By STACY COWLEY and JESSICA SILVER-GREENBERG Raid your 401(k). Ask your boss for a loan, load up on your credit cards, or put upyour house as collateral by taking out a second mortgage.Those are some of the financially risky strategies that Pioneer Credit Recoverysuggested to people struggling to pay overdue federal tax debt. The company is oneof four debt collection agencies hired by the Internal Revenue Service to chase downlate payments on 140,000 accounts with balances of up to $50,000.The call scripts those agencies are using — obtained by a group of Democraticsenators and reviewed by The New York Times — shed light on how the tax agency’snew fleet of private debt collectors extract payments from debtors. On Friday, thosesenators sent a letter to Pioneer, the I.R.S. and the Treasury Department accusingPioneer of acting in “clear violation” of the tax code.In the letter, a copy of which was provided to The New York Times, the foursenators, led by Elizabeth Warren of Massachusetts, say that the I.R.S.’s contractorsare using illegal and abusive collection tactics.In particular, they object to Pioneer’s “extraordinarily dangerous” suggestion thatdebtors use 401(k) funds, home loans and credit cards to pay off their overdue taxes.“Pioneer is unique among I.R.S. contractors in pressuring taxpayers to usefinancial products that could dramatically increase expenses, or cause them to losetheir homes or give up their retirement security,” the senators wrote. “No other debtcollector makes these demands.”On Thursday, in advance of receiving the letter, the I.R.S. said it wascomfortable with the approach its outside collectors were taking. The agency “iscommitted to running a balanced program that respects taxpayer rights whilecollecting the tax debts as intended under the law,” said Cecilia Barreda, an I.R.S.spokeswoman.The debt collectors are paid on commission, keeping up to 25 percent of whatthey collect.Pioneer instructs its employees to “suggest that liquidating assets or borrowingmoney may be advantageous” and to “give the taxpayer ideas on where/how toborrow,” according to the scripts it submitted to the I.R.S. for approval. If that routedoes not work, the scripts show, Pioneer’s collection agents encourage taxpayers toask their family, friends and employers for money.All four of the collection companies hired by the I.R.S. — CBE Group, ConServe,Performant Recovery and Pioneer — tell debtors that they can set up an installmentplan lasting as long as seven years, two years longer than the span that privatecollectors are legally allowed to offer. The code that authorizes the I.R.S. to hireoutside collectors says that they may offer taxpayers installment agreements thatcover “a period not to exceed five years.”The I.R.S. said that payment plans lasting longer than five years were legal aslong as they were approved by the agency.“If the taxpayer agrees, and after the I.R.S. approves, the private firm willmonitor payment arrangements between five and seven years,” Ms. Barreda said.“This process is in accordance with the law and ensures that taxpayers assigned tothe private firms will have the same payment options as taxpayers dealing with theI.R.S.”Others disagree with the agency’s interpretation. Nina E. Olson, the nationaltaxpayer advocate at the I.R.S., said that the agency was engaging “in legalisticgymnastics to justify something the law doesn’t allow.”The I.R.S. is owed about $138 billion, a sum that lawmakers are eager to reduce.To supplement the agency’s collection efforts, Congress ordered it to hire outsidefirms — an approach that was tried twice before, in 1996 and in 2006, and thenabandoned because of cost overruns and concerns about abuses. Lawmakers hopethe new program, which began this year, will yield better results; the congressionalJoint Committee on Taxation estimated that it could net $2.4 billion over the next 10years.But consumer advocates, including Ms. Olson, view the project with alarm,fearing that aggressive collectors will push troubled people to the financial brink andhound them for payments they cannot afford.To consumer advocates, the call scripts seem to realize their fears. All of thecollection companies encourage taxpayers who may not be able to fully pay off theirtax bill, even through installments, to make a one-time voluntary payment. Three ofthe agencies instruct debtors that “extra payments or higher payments can beaccepted at any time.”That kind of “give us anything you can” approach is common among consumerdebt collectors, but the government has typically been more measured, weighingwhat is owed against what the taxpayer can reasonably afford. When taxpayerscannot pay their entire bill at once, the I.R.S.’s internal collectors are generally onlypermitted to place them into installment plans that will fully resolve their debt.The idea is that pushing taxpayers to the limit, while temporarily good for theI.R.S., causes long-term strain on the government over all. No one wins, the theorygoes, when taxpayers wind up on public assistance from settling overdue tax bills.The I.R.S. does not try to collect from people who make only enough to afford basicliving expenses like food, housing and transportation. (Only one collector,Performant, had lines in its scripts about how to handle hardship cases. Thoseaccounts should be marked and returned to the I.R.S., Performant instructed itsemployees.)Low-income taxpayers make up most of the cases farmed out to the privatecollectors, according to an analysis by Ms. Olson. After reviewing the first batch offiles the I.R.S. sent to outside collectors, her office found that nearly a quarter of theaccounts involved taxpayers with below-poverty level wages, and more than halfwere taxpayers with incomes of less than 250 percent of the poverty level.Ms. Olson said she was “deeply concerned” by collectors suggesting thattaxpayers borrow against their retirement savings, take out home loans or increasetheir other debts to pay their taxes.“The I.R.S. may suggest those things, but the I.R.S. is authorized to perform afinancial analysis of a taxpayer’s ability to pay, and it does not collect from taxpayerswhere its financial analysis shows doing so would impose a financial hardship,” shesaid by email.Pioneer, a subsidiary of Navient, was effectively fired two years ago by theEducation Department from its contract to collect overdue student loan debt afterthe agency determined that it gave borrowers inaccurate information about theirloans at “unacceptably high rates.” Pioneer was sued this year by the ConsumerFinancial Protection Bureau, which said it “systematically misled” borrowers.Navient is fighting the consumer bureau’s lawsuit and has denied anywrongdoing. It declined to comment on its tax debt collection efforts, referringquestions to the I.R.S. The other three collectors did not respond to questions abouttheir call scripts.For its part, the I.R.S. said that it supported its private collectors’ tactics.The agency “encourages people to look into options for paying their tax debt,including things such as installment agreements,” Ms. Barreda said in a writtenresponse to questions about the call scripts. “How they pay is a personal choice.Giving taxpayers ideas of possible borrowing sources to pay their tax liability isconsistent with fair debt collection practices as well as I.R.S. practice.”But Ms. Warren and the three other Democratic senators who sent the letter onFriday — Sherrod Brown of Ohio, Benjamin L. Cardin of Maryland and Jeff Merkleyof Oregon — took exception to these collections practices. They particularly criticizedthe extended payment offers and the encouragement for debtors to send in “extrapayments,” both of which they said violated the I.R.S. code.The law “allows collectors to ask only for a payment in full, or an installmentagreement providing for full payment over a maximum period of five years,” thesenators wrote. “When Congress required the I.R.S. to hire private debt collectors tocollect certain tax debts, it did so under strict provisions to ensure that taxpayerswere not put at risk during the collection process, but it appears that Pioneer is notadhering to these protections.”The I.R.S.’s last effort to outsource debt collection was deemed a failure by theagency, which eliminated the program in 2009 and said that its internal staff couldhandle the work more efficiently. The program wound up costing the federalgovernment millions more than it actually recouped from taxpayers.The latest attempt stems from a 2015 provision, buried in a $305 billionhighway funding bill, that required the agency to outsource some of its collection.President Trump’s Treasury secretary, Steven T. Mnuchin, said his departmentwould monitor the effort.“In general, I am supportive of using outside firms on a contingency basis afterall other means have been used,” he said at a congressional hearing last week. “Ithink it’s a balance between making sure the government collects money efficientlyand appropriately with making sure we don’t jeopardize taxpayers.”© 2017 The New York Times Company.  All rights reserved.

By STACY COWLEY About 12 million people will get a lift in their credit scores next month as thenational credit reporting agencies wipe from their records two major sources ofnegative information about borrowers: tax liens and civil judgments.The change stems from a lengthy crusade by consumer advocates andgovernment officials to force the credit bureaus to improve the accuracy of theirreports, which are often speckled with errors and outdated information. Thosemistakes can limit borrowers’ access to credit cards, auto loans and mortgages, orsaddle them with higher borrowing costs.Starting July 1, the three major credit reporting companies — Equifax, Experianand TransUnion — will enforce stricter rules on the public records they collect,requiring each citation to include the subject’s name, address and either their SocialSecurity number or date of birth. Nearly all civil judgments and at least half of thenation’s tax lien records do not meet the new standards, and will be eliminated fromconsumer credit reports.The change will benefit borrowers with negative public records, but it will alsohelp thousands of people who have battled, often in vain, to have incorrectinformation removed from their files.“We’ve filed hundreds of lawsuits over this,” said Leonard Bennett, a consumerlawyer in Alexandria, Va. “Comprehensively fixing it hasn’t been something theindustry has prioritized.”That began to change two years ago, when a coalition of 31 state attorneysgeneral cracked down on the credit bureaus and negotiated a deal that requiredsweeping changes to their practices. (New York’s attorney general had previouslyreached a separate settlement with similar terms.) The credit bureaus have alreadymade some adjustments, like removing traffic tickets and court fines from their files,but next month’s changes will have the broadest effects yet.Around 7 percent of the 220 million people in the United States with creditreports will have a judgment or lien stripped from their file, according to an analysisby Fair Isaac, the company that supplies the formula that generates the credit scoresknown as FICO.Those people will see their scores rise, modestly. The typical increase will be 20points or less, according to Fair Isaac’s analysis. (FICO scores range from 300 to850. Higher is better; lenders generally prefer people with scores of 640 and above.)The biggest beneficiaries, consumer advocates say, will be those who are sparedthe frustration of trying to fix errors. False matches have been a common problem.Without the kind of additional identifying information that will now be required, acourt record showing a judgment against Joe Smith can easily wind up on the wrongJoe Smith’s credit report. (Last week, a California jury awarded $60 million to agroup of consumers who said TransUnion falsely flagged some of them as terroristsand drug traffickers because it had mistaken them for others with similar names.)Starting next month, the credit bureaus will also be required to update theirpublic records information at least once every 90 days.That change pleases Brenda Walker, a Virginia resident with a pending lawsuitagainst TransUnion over the company’s monthslong delay in amending her report toshow that a tax lien had been satisfied.Ms. Walker said she had been turned down for credit cards, a car loan and astudent loan she tried to take out for her daughter’s education. “It wreaked havoc,”she said. “My credit score was so damaged from something that had already beenpaid and released.”The flip side of the change, lenders warn, is that some borrowers may nowappear more creditworthy than they actually are.“This removes information from the picture that our customers get about what aborrower has done in the past,” said Francis Creighton, the chief executive of theConsumer Data Industry Association, which represents credit reporting companies.“If someone has a big bill that they owe, that’s something that should be part of theconversation.”But when the two largest credit scoring companies, Fair Isaac andVantageScore, tested what happens when tax liens and civil judgments are removed,both found that it did not meaningfully change the snapshot provided to lenders onmost borrowers.More than 90 percent of people with a negative public record have othernegative information on their credit file, like late payments, according to FICO’sanalysis. VantageScore experimentally tweaked its model to focus on other datapoints, like the number of credit cards a borrower has with high balances, and foundthat the predictive value was almost identical.“Not surprisingly, those with civil judgments and tax liens are likely to have lotsof other credit blemishes,” said Ethan Dornhelm, Fair Isaac’s principal scientist.“These changes aren’t going to bring those people into the tiers where they’re goingto qualify for prime credit.”As public records disappear from the big bureaus’ reports, other data providersare eager to step in and fill the gap. LexisNexis Risk Solutions has for years gatheredpublic records information from about 3,000 jurisdictions around the country andsold it to the credit bureaus. Now, with that business drying up, the company ismarketing its own Liens and Judgments Report to lenders.Because LexisNexis is not a party to the credit bureaus’ settlement, it is still freeto sell that information, said Ankush Tewari, a senior director with LexisNexis RiskSolutions. The company can accurately link people to their public records, evenwithout identifying information like a Social Security number, with an error rate ofaround 1 percent, he said.As the credit bureaus continue to work through the settlement terms, furtherchanges are coming. Starting in September, their reports will eliminate medical debtcollection accounts that are less than six months old, a change intended to reflect thesometimes-lengthy process of sorting out health insurance reimbursements.Also that month, all data furnishers — the companies that provide informationabout consumers to the credit bureaus — will be required to include each individual’sfull name, address, birth date and Social Security number in their reports.© 2017 The New York Times Company.  All rights reserved.

Supreme Court Knocks a Hole in the Fair Debt Collection Practices Act On June 12, 2017, the Supreme Court knocked a hole in consumers’ rights under the Fair Debt Collection Practices Act. Starting now, debt buyers, like Midland, Portfolio Recovery, and Cavalry are free of the regulations under the FDCPA.  Here’s my list of the […]The post Supreme Court Knocks a Hole in the Fair Debt Collection Practices Act by Robert Weed appeared first on Robert Weed.

Supreme Court Knocks a Hole in the Fair Debt Collection Practices Act On June 12, 2017, the Supreme Court knocked a hole in consumers’ rights under the Fair Debt Collection Practices Act. Starting now, debt buyers, like Midland, Portfolio Recovery, and Cavalry are free of the regulations under the FDCPA.  Here’s my list of the […] The post Supreme Court Knocks a Hole in the Fair Debt Collection Practices Act by Robert Weed appeared first on Robert Weed.

Deciding to file bankruptcy is a really personal decision. But there are a few red flags which probably mean it's a really good option. So if you're considering going into your retirement account and borrowing money to pay off unsecured debts like credit card debts and medical debts, that's a pretty good sign that it might be time to file bankruptcy. Look your retirement funds are earmarked for your retirement. They are 100 percent exempt in bankruptcy. So if we file a bankruptcy for you nobody can touch your retirement account. So why would we take the money out of your retirement account and pay off debts that are dischargeable in bankruptcy. It probably doesn't make sense. The post Bankruptcy Attorney in Tucson, Arizona appeared first on Tucson Bankruptcy Attorney.

By Jessica Silver-Greenberg and Michael CorkeryMore than a decade after Yvette Harris’s 1997 Mitsubishi was repossessed, she is stillpaying off her car loan.She has no choice. Her auto lender took her to court and won the right to seize aportion of her income to cover her debt. The lender has so far been able to garnish$4,133 from her paychecks — a drain that at one point forced Ms. Harris, a singlemother who lives in the Bronx, to go on public assistance to support her two sons.“How am I still paying for a car I don’t have?” she asked.For millions of Americans like Ms. Harris who have shaky credit and had to turnto subprime auto loans with high interest rates and hefty fees to buy a car, there is nogetting out.Many of these auto loans, it turns out, have a habit of haunting people long aftertheir cars have been repossessed.The reason: Unable to recover the balance of the loans by repossessing andreselling the cars, some subprime lenders are aggressively suing borrowers to collectwhat remains — even 13 years later.Ms. Harris’s predicament goes a long way toward explaining how lenders,working hand in hand with auto dealers, have made billions of dollars extendinghigh-interest loans to Americans on the financial margins.These are people desperate enough to take on thousands of dollars of debt atinterest rates as high as 24 percent for one simple reason: Without a car, they haveno way to get to work or to doctors.With their low credit scores, buying or leasing a new car is not an option. Andwhen all the interest and fees of a subprime loan are added up, even a used car withmechanical defects and many miles on the odometer can end up costing more than anew car.Subprime lenders are willing to take a chance on these risky borrowers becausewhen they default, the lenders can repossess their cars and persuade judges in 46states to give them the power to seize borrowers’ paychecks to cover the balance ofthe car loan.Now, with defaults rising, federal banking regulators and economists areworried how the strain of these loans will spill over into the broader economy.For low-income Americans, the fallout could, in some ways, be worse than themortgage crisis.With mortgages, people could turn in the keys to their house and walk away. Butwith auto debt, there is increasingly no exit. Repossession, rather than being the end,is just the beginning.“Low-income earners are shackled to this debt,” said Shanna Tallarico, aconsumer lawyer with the New York Legal Assistance Group.There are no national tallies of how many borrowers face the collection lawsuits,known within the industry as deficiency cases. But state records show that the courtsare becoming flooded with such lawsuits.For example, the large subprime lender Credit Acceptance has filed more than17,000 lawsuits against borrowers in New York alone since 2010, court recordsshow. And debt buyers — companies that scoop up huge numbers of soured loans forpennies on the dollar — bring their own cases, breathing new life into old bills.Portfolio Recovery Associates, one of the nation’s largest debt buyers, purchasedabout $30.2 million of auto deficiencies in the first quarter of this year, up from$411,000 just a year earlier.One of the people Credit Acceptance sued is Nagham Jawad, a refugee fromIraq, who moved to Syracuse after her father was killed. Soon after settling into hernew home in 2009, Ms. Jawad took out a loan for $5,900 and bought a used car.After only a few months on the road, the transmission on the 10-year-old ChevyTahoe gave out. The vehicle was in such bad shape that her lender didn’t bother torepossess it when Ms. Jawad, 39, fell behind on payments.“These are garbage cars sold at outrageous interest rates,” said her lawyer, GaryJ. Pieples, director of the consumer law clinic at the Syracuse University College ofLaw.The value of any car typically starts to decline the moment it leaves the dealer’slot. In the subprime market, however, the value of the cars is often beside the point.A dealership in Queens refused to cancel Theresa Robinson’s loan of nearly$8,000 and give her a refund for a car that broke down days after she drove it off thelot.Instead, Ms. Robinson, a Staten Island resident who is physically disabled andwas desperate for a car to get to her doctors’ appointments, was told to pick adifferent car from the lot.The second car she selected — a 2005 Chrysler Pacifica — eventually brokedown as well. Unable to afford the loan payments after sinking thousands of dollarsinto repairs, Ms. Robinson defaulted.Her subprime lender took her to court and won the right to garnish her incomefrom babysitting her grandson to cover her loan payments.Ms. Robinson and her lawyer, Ms. Tallarico, are now fighting to get thejudgment overturned.“Essentially, the dealers are not selling cars. They are selling bad loans,” saidAdam Taub, a lawyer in Detroit who has defended consumers in hundreds of thesecases.Many lawyers assisting poor borrowers like Ms. Robinson say they learn aboutthe lawsuits only after a judge has issued a decision in favor of the lender.Most borrowers can’t afford lawyers and don’t show up to court to challenge thelawsuits. That means the collectors win many cases, transforming the debts intojudgments they can use to garnish wages.The lenders argue that they are just recouping through the courts what they arelegally owed. They also argue that subprime auto lending meets an important need.And collecting on the debt is a critical part of the business. The first item on thequarterly earnings of Credit Acceptance, the large subprime auto lender, is not theamount of loans it makes, but what it expects to collect on the debt.The company, for example, expects a 72 percent collection rate on loans made in2014 — the year that a used 2009 Volkswagen Tiguan was repossessed from NinaLysloff of Ypsilanti, Mich.With all the interest and fees on her Credit Acceptance loan factored in, the carended up costing her $28,383. Ms. Lysloff could have bought a brand-newVolkswagen Tiguan for $22,149, according to Kelley Blue Book.When Ms. Lysloff fell behind, the trade-in value on the car was a fraction ofwhat she still owed. Last year, Credit Acceptance sued her for $15,755.The strategy at Credit Acceptance, which has a market value of $4.4 billion, isyielding big profits. The Michigan company said its return on equity, a measure ofprofitability, was 31 percent last year — more than four times Bank of America’sreturn.Credit Acceptance did not respond to requests for comment.Some of the people who got subprime loans lacked enough income to qualify forany loan.U.S. Bank is pursuing Tara Pearson for the $9,339 left after her 2011 HyundaiAccent was stolen and she could not pay the fee to get it from the impound lot. Whenshe purchased the car in 2015 at a dealership in Winchester, Ky., Ms. Pearson said,she explained that her only income was about $722 from Social Security.Her loan application listed things differently. Her employer was identified as“S.S.I.,” and her income was put at $2,750, court records show.Citing continuing litigation, U.S. Bank declined to comment about Ms. Pearson.Auto lending was one of the few types of credit that did not dry up during thefinancial crisis. It now stands at more than $1.1 trillion.Despite many signs that the market is overheating, securities tied to the loansare so profitable — yielding twice as much as certain Treasury securities — that theyremain a sought-after investment on Wall Street.“The dog keeps eating until its stomach explodes,” said Daniel Zwirn, who runsArena, a hedge fund that has avoided subprime auto investments.Some lenders are pulling back from making new loans. Subprime auto lendingreached a 10-year low in the first quarter. But for those borrowers already stuck withdebt, there is no end in sight.Ms. Harris, the single mother from the Bronx, said that even after her wages hadbeen garnished and she paid an additional $2,743 on her own, her lender was stillseeking to collect about $6,500.“It’s been a nightmare,” she said.Copyright 2017 The New York Times Company.  All rights reserved.

Initial Facts This is a bankruptcy case study for Ms. F. who resides in Aurora, Illinois. She is in the office to determine whether or not she can qualify for chapter 7, the fresh start bankruptcy. Otherwise, she is potentially interested in a chapter 13 bankruptcy case which is a reorganization of debts. Let’s look+ Read More The post Bankruptcy Case Study For Ms. F., From Aurora, Illinois appeared first on David M. Siegel.

By Gretchen MorgensonEven as Wells Fargo was reeling from a major scandal in its consumer bank last year,officials in the company’s mortgage business were putting through unauthorizedchanges to home loans held by customers in bankruptcy, a new class action andother lawsuits contend.The changes, which surprised the customers, typically lowered their monthlyloan payments, which would seem to benefit borrowers, particularly those inbankruptcy. But deep in the details was this fact: Wells Fargo’s changes wouldextend the terms of borrowers’ loans by decades, meaning they would have monthlypayments for far longer and would ultimately owe the bank much more.Any change to a payment plan for a person in bankruptcy is subject to approvalby the court and the other parties involved. But Wells Fargo put through big changesto the home loans without such approval, according to the lawsuits.The changes are part of a trial loan modification process from Wells Fargo. Butthey put borrowers in bankruptcy at risk of defaulting on the commitments theyhave made to the courts, and could make them vulnerable to foreclosure in thefuture.A spokesman for Wells Fargo, Tom Goyda, said the bank strongly denied the claimsmade in the lawsuits and particularly disputed how the complaints characterized thebank’s actions. Wells Fargo contends that the borrowers and the bankruptcy courtswere notified.“Modifications help customers stay in their homes when they encounterfinancial challenges,” Mr. Goyda said, “and we have used them to help more thanone million families since the beginning of 2009.”According to court documents, Wells Fargo has been putting throughunrequested changes to borrowers’ loans since 2015. During this period, the bankwas under attack for its practice of opening unwanted bank and credit card accountsfor customers to meet sales quotas.Outrage over that activity — which the bank admitted in September 2016, whenit was fined $185 million — cost John G. Stumpf, its former chief executive, his joband damaged the bank’s reputation.It is unclear how many unsolicited loan changes Wells Fargo has put throughnationwide, but seven cases describing the conduct have recently arisen inLouisiana, New Jersey, North Carolina, Pennsylvania and Texas. In the NorthCarolina court, Wells Fargo produced records showing it had submitted changes onat least 25 borrowers’ loans since 2015.Bankruptcy judges in North Carolina and Pennsylvania have admonished thebank over the practice, according to the class-action lawsuit filed last week. Onejudge called the practice “beyond the pale of due process.”The lawsuits contend that Wells Fargo puts through changes on borrowers’loans using a routine form that typically records new real estate taxes orhomeowners’ insurance costs that are folded into monthly mortgage payments.Upon receiving these forms, bankruptcy court workers usually put the changes intoeffect without questioning them.It is unclear why the bank would put through such changes. On one hand, WellsFargo stood to profit from the new loan terms it set forth, and, under programsdesigned to encourage loan modifications for troubled borrowers, the bank receivesas much as $1,600 from government programs for every such loan it adjusts, theclass-action lawsuit said. But submitting the changes without approval violatesbankruptcy rules and puts the bank at risk of court sanctions and federal scrutiny.When a lawyer for a borrower has questioned the changes, Wells Fargo has reversedthem.Abelardo Limon Jr., a lawyer in Brownsville, Tex., who represents some of theplaintiffs, said he first thought Wells Fargo had made a clerical error. Then he sawanother case.“When I realized it was a pattern of filing false documents with the federal court,that was appalling to me,” Mr. Limon said in an interview. The unauthorized loanmodifications “really cause havoc to a debtor’s reorganization,” he said.This is not the first time Wells Fargo has been accused of wrongdoing related topayment change notices on mortgages it filed with the bankruptcy courts. Under asettlement with the Justice Department in November 2015, the bank agreed to pay$81.6 million to borrowers in bankruptcy whom it had failed to notify on time whentheir monthly payments shifted to reflect different real estate taxes or insurancecosts.That settlement — in which the bank also agreed to change its internalprocedures to prevent future violations — affected 68,000 homeowners.Borrowers having financial difficulties often file for personal bankruptcy to savetheir homes, working out payment plans with creditors and the courts to bring theirloans current in a set period. If the borrowers meet their obligations over that time,they emerge from bankruptcy with clean slates and their homes intact.Changing these payment plans without the approval of the judge and otherparties can imperil borrowers’ standing with the bankruptcy courts.In the class-action lawsuit filed last week, the lead plaintiffs are a couple inNorth Carolina who say that Wells Fargo submitted three changes to their paymentplan in 2016 without approval. The first time, Wells Fargo put through the changeswithout alerting them, according to the couple, Christopher Dee Cotton and AllisonHedrick Cotton.The Cottons’ monthly payments declined with every change, dropping to $1,251from $1,404.Buried deep in the documents Wells Fargo filed — but did not get approved bythe borrowers, their lawyers or the court — was the news that the bank would extendthe Cottons’ loan to 40 years, increasing the amount of interest they would have topay. Before the changes, the Cottons owed roughly $145,000 on their mortgage andwere on schedule to pay off the loan in 14 years. Over that period, their interestwould total $55,593.Under the new loan terms, the Cottons would have incurred $85,000 in interestcosts over the additional 26 years, on top of the $55,593 they would have paid underthe existing loan, their court filing shows.Theodore O. Bartholow III, a lawyer for the Cottons, said Wells Fargo’s actionscontravened the intent of the bankruptcy system. “When it goes the right way, thedebtor and mortgage company agree to do a modification, go to court and say, ‘Heyjudge, modify or change the disbursement on my mortgage.’”Instead, Wells Fargo did “a total end run” around the process, said Mr.Bartholow, of Kellett & Bartholow in Dallas. The Cottons declined to comment.Mr. Goyda, the Wells Fargo spokesman, denied that the bank had not notifiedborrowers. “The terms of these modification offers were clearly outlined in letterssent to the customers and/or to their attorneys, and as part of the Payment ChangeNotices sent to the bankruptcy courts,” he wrote by email.Mr. Goyda said that “such notices are not part of the loan modification package,or part of the documentation required for the customer to accept or declinemodification offers.” He added, “We do not finalize a modification without receivingsigned documents from the customer and, where required, approval from thebankruptcy court.”Mr. Limon and other lawyers say that while the bank may wait for approval tocomplete a modification, it has nevertheless put through unapproved changes toborrowers’ payment plans. According to a complaint he filed on behalf of clients inTexas, instead of going through the proper channels to try to modify a loan, WellsFargo filed the routine payment change notification.The clients also accuse the bank of making false claims by contending that theborrowers had requested or approved the loan modifications. In many cases, thetrustees who handle payments on behalf of consumers in bankruptcy would acceptthe changes Wells Fargo had submitted on the assumption they had been properlyapproved.Mr. Limon represents Ignacio and Gabriela Perez of Brownsville, who say WellsFargo put through an improper change to their payment plan last year.After experiencing financial difficulties, Mr. and Mrs. Perez filed for Chapter 13bankruptcy protection in August 2016. They owed about $54,000 on their home atthe time, and had fallen behind on the mortgage by $2,177. The value of their homewas $95,317, records show, so they had substantial equity.In September, the Perezes filed a payment plan with the bankruptcy court inBrownsville; the trustee overseeing the process ordered a confirmation hearing onthe plan for early November.But in a letter to the Perezes dated Oct. 10, Wells Fargo said their loan was“seriously delinquent” and offered them a trial loan modification. “Time is of theessence,” the letter stated. “Act now to avoid foreclosure.”Because they were going through bankruptcy, the Perezes were not under anythreat of foreclosure. Mr. Perez said in an interview that the letter worried him, so heasked his lawyer to investigate.Then, on Oct. 28, 2016, DeMarcus Jones, identified in court papers as “VP LoanDocumentation” at Wells Fargo, filed a notice of mortgage payment change with thebankruptcy court. It said the Perezes’ new monthly payment would be $663.15, downfrom $1,019.03. In the notice, the bank explained that the reduction was a “Paymentchange resulting from an approved trial modification agreement.”The changes had not been approved by the Perezes, their lawyer or thebankruptcy court, their complaint said.Although the monthly payment Wells Fargo had listed for the Perezes waslower, there was a catch — the same one that showed up in the Cottons’ loan. ThePerezes had been scheduled to pay off their mortgage in nine years, but the loanterms from Wells Fargo extended it to 40 years. The Perezes would owe the bank anextra $40,000 in interest, the legal filing said.“I thought that I was totally crazy, or they were totally crazy,” Mr. Perez said. “Iam 58, in what mind could they think I would agree to extend my mortgage 40 yearsmore? I don’t understand much maybe, but it doesn’t sound legal to me.”Mr. Limon quickly fought the changes.If he had not, Mr. and Mrs. Perez could have faced further complications. Thenew Wells Fargo payments were so much less than the payments the Perezes hadsubmitted to the bankruptcy court that if the trustee had started making the newpayments with no court approval, the Perezes would have emerged at the end oftheir bankruptcy plan owing the difference between the amounts. The Perezes wouldbe unwittingly in arrears, and the bank could begin foreclosure proceedings if theywere unable to make up the difference.© 2017 The New York Times Company.  All rights reserved.

If you are gainfully employed, the payment will most likely come directly from your wages in the form of a payroll control order. If you are self-employed or do not receive a regular pay check, then you will have to make the payment directly to the Chapter 13 Trustee. If you fall behind on your+ Read More The post Paying The Chapter 13 Bankruptcy Trustee appeared first on David M. Siegel.

Texas Bankruptcy Judge Tony Davis had some sound advice for persons setting off on a business venture.   In fact, his words should be mandatory reading in business schools and forums where would be business persons frequent.    He wrote:When two individuals decide to join forces and form a business venture, they can take one of two paths. The first is to seek and pay for sound legal advice to define and structure their relationship and fairly allocate business risks, and to pay for sound financial advice to properly project future financial performance and accurately record the past. Or they can eschew the advice, save a little money, and just wing it. And that can work out fine in those few cases where the venture succeeds and prospers. But failure occurs far more often. And where, as here, business failure goes along with a lack of proper documentation, the parties can end up in litigation, and the attorney fees paid to litigation counsel are many times the fees that would have been paid for proper legal and financial advice up front.Higgs v. Colliau (In re Colliau), Adv. No. 15-1118 (Bankr. W.D. Tex. 5/24/17).Unfortunately, bankruptcy lawyers know this story all too well.   By the time that clients get to us, the time to properly document the deal is long gone and the once friendly parties are antagonistic.However, there is still some wisdom for bankruptcy lawyers here.  A plan of reorganization is a contract.    Careful plan drafting can avoid litigation down the road.  As the late bankruptcy Judge Larry Kelly once said, "You guys drafted this plan and now you're asking me to tell you what you meant?"    Disclosure:  I initially represented the plaintiff in this case.   However, I did not try the case.