Bankruptcy and Bill Collectors
Bankruptcy protection is made available to consumers who can’t pay their creditors or debts to help resolve the debt burden. One of the major benefits of filing for protection under Chapter 7 is that many creditor actions are stayed or brought to a standstill. This means that any debt collection efforts and foreclosure procedures are halted.
Once a creditor or bill collector has been notified that a consumer has filed for bankruptcy protection, the bill collector or collection agency must stop all efforts to collect the debt. There are certain and limited exceptions to that rule.
In a bankruptcy filing, the consumer or legal representative has to file a petition to the court and ask to discharge the debts. After the bankruptcy petition is filed, the court mails a notice to all the creditors listed in the schedule of creditors supplied to the court. The bankruptcy clerk gives notice of the bankruptcy case to all creditors whose names and addresses are provided by the debtor. The process may take up to several days.
The stay or postponement of collection efforts arises by operation of law and requires no judicial action. If a creditor or collection agency continues to use collection tactics once informed of the bankruptcy they may be liable for court sanctions and attorney fees for their conduct. As long as the stay is in effect, creditors generally may not initiate or continue lawsuits, wage garnishments, or even telephone calls demanding payments.
Bankruptcy law is generally established to protect debtors who are in debt beyond their ability to repay the debt are a given an opportunity for a fresh start through the discharge of debts in a bankruptcy proceeding. Each state has its own bankruptcy laws, so you need to check with your state for details.
There are two basic types of consumer bankruptcy proceedings. Under a Chapter 7 bankruptcy filing, the petition to the court is a request to discharge all debts while a Chapter 13 bankruptcy filing, the petition is to pay off some of the debts over a period of three to five years.
The information is provided for general information purposes only and is not intended to be a legal opinion nor legal advice nor is it intended to be a complete discussion of all the issues related to the area of consumer bankruptcy.
Importance of Credit Scores Underscored with FTC Congressional Subcommittee Testimony
Credit scores have become increasingly important in our lives, whether we like it or not and their importance and impact is almost certainly going to expand not diminish.
The Federal Trade Commission just recently presented a report to the U.S. House Subcommittee on Financial Institutions and Consumer Credit of the Committee on Financial Services regarding actions by the FTC that cover the accuracy of consumers’ credit reports, preventing identity theft, and giving consumers a better understanding of their credit scores and what they mean. A press release provided by the FTC stated that, “Because credit scores are important to understanding the rates consumers pay for credit cards, mortgages, auto loans, and insurance, Congress wrote into the FACT Act a consumer’s right to purchase a credit score, and a requirement that certain mortgage lenders provide a free score to home loan applicants.”
The prepared testimony covered actions taken by the FTC that included the agency’s completion of rule making to ensure that consumers have access to free annual credit reports and understand that right; a rule making to enhance consumers’ rights to dispute errors in their credit reports by the credit reporting agencies and the furnishers of the data; and a study on the use of credit scores regarding pricing of policies in the automobile insurance industry.
The foundation for the testimony is grounded in The FACT Act which amended the FCRA. The FACT Act and the FCRA is the federal law that governs the operation of the nation’s consumer reporting system. The FCRA was instituted to regulate the practices of consumer reporting agencies and the furnishers of the data to the consumer reporting agencies as well as the users of the credit reports prepared by the consumer reporting agencies for activities such as extending credit. The FTC is the primary government agency responsible for enforcing and monitor activity associated with The Fact Act and FCRA which means the FTC is the primary agency governing credit reports and credit scores.
An interesting note in the testimony covers the FTC’s understanding of the importance of credit utilization figures in calculating credit scores. For example, the guidelines state that when furnishers report an outstanding balance on a credit account, they should also report the consumer’s credit limit. This is because the failure to include a credit limit can cause credit evaluators to inaccurately estimate how much available credit a consumer is using, which is an important factor in assessing creditworthiness.
As part of the report The Commission noted that, “with sufficient knowledge about the score and what it means, consumers may use that information as a valuable shopping
tool.”
The conclusion from this report is that the FTC is watching the credit score market to ensure that the market remains fair and competitive and will continue to be a vital part of our lives.
Fed Announces Rule Changes for Marketing Free Credit Reports
The confusion over the marketing of free credit reports by companies that require a subscription to a credit monitoring service or other related products and services to receive the free credit report has resulted in intervention by the Federal Trade Commission.
Numerous consumers have seen advertisements touting free credit reports. Most of these advertisements have small disclaimer that explain that there is a requirement that the consumer sign up for a credit monitoring service or similar service that has a monthly charge in order to receive the free credit report(s).
The primary reason why there is a cost to the consumer over this confusion is that there has been no change regarding a consumer’s ability to receive a free credit report annually from each of the big three credit reporting agencies. Federal law mandated that the big three credit reporting agencies make available one credit report per year, with the no-strings-attached.
With the passage of the 2003 Fair and Accurate Credit Transaction Act (FACTA), all U.S consumers are entitled to one free credit report from each of the three major credit reporting agencies, Equifax, Experian and TransUnion upon request every 12 months. The credit reports are available by mail or at AnnualCreditReport.com or by calling 877-322-8228.
A new rule established by the FTC is designed to restrict procedures and actions that might confuse or mislead consumers as they try to get their federally mandated free annual credit reports and end up paying for an unnecessary service.
The FTC press release regarding the new rule changes states that, starting April 1, advertising for “free credit reports” will require new disclosures to help consumers avoid confusing “free” offers – which often require consumers to spend money on credit monitoring or other products or services.
The Federal Trade Commission’s Free Credit Reports Rule will require prominent disclosures in advertisements for “free credit reports.” The FTC example states that any Web site offering free credit reports must include a disclosure, across the top of each page that mentions free credit reports. The notice will read:
THIS NOTICE IS REQUIRED BY LAW. Read more at FTC.GOV.
You have the right to a free credit report from AnnualCreditReport.com
or 877-322-8228, the ONLY authorized source under federal law.
The Web site must also include a link to AnnualCreditReport.com and FTC.GOV.
The amended rule established by the FTC becomes effective April 1, 2010, except in the case of television and radio advertisements, in which the new rules will take effect on September 1, 2010.
Credit Repair Scams Halted by FTC
In October, 2008 the Federal Trade Commission sent out a press release regarding charges brought against another credit repair scam operation. Credit report repair services that offer to repair credit for consumers have popped up across the nation. Unfortunately, many of these organizations fail to help consumers and in some egregious cases, violate the law by taking money in advance and deceiving consumers regarding the services they perform to improve credit histories and credit scores.
In October, the FTC announced that two bogus credit repair companies and their principals settled Federal Trade Commission charges that they falsely claimed they could clean up consumers’ credit reports and collected up-front fees for their services, in violation of federal law. In one case, the FTC alleged that the defendants marketed their services via Web sites and real estate investment seminars and falsely claimed that their special relationships with creditors, collection companies, public records providers and credit bureaus enabled them to remove derogatory information from consumers’ credit reports.
According to the FTC’s complaints, all of these defendants falsely promised to remove negative information from consumers’ credit reports, such as late payments, charge-offs, collections, tax liens, repossessions, bankruptcies, and judgments, even when the information was accurate and not obsolete, in violation of the FTC Act and the Credit Repair Organizations Act (CROA). The Commission also charged them with violating the CROA by charging and collecting payment for their services before doing any work.
In the first case, Successful Credit Service Corporation, also doing business as Success Credit Services, and Tracy Ballard, also known as Tracy Ballard-Straughn, the settlement order prohibits them from collecting additional money from consumers who purchased their services before October 16, 2008, when the court halted their business practices.
The defendants in the second case are Rudolph Joseph Strobel, a/k/a Lee Harrison, and Leanna Ruth Harrison, both doing business as Lee Harrison Credit Restoration, Credit Restoration, and Lee Harrison Associates Credit Restoration. The order bars them from collecting money from consumers who purchased their services before August 28, 2008, when the court halted their business practices, and requires them to return any money orders or other negotiable instruments received after that date.
Understanding your credit situation and the facts on how to clear up credit problems and improve a credit score is the first step to solving credit problems. Rushing into a quick fix scheme can often lead to less than satisfactory results. Know that facts before working with a credit repair organization to help your credit score.
More News on Spreading Credit Repair and Assistance Scams
Credit repair scams and mortgage assistance scams is growing problem for individual and the federal regulatory authorities. The best way for individuals to tackle credit repair scams is to report misconduct including any promises or demands that are not legal credit repair practices to the appropriate authorities.
The FTC enforces credit report and credit repair regulations but it does not investigate individual claims against a company, however they will investigate a company for legal violations. The Federal Trade Commission ( FTC ) files a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the FTC that a proceeding is in the public interest.
If any company charges for free credit evaluations or consultations, or charges for credit repair services that were never received, they should be reported so appropriate action can be taken to put an end to fraudulent and deceptive credit businesses.
In a recent press release by the FTC action was taken to stop the practices of a credit counseling business. Crossland Credit Consulting Corp. and its co-defendants allegedly operated deceptive mortgage refinancing, credit repair, and loan modification schemes.
According to the FTC complaint, the company and defendants falsely promised to use proceeds from mortgage refinances to promptly pay off consumers’ original loans, but often pocketed the money instead. They misrepresented that they would repair consumers’ credit records by removing truthful negative items from their credit reports so they could obtain mortgage loans, and charged advance fees for those services in violation of both the Credit Repair Organizations Act and the Telemarketing Sales Rule. They also falsely claimed that they would modify consumers’ mortgages to obtain substantially lower interest rates and monthly payments. The court immediately barred the practices and froze the defendants’ assets pending a hearing.
Consumers should be careful when any company wants money up front for their services. Credit repair scams have become recognized for their abusive practices in taking money up front from consumers with promises of credit report and credit score assistance and disappearing with the funds without improving the consumers credit history or credit score. This problem now applies to mortgage assistance and foreclosure assistance services.
The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. In each case of wrongdoing, the FTC is asking the court to stop the defendants’ deceptive claims and make them forfeit their ill-gotten gains.
Another Debt Collection Scam Comes to an End
This is yet another news item on a settlement with the Federal Trade Commission ( FTC ) regarding deceptive and or fraudulent collection practices by a debt collector. This settlement from a debt collection agency was sizeable. In this case, the settlement outcome included leaving the FTC with $1.6 million in recovered funds to distribute to thousands of consumers who were scammed into paying money they did not owe by con artists who threatened, harassed and lied to them. Collection agencies may not harass consumers, lie, or use unfair practices when they try to collect a debt.
Abusive collection actions are illegal, and if debt collectors use abusive tactics they could face legal action. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices as they may apply to debt collectors.
According to an FTC press release, the FTC sued three companies, operating under the name National Check Control, charging them with harassing and abusing consumers, falsely threatening criminal prosecution, illegally communicating with third parties, collecting amounts that were not due, and other violations of federal laws. In 2005, the court ordered a permanent halt to their operations and ordered them to pay redress to the consumers they had bilked. The defendants in the case subsequently unsuccessfully appealed the case to the Third Circuit Court of Appeals and the Supreme Court.
On February 7, 2008, one day after the appeals court refused to reconsider his appeal, one of the defendants removed from a bank safe deposit box coins valued at $335,000 that the federal court had ordered to be turned over to the FTC for consumer redress. A federal jury convicted him of two felony counts – theft of government property and obstruction of justice. In October 2009, he was sentenced to 41 months in federal prison and is currently serving his sentence.
The FTC recovered a total of $1.6 million for consumer redress. The funds will be distributed to 24,916 consumers who each lost $100 or more as the result of the defendants’ illegal actions. The consumers have been identified based on records obtained in the case. Consumers are scheduled to begin receiving checks in February 2010.
The Commission also has recently been taking more actions against the individuals, and not just the companies, responsible for illegal collection practices.
The FTC enforces illegal debt collection practices as well as those involving credit repair services and credit report issues.