robins, Esq.

“But will I ever be able to get credit again?” This is one of the most frequently asked questions that my consumer bankruptcy clients ask me. Even though most of them realize that they have no other alternative but to commence a bankruptcy proceeding to eliminate their debts, it is ironic that so many of them are overly concerned about the possibility of losing their beloved credit cards, especially when easy credit may have contributed to their financial problems. Some potential debtors don’t even consider bankruptcy because they are so worried that it will cause irreparable damage to their credit ratings. This is the myth frequently advanced by lenders and credit card companies who try to discourage bankruptcy. Having good credit has become entrenched as part of the American Dream.

Meanwhile, in an unusual twist, the credit industry’s behavior towards consumers emerging from bankruptcy has changed dramatically. Recent debtors are now very actively solicited for credit card accounts.

Although a recent bankruptcy is generally considered a negative factor by lenders, most debtors will have a much easier time than ever before getting their credit back. There are also many steps a debtor can take to rebuild, rehabilitate and re-establish credit. Most debtors can probably rebuild their credit to the point that they can obtain a major credit card very quickly. Frequently, debtors can simply open their mail shortly after receiving their discharge to discover a handful of credit card offers. Nevertheless, debtors can accelerate the road to economic credibility by understanding the credit system and by taking certain positive steps to increase their credit ratings.

This month I will explore the myths and realities of the effect of filing a bankruptcy on consumer credit. In a future article I will discuss actual steps a debtor emerging from bankruptcy can take to reestablish credit.

Creditors Disseminate Negative Bankruptcy Propaganda. Obviously, it is not in a creditor’s best interest to condone bankruptcy. Therefore, they are notorious for advancing negative publicity about it. This is usually done in the collection stage, through letters and through bill collectors. The creditor will try to lead the debtor to believe that bankruptcy will destroy chances for credit for ten years or more (“the ten-year mistake”), that the debtor will be highly embarrassed, and that bankruptcy will act as an automatic rubber stamp of credit denial. (Ten years is the maximum length of time that a bankruptcy can appear on a credit report pursuant to the Federal Fair Debt Reporting Act.) However, these are only myths and they are usually far from the truth. Being denied credit after bankruptcy occurs much less frequently than credit card companies would suggest.

In addition, the entire credit industry harped on Congress for eight years espousing so many negative connotations about bankruptcy that it ultimately succeeded in persuading Congress to change the bankruptcy laws in 2005.

The Credit Rating Concept. Credit is in the eyes of the beholder. Each lending company has their own policies and criteria for determining which applicants deserve credit status. Large lenders usually establish their own highly individualized and computerized rating systems where numerical values are assigned to particular characteristics. Achieving a “passing score” means being eligible for credit. Smaller creditors such as gasoline companies and department stores may evaluate credit applications more subjectively.

Creditors place positive values on steady employment, a history of making timely payments for purchases on credit, maintaining a certain level of income, maintaining savings and checking accounts, owning a home, and demonstrating an ability to pay. Negative values are assessed for delinquent payments, charge-offs, bankruptcies, judgments, lack of bank accounts, and large amounts of existing debt. Most creditors look more to an applicant’s current income situation, and its stability, than anything else.

Recent Study Shows that Debtors Do Get New Credit. Conventional wisdom espoused by creditors would lead the public to believe that bankruptcy is a ten-year mistake. However, a very elaborate study released over the summer in a white paper by Katherine Porter, a professor of law at the University of Iowa, entitled “Bankrupt Profits: the Credit Industry’s Business Model for Post-Bankruptcy Lending,” reveals that credit card companies actively seek out and solicit debtors emerging from bankruptcy as they are lucrative targets for additional business.

The study found this position most ironic as the credit industry persuaded Congress to pass a stricter set of bankruptcy laws, claiming that bankruptcy debtors were prodigal spenders who engaged in irresponsible financial activity. They also argued that debtors lacked the moral conviction to repay their debts and that by resorting to bankruptcy, they were taking the easy way out. It was this focus on debtor behavior that led to bankruptcy reform.

The study showed that while the credit card industry labeled those filing bankruptcy as deadbeats, the same creditors repeatedly solicited debtors after bankruptcy. They found that most families emerging from bankruptcy receive dozens of offers for new credit in each month immediately after receiving their discharge. Some debtors have even reported being overwhelmed after bankruptcy with a variety of credit solicitations from many sources. This widespread effort of luring recent debtors into new borrowing relationships stands in stark contrast to the credit industry’s negative portrayal of these consumers as irresponsible and immoral.

The ultimate conclusion of the researchers was that the vast opportunities to borrow after bankruptcy belied the credit industry’s assertions about the immoral behavior of bankruptcy debtors. This suggests that the credit industry takes one view of bankruptcy debtors to Congress, the media and public, but literally “banks” on a different view of bankruptcy debtors. Thus, based on the conduct of the credit industry, bankruptcy debtors are not so bad after all.

Debtors Should Review and Correct Credit Reports. The first thing lenders look at is an applicant’s credit report. Credit files are maintained by three major credit bureaus — Experian, Equifax and TransUnion. Under the Federal Fair Debt Reporting Act, a bankruptcy can be reported for up to ten years, and derogatory information, such as payment delinquencies, can be reported for up to seven years. Any incorrect or outdated information can be challenged by writing a simple letter to the credit bureau.

Most “Credit Repair” Clinics Are Shams. Most “credit repair” outfits or “credit fix-it” companies engage in illegal and improper practices. Debtors should not hire these companies. Even if they are legitimate, these companies cannot do anything for the debtor that the debtor cannot simply do for himself or herself. Anyone can remove incorrect information. Nobody can remove negative, but correct information that is timely. Even legitimate credit repair companies are notorious for charging unconscionably high fees for their services.

One illegal tactic of credit repair clinics is to take advantage of the provision of the Federal Fair Credit Reporting Act which requires credit bureaus to verify disputed information within 30 days or remove it. The credit repair company hopes that the credit reporting bureau will not be able to validate the disputed information in time. However, even if a credit bureau removes such information, it will very quickly reappear, once it is verified.

Credit repair clinics also seek to charge hundreds of dollars for providing debtors with applications for secured credit cards, which the debtors can get for free on their own. Another unscrupulous tactic is to offer a “money-back” guarantee. Such claims are simply a way for a company to get the consumer’s money and then go out of business before the victimized consumer can get a refund.

In New York, all credit repair clinics are governed by General Business Law Section 458-d, which requires the clinics to inform debtors of their rights under the Fair Credit Reporting Act, be bonded, accurately represent what they can and cannot do, and let debtors cancel the contract until midnight of the third day after signing a contract. The statute also states that credit repair clinics cannot collect any money until all promised services are preformed.

Conclusion. The tremendous number of bankruptcy filings is causing a growing number of creditors to re-evaluate their criteria for granting credit. Thus, the current trend is for creditors to be more realistic and open-minded about extending credit to debtors who have emerged from bankruptcy as they see these consumers as a great source of future business and profit. Also, as the truth about life after bankruptcy becomes more widely known, the deterrent value of the “ten year mistake” propaganda advertising campaign instituted by creditors will weaken.

About the Author.  Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appear in the September 2007 of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Medford, Commack, Woodbury and Valley Stream. (516) 496-0800. For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.