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.
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.
Debt Collection News - Debt Collection Supervisors Settle FTC Charges
The Federal Trade Commission administer a wide variety of consumer protection laws, engages in law enforcement, and develops policy and research tools to prohibit unfair and deceptive acts or practices against consumers including actions that involve credit reporting agencies, credit repair services and debt collection activities.
The FTC produces press releases on action taken against businesses and individuals that fall under the jurisdiction of the FTC.
This is a recent press release on action taken by the FTC regarding unfair and deceptive practices regarding debt collections.
Concluding a case that drew the largest civil penalty ever imposed on a debt collection business, the Federal Trade Commission settled with the two remaining individual defendants who allegedly misled, threatened, and harassed consumers; disclosed their debts to third parties; and deposited postdated checks early, in violation of federal law. The settlement order requires each of these senior managers to pay a civil penalty and bars them from future violations.
“The FTC wants to remind debt collectors of their responsibilities and obligations under the law. Abusive collection actions are illegal, and if debt collectors use abusive tactics they could face legal action,” said David Vladeck, Director of the FTC’s Bureau of Consumer Protection. “At the same time, we want consumers to understand their rights if their debts go into collection. Money matters, and the more people know about managing their debt and dealing with debt collectors, the better off they will be.”
According to the FTC’s complaint, filed by the Department of Justice on the FTC’s behalf, the defendants participated in, or controlled, the actions of debt collectors whose unlawful practices included false or deceptive threats of garnishment, arrest, and legal action; improper calls to consumers; frequent, harassing, threatening, and abusive calls; and unfair and unauthorized withdrawals from consumers’ bank accounts. The complaint also alleged that the defendants failed to adequately investigate consumer complaints or discipline collectors, and collectors who were terminated for violating the Fair Debt Collection Practices Act (FDCPA) often were rehired within a few months.
In 2008, Academy Collection Service, Inc. and its owner, Keith Dickstein, paid $2.25 million to settle FTC charges that Academy collectors violated the FTC Act and the FDCPA while collecting debts, and that Dickstein failed to stop the violations. The settlement order announced today, negotiated by DOJ and the FTC, imposed civil penalties of $375,000 and $300,000, respectively, on Albert S. Bastian and Edward Hurt, who oversaw Academy’s Las Vegas collection center. The judgments were suspended upon payment of $7,500 each, based on their ability to pay. The full judgments will become due immediately if the defendants are found to have misrepresented their financial condition.
The order bars Bastian and Hurt from making false, deceptive, or misleading representations in debt collection efforts, such as that nonpayment will result in garnishment of wages, seizure of property, or lawsuits, or that they or their agents are attorneys. They also are prohibited from withdrawing money from consumers’ bank accounts without their express informed consent, and from depositing or threatening to deposit postdated checks before the date on the check. In addition, the pair are barred from improperly communicating with third parties about a debt; communicating with a consumer at any unusual time or place; and harassing, oppressing, or abusing any person in connection with debt collection.
The Commission vote to authorize DOJ to file the consent decree was 4-0. The consent decree was entered in the U.S. District Court for the District of Nevada. This consent decree is for settlement purposes only and does not constitute an admission by these defendants of a law violation. A consent decree is subject to court approval and has the force of law when signed by a judge.
The Federal Credit Repair Organizations Act – Full Text
The Federal Credit Repair Organizations Act prohibits a variety of false and misleading statements, as well as fraud by credit repair organizations. The Federal Trade Commission as well as the individual states, enforces The Federal Credit Repair Organizations Act.
The Federal Trade Commission’s Bureau of Consumer Protection works for the consumer to prevent fraud, deception, and unfair business practices in the marketplace. This federal government department protects consumers from deceptive and unfair practices in the financial services industry, including protecting consumers from predatory or discriminatory lending practices, as well as deceptive or unfair loan servicing, debt collection, and credit counseling or other debt assistance practices. The Division of Financial Practices within the Federal Trade Commission’s Bureau of Consumer Protection takes action against companies that violate the law when collecting debts, marketing debt reduction or relief services, and offering credit counseling services.
The Federal Credit Repair Organizations falls under the Federal Trade Commission’s jurisdiction.
The full text of the Federal Credit Repair Organizations Act:
Title IV of the Consumer Credit Protection Act (Public Law 90-321, 82 Stat. 164)
TITLE IV–CREDIT REPAIR ORGANIZATIONS
SEC. 401. SHORT TITLE.
This title may be cited as the ‘Credit Repair Organizations Act’.
SEC. 402. FINDINGS AND PURPOSES.
(a) Findings.–The Congress makes the following findings:
(1) Consumers have a vital interest in establishing and maintaining their credit worthiness and credit standing in order to obtain and use credit. As a result, consumers who have experienced credit problems may seek assistance from credit repair organizations which offer to improve the credit standing of such consumers. (2) Certain advertising and business practices of some companies engaged in the business of credit repair services have worked a financial hardship upon consumers, particularly those of limited economic means and who are inexperienced in credit matters.
(b) Purposes.–The purposes of this title are—
(1) to ensure that prospective buyers of the services of credit repair organizations are provided with the information necessary to make an informed decision regarding the purchase of such services; and (2) to protect the public from unfair or deceptive advertising and business practices by credit repair organizations.
SEC. 403. DEFINITIONS.
For purposes of this title, the following definitions apply:
(1) Consumer. — The term ‘consumer’ means an individual.
(2) Consumer credit transaction. — The term ‘consumer credit transaction’ means any transaction in which credit is offered or extended to an individual for personal, family, or household purposes.
(3) Credit repair organization. — The term ‘credit repair organization’—
(A) means any person who uses any instrumentality of interstate commerce or the mails to sell, provide, or perform (or represent that such person can or will sell, provide, or perform) any service, in return for the payment of money or other valuable consideration, for the express or implied purpose of–
(i) improving any consumer’s credit record, credit history, or credit rating; or
(ii) providing advice or assistance to any consumer with regard to any activity or service described in clause (i); and
(B) does not include–
(i) any nonprofit organization which is exempt from taxation under section 501(c)
(3) of the Internal Revenue Code of 1986;
(ii) any creditor (as defined in section 103 of the Truth in Lending Act), with respect to any consumer, to the extent the creditor is assisting the consumer to restructure any debt owed by the consumer to the creditor; or
(iii) any depository institution (as that term is defined in section 3 of the Federal Deposit Insurance Act) or any Federal or State credit union (as those terms are defined in section 101 of the Federal Credit Union Act), or any affiliate or subsidiary of such a depository institution or credit union.
(4) Credit.–The term ‘credit’ has the meaning given to such term in section 103(e) of this Act.
SEC. 404. PROHIBITED PRACTICES.
(a) In General.–No person may—
(1) make any statement, or counsel or advise any consumer to make any statement, which is untrue or misleading (or which, upon the exercise of reasonable care, should be known by the credit repair organization, officer, employee, agent, or other person to be untrue or misleading) with respect to any consumer’s credit worthiness, credit standing, or credit capacity to– (A) any consumer reporting agency (as defined in section 603(f) of this Act); or
(B) any person–
(i) who has extended credit to the consumer; or
(ii) to whom the consumer has applied or is applying for an extension of credit;
(2) make any statement, or counsel or advise any consumer to make any statement, the intended effect of which is to alter the consumer’s identification to prevent the display of the consumer’s credit record, history, or rating for the purpose of concealing adverse information that is accurate and not obsolete to–
(A) any consumer reporting agency;
(B) any person–
(i) who has extended credit to the consumer; or (ii) to whom the consumer has applied or is applying for an extension of credit;
(3) make or use any untrue or misleading representation of the services of the credit repair organization; or
(4) engage, directly or indirectly, in any act, practice, or course of business that constitutes or results in the commission of, or an attempt to commit, a fraud or deception on any person in connection with the offer or sale of the services of the credit repair organization.
(b) Payment in Advance.–No credit repair organization may charge or receive any money or other valuable consideration for the performance of any service which the credit repair organization has agreed to perform for any consumer before such service is fully performed.
SEC. 405. DISCLOSURES.
(a) Disclosure Required.–Any credit repair organization shall provide any consumer with the following written statement before any contract or agreement between the consumer and the credit repair organization is executed:
‘Consumer Credit File Rights Under State and Federal Law
You have a right to dispute inaccurate information in your credit report by contacting the credit bureau directly. However, neither you nor any ”credit repair” company or credit repair organization has the right to have accurate, current, and verifiable information removed from your credit report. The credit bureau must remove accurate, negative information from your report only if it is over 7 years old. Bankruptcy information can be reported for 10 years.
You have a right to obtain a copy of your credit report from a credit bureau. You may be charged a reasonable fee. There is no fee, however, if you have been turned down for credit, employment, insurance, or a rental dwelling because of information in your credit report within the preceding 60 days. The credit bureau must provide someone to help you interpret the information in your credit file. You are entitled to receive a free copy of your credit report if you are unemployed and intend to apply for employment in the next 60 days, if you are a recipient of public welfare assistance, or if you have reason to believe that there is inaccurate information in your credit report due to fraud.
You have a right to sue a credit repair organization that violates the Credit Repair Organization Act. This law prohibits deceptive practices by credit repair organizations.
You have the right to cancel your contract with any credit repair organization for any reason within 3 business days from the date you signed it.
Credit bureaus are required to follow reasonable procedures to ensure that the information they report is accurate. However, mistakes may occur.
You may, on your own, notify a credit bureau in writing that you dispute the accuracy of information in your credit file. The credit bureau must then reinvestigate and modify or remove inaccurate or incomplete information. The credit bureau may not charge any fee for this service. Any pertinent information and copies of all documents you have concerning an error should be given to the credit bureau.
If the credit bureau’s reinvestigation does not resolve the dispute to your satisfaction, you may send a brief statement to the credit bureau, to be kept in your file, explaining why you think the record is inaccurate. The credit bureau must include a summary of your statement about disputed information with any report it issues about you.
The Federal Trade Commission regulates credit bureaus and credit repair organizations. For more information contact:
The Public Reference Branch
Federal Trade Commission
Washington, D.C. 20580′.
(b) Separate Statement Requirement.–The written statement required under this section shall be provided as a document which is separate from any written contract or other agreement between the credit repair organization and the consumer or any other written material provided to the consumer.
(c) Retention of Compliance Records.—
(1) In general.–The credit repair organization shall maintain a copy of the statement signed by the consumer acknowledging receipt of the statement.
(2) Maintenance for 2 years.–The copy of any consumer’s statement shall be maintained in the organization’s files for 2 years after the date on which the statement is signed by the consumer.
SEC. 406. CREDIT REPAIR ORGANIZATIONS CONTRACTS.
(a) Written Contracts Required.–No services may be provided by any credit repair organization for any consumer—
(1) unless a written and dated contract (for the purchase of such services) which meets the requirements of subsection
(b) has been signed by the consumer; or
(2) before the end of the 3-business-day period beginning on the date the contract is signed.
(b) Terms and Conditions of Contract.–No contract referred to in subsection
(a) meets the requirements of this subsection unless such contract includes (in writing)—
(1) the terms and conditions of payment, including the total amount of all payments to be made by the consumer to the credit repair organization or to any other person;
(2) a full and detailed description of the services to be performed by the credit repair organization for the consumer, including—
(A) all guarantees of performance; and
(B) an estimate of– (i) the date by which the performance of the services (to be performed by the credit repair organization or any other person) will be complete; or (ii) the length of the period necessary to perform such services;
(3) the credit repair organization’s name and principal business address; and
(4) a conspicuous statement in bold face type, in immediate proximity to the space reserved for the consumer’s signature on the contract, which reads as follows: ‘You may cancel this contract without penalty or obligation at any time before midnight of the 3rd business day after the date on which you signed the contract. See the attached notice of cancellation form for an explanation of this right.’.
SEC. 407. RIGHT TO CANCEL CONTRACT.
(a) In General. — Any consumer may cancel any contract with any credit repair organization without penalty or obligation by notifying the credit repair organization of the consumer’s intention to do so at any time before midnight of the 3rd business day which begins after the date on which the contract or agreement between the consumer and the credit repair organization is executed or would, but for this subsection, become enforceable against the parties.
(b) Cancellation Form and Other Information. — Each contract shall be accompanied by a form, in duplicate, which has the heading ‘Notice of Cancellation’ and contains in bold face type the following statement:
‘You may cancel this contract, without any penalty or obligation, at any time before midnight of the 3rd day which begins after the date the contract is signed by you.
To cancel this contract, mail or deliver a signed, dated copy of this cancellation notice, or any other written notice to (name of credit repair organization) at (address of credit repair organization) before midnight on (date)
I hereby cancel this transaction,
( date )
( purchaser’s signature ).’.
(c) Consumer Copy of Contract Required.–Any consumer who enters into any contract with any credit repair organization shall be given, by the organization—
(1) a copy of the completed contract and the disclosure statement required under section 405; and (2) a copy of any other document the credit repair organization requires the consumer to sign, at the time the contract or the other document is signed.
SEC. 408. NONCOMPLIANCE WITH THIS TITLE.
(a) Consumer Waivers Invalid.–Any waiver by any consumer of any protection provided by or any right of the consumer under this title—
(1) shall be treated as void; and
(2) may not be enforced by any Federal or State court or any other person.
(b) Attempt To Obtain Waiver.–Any attempt by any person to obtain a waiver from any consumer of any protection provided by or any right of the consumer under this title shall be treated as a violation of this title.
(c) Contracts Not in Compliance.–Any contract for services which does not comply with the applicable provisions of this title—
(1) shall be treated as void; and
(2) may not be enforced by any Federal or State court or any other person.
SEC. 409. CIVIL LIABILITY.
(a) Liability Established.–Any person who fails to comply with any provision of this title with respect to any other person shall be liable to such person in an amount equal to the sum of the amounts determined under each of the following paragraphs:
(1) Actual damages.–The greater of–
(A) the amount of any actual damage sustained by such person as a result of such failure; or
(B) any amount paid by the person to the credit repair organization.
(2) Punitive damages.–
(A) Individual actions.–In the case of any action by an individual, such additional amount as the court may allow.
(B) Class actions.–In the case of a class action, the sum of–
(i) the aggregate of the amount which the court may allow for each named plaintiff; and
(ii) the aggregate of the amount which the court may allow for each other class member, without regard to any minimum individual recovery.
(3) Attorneys’ fees.–In the case of any successful action to enforce any liability under paragraph (1) or (2), the costs of the action, together with reasonable attorneys’ fees.
(b) Factors to Be Considered in Awarding Punitive Damages.–In determining the amount of any liability of any credit repair organization under subsection (a)(2), the court shall consider, among other relevant factors—
(1) the frequency and persistence of noncompliance by the credit repair organization;
(2) the nature of the noncompliance;
(3) the extent to which such noncompliance was intentional; and
(4) in the case of any class action, the number of consumers adversely affected.
SEC. 410. ADMINISTRATIVE ENFORCEMENT.
(a) In General.–Compliance with the requirements imposed under this title with respect to credit repair organizations shall be enforced under the Federal Trade Commission Act by the Federal Trade Commission.
(b) Violations of This Title Treated as Violations of Federal Trade Commission Act.—
(1) In general. — For the purpose of the exercise by the Federal Trade Commission of the Commission’s functions and powers under the Federal Trade Commission Act, any violation of any requirement or prohibition imposed under this title with respect to credit repair organizations shall constitute an unfair or deceptive act or practice in commerce in violation of section 5(a) of the Federal Trade Commission Act.
(2) Enforcement authority under other law. — All functions and powers of the Federal Trade Commission under the Federal Trade Commission Act shall be available to the Commission to enforce compliance with this title by any person subject to enforcement by the Federal Trade Commission pursuant to this subsection, including the power to enforce the provisions of this title in the same manner as if the violation had been a violation of any Federal Trade Commission trade regulation rule, without regard to whether the credit repair organization–
(A) is engaged in commerce; or
(B) meets any other jurisdictional tests in the Federal Trade Commission Act.
(c) State Action for Violations.—
(1) Authority of states. — In addition to such other remedies as are provided under State law, whenever the chief law enforcement officer of a State, or an official or agency designated by a State, has reason to believe that any person has violated or is violating this title, the State–
(A) may bring an action to enjoin such violation;
(B) may bring an action on behalf of its residents to recover damages for which the person is liable to such residents under section 409 as a result of the violation; and
(C) in the case of any successful action under subparagraph (A) or (B), shall be awarded the costs of the action and reasonable attorney fees as determined by the court.
(2) Rights of commission.–
(A) Notice to commission.–The State shall serve prior written notice of any civil action under paragraph
(1) upon the Federal Trade Commission and provide the Commission with a copy of its complaint, except in any case where such prior notice is not feasible, in which case the State shall serve such notice immediately upon instituting such action.
(B) Intervention.–The Commission shall have the right–
(i) to intervene in any action referred to in subparagraph (A);
(ii) upon so intervening, to be heard on all matters arising in the action; and
(iii) to file petitions for appeal.
(3) Investigatory powers. — For purposes of bringing any action under this subsection, nothing in this subsection shall prevent the chief law enforcement officer, or an official or agency designated by a State, from exercising the powers conferred on the chief law enforcement officer or such official by the laws of such State to conduct investigations or to administer oaths or affirmations or to compel the attendance of witnesses or the production of documentary and other evidence.
(4) Limitation. — Whenever the Federal Trade Commission has instituted a civil action for violation of this title, no State may, during the pendency of such action, bring an action under this section against any defendant named in the complaint of the Commission for any violation of this title that is alleged in that complaint.
SEC. 411. STATUTE OF LIMITATIONS.
Any action to enforce any liability under this title may be brought before the later of– (1) the end of the 5-year period beginning on the date of the occurrence of the violation involved; or (2) in any case in which any credit repair organization has materially and willfully misrepresented any information which– (A) the credit repair organization is required, by any provision of this title, to disclose to any consumer; and (B) is material to the establishment of the credit repair organization’s liability to the consumer under this title, the end of the 5-year period beginning on the date of the discovery by the consumer of the misrepresentation.
SEC. 412. RELATION TO STATE LAW.
This title shall not annul, alter, affect, or exempt any person subject to the provisions of this title from complying with any law of any State except to the extent that such law is inconsistent with any provision of this title, and then only to the extent of the inconsistency.
SEC. 413. EFFECTIVE DATE.
This title shall apply after the end of the 6-month period beginning on the date of the enactment of the Credit Repair Organizations Act, except with respect to contracts entered into by a credit repair organization before the end of such period.”.
1. Pub. L. No. 104-208, 110 Stat. 3009 (Sept. 30, 1996). The amendments to the credit statutes are in Title II of the Act, entitled “Economic Growth and Regulatory Paperwork Reduction.” The footnotes in this copy of the Act are not part of the Act, but are cross-references inserted by the FTC staff for the convenience of the reader.
2. To be codified as 15 U.S.C. § 1679.
3. To be codified as 15 U.S.C. § 1679a.
4. To be codified as 15 U.S.C. § 1679b.
5. Truth in Lending Act § 103(f) states in pertinent part: “The term ‘creditor’ refers only to creditors who regularly extend, or arrange for the extension of, credit which is payable by agreement in more than four installments or for which the payment of a finance charge is or may be required, whether in connection with loans, sales pf property or services, or otherwise. . . .”
6. TILA § 103(e) states: “The term ‘credit’ means the right granted by a creditor to a debtor to defer payment of debt or to incur debt and defer its payment.”
7. To be codified as 15 U.S.C. § 1679c.
8. Fair Credit Reporting Act (FCRA) § 603(f) states: “The term ‘consumer reporting agency’ means any person which, for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties, and which uses any means or facility of interstate commerce for the purpose of preparing or furnishing consumer reports.”