Sadly, 50% of marriages end in divorce.  That means 1 out of every 2 marriages will end in failure.  So even though discussing divorce is as fun as rehashing the 1993 Mets season a game an inning at a time and seems to last as long as the last Jane Austin film I was forced to watch (the last thing I wanted to hear was this is the end of Act 1), it is important to know what a divorce decree can and cannot do regarding debt.

The most important thing to know is that a divorce decree cannot, on its own, change a contract.  If Jack and Diane had a credit card that they were jointly responsible for and when they divorced, Diane was to be responsible for paying that debt, Jack is still responsible for it contractually.  Divorce cannot change the terms of a contract with a non-related party! Think about it from a fairness perspective.  Suppose rather than Citibank lending Jack and Diane $20,000, it was their friend Fred.  Fred knew that Jack had a good job and Diane had always been good for the money, so he made a loan that made them both responsible.  Would it be fair to Fred if a divorce decree could cut his rights to collect that debt in half?  Of course not, and I dare say that banks would not make loans based on two incomes if a divorce decree could change their contractual rights.

So now Jack and Diane are divorced.  Jack has the kids and is moving on with his life.  Diane however is now realizing all that Jack contributed to her lifestyle and is hitting a cash crunch.  It happens, it doesn’t make you a bad person! Diane stops paying the Citibank bill.  It won’t take long before Jack, who has gotten his life back in order, starts getting collections calls from Citibank… unless Jack has changed his phone number, which is common in divorce.

Now Citibank doesn’t have good contact information from Jack and he doesn’t find out that Diane has stopped paying on her bill until a lawsuit is filed against him.

So you’re probably thinking, how do I avoid this?  One of the smartest things you can do is keep an eye on your credit report.  If you are a joint borrower, the card will appear on your credit report.  You will be able to see if the bill is being paid on time.  You should also keep a record of all accounts that your ex-spouse is supposed to be paying and check them on-line! Just about every credit card company has on-line access, it is more cost effective than having phone jockeys handling the phone calls or even an IVR giving electronic information.  By going on-line you can quickly see if your ex is doing what he/she is supposed to be doing.

Of course, Jack hasn’t done any of these things and now he is in pickle because he’s being sued for a debt he thought was gone because his divorce lawyer told him that he is no longer responsible for the debt.  Chances are if your ex isn’t paying one bill, they aren’t paying any of them! If you find yourself in this position, you need to speak to a competent professional who can help.  More than half of the people I see do not need bankruptcy, they just need to find a way out of the weeds.  If this is you, I’d be happy to help, call 610-400-3093 for a free consultation.  One think I tell my clients is Control the situation rather than have the situation control you!

As far as family law, I don’t do that, however if you are in the Lehigh Valley area and need a good family law attorney, I’d be happy to refer you to one.  Call 610-400-3093 for the referral.  Just remember that just because the divorce decree says you don’t have to pay it doesn’t mean you won’t eventually have to pay it.

One of the most common mortgages was an 80/20 mortgage.  You would be given a first mortgage which would cover 80 percent of the cost of the home and then a second mortgage that would cover the remaining 20 percent of the loan.  The 80% mortgage would be in put in first position and the 20% mortgage would be put in second position.  You had this second mortgage to avoid paying PMI payments each month.

You would put no money down, so essentially you went from renting to paying a mortgage without any pain in the pocket, in fact, a lot of these mortgage payments were less than what a person could rent for.

Very few thought about the chances of these homes going down in value (I did, but I make Murphy look like an optimist).  The idea was that the house would increase in value in a few years and there was no risk in there being a lack of equity in the home because real estate always went up.

There were a few who did think about the chance of property losing value and a few of them were mortgage lenders.  Some of these lenders made the 20% mortgage the mortgage in first position and this is why:

A secondary mortgage can be considered completely unsecured if the value of the property is less than that of the first mortgage.  For example, suppose a borrower has a first mortgage balance of $200,000 and a second mortgage balance of $40,000.  Now in our example, the house is worth $180,000.  The house is worth less than the balance of the first mortgage and that makes the second mortgage completely unsecured.

There is an option inside a Chapter 13 bankruptcy to have that second mortgage treated as unsecured.  In the Eastern District of Pennsylvania, where I practice, you need to have a motion to value the real property and then file an adversarial matter to have the mortgage treated as completely unsecured.

The only way to have the mortgage treated this way is if it were COMPLETELY unsecured.  That means if the property is worth $200,000.01, the second mortgage is not completely unsecured and you cannot treat any of it as unsecured.

What a few unscrupulous lenders did during the housing boom was to put the 20% mortgage in first position.  Now when the borrower finds themselves in financial straits and files Chapter 13 bankruptcy, the option to claim the second mortgage is completely unsecured is off the table because the documents were filed incorrectly, deliberately or not.  The 20% mortgage is considered the first mortgage and unless your property has really taken a dive in value, the 80% mortgage is not going to be completely unsecured.

This is an area that is ripe for another class-action lawsuit, even if you are not planning to file Chapter 13 bankruptcy, because bank malfeasance has taken this option off the table.  If you find yourself struggling to keep up with your debts, please call 610-400-3093 or email me at jim@padebt911.com for a free consultation or a referral to an attorney in your area.

So does this mean my creditor can no longer harm me once four years has past?  Like most things in law, the answer is not exactly.

Let’s start with what the creditor cannot do.  The creditor can no longer successfully sue you for a judgment nor can they file a valid proof of claim for debt you owe them in a Chapter 13 bankruptcy case.  A debt this old is also called “time barred. ”

Now we get to what the creditor can do. 

A creditor can still send you a collection letter requesting payment.  You can send a letter asking for anything.  I could send you a letter asking for a pink hippo.  Just because I ask for it in the letter doesn’t mean you have to comply.  Even so, there is nothing overtly illegal in requesting you pay a debt, even if they no longer can sue you for the balance.

A creditor can also attempt to collect the debt using phone calls.  The Fair Debt Collection Practices Act (FDCPA) allows collectors to make contact once per day.

There is nothing barring the collector from attempting to collect a time-barred debt over the phone, however if they threaten to sue you they are violating the FDCPA because it is a thread to do something they aren’t able to do legally.  This could be classified as an idle threat at best. 

If you allow them, a debt collector will drive you nuts trying to collect an invalid debt, and if you make a payment to them to get them off your phone, you may inadvertently start the statute of limitations all over again.

You don’t have to put up with a debt collector’s constant phone calls!

Rather than give in to one of these snakes in the grass, ask them for a mailing address and send them a letter telling them to stop calling.  Its called a cease communication letter.  Send it certified, then if they call again they have violated the FDCPA.  Instead of collecting from you, they may wind up receiving a heavy penalty instead.

If its been more than four years since you paid a debt or you used a credit card and a debt collector comes calling, don’t give them a thing, just send a cease communication letter and remind them that they are SOL.  Their debt is beyond the statute of limitations and they can’t touch you.

The two things for the consumer to know is that BACPA (the act passed in 2005 that made bankruptcy more difficult and expensive) considers bankruptcy lawyers debt relief agencies and that bankruptcy lawyers cannot advise their client to take on more debt before filing bankruptcy.

Lets take this case one part at a time.  The idea that Congress has lumped bankruptcy lawyers together with credit counseling, debt settlement agents, mortgage modification firms and other associated crooks is infuriating, but that is what the law that the banks paid for says.

The second and more nefarious part of this decision is that attorneys may not advise their clients to take on more debt prior to filing bankruptcy.

On its face, that makes common sense, but what about the automobile issue?  Every few years, people will need to change cars.  Buying a reliable car prior to bankruptcy has two positives for the client:

1. A reliable vehicle is a necessity everywhere but the major metropolitan areas, and
2. A reasonable car note that is kept in bankruptcy can serve as a means to improve one’s credit score after filing bankruptcy

Footnote 6 (which does not have the force of law) indicates that purchasing a car, buying groceries, paying medical bills or making purchases that a reasonable in anticipation of filing bankruptcy are acceptable.

While I am hesitant to advise a client based on a footnote, it seems to clear that the Supreme Court allows bankruptcy lawyers to have frank discussions with their clients about life.

While I am still infuriated by being lumped into a group of thieves, that was Congress’ doing, not the Supreme Court, and my representative Charlie Dent and my Senator Arlen Specter who both voted for this.  I wonder if they would like a do-over considering the current economy.  I’m going to email his office and let you know.

Oh, and perhaps Congress should be considered by a debt relief agency since they are the greatest group of crooks and frauds ever assembled.

Click Here To See Original Article

This is a slimy tactic tried by debt settlement companies to steal from you.  That’s right, other lawyers and professionals will call debt settlement a poor product, a bad decision, or a lousy product.  I call them crooks, and here’s why.

Debt settlement companies use misleading advertising (that is being kind) to get people to call them.

Every day on the radio I hear about a government bailout of credit card companies.

They have the nerve to claim that the government is requiring them to clear their books in order to qualify for this bailout.

Baloney!

There is no credit card bailout, there is no government bailout, there is no Obama plan for credit cards.  There just isn’t.

Why would a credit card company need a bailout?  The average interest rate on a credit card is around 20%.  If you owe $1000 on your credit card, that company makes $200 per year on you interest alone.  Multiply that by a couple of million and you can see why credit card companies own the big buildings.

You are better off lighting your own money on fire than working with a debt settlement company.

The first $2500 from debt settlement goes right into their coffers so they can run more radio ads to steal from more people.

If you burned your money, at the very least you wouldn’t be helping them pay to defraud others.

Now I’m not suggesting that you should light hundred dollar bills on fire (and if you truly have money to burn, feel free to drop it off), especially if you are struggling with debt.

If you are under a mountain of credit card debt and don’t know where to go, don’t trust the debt settlement companies.  If you are in trouble with credit card debt, you need a lawyer.

From the image below you can probably grasp my opinion of them.

There is no new Obama program that requires banks to work with you.  There is no government program that is there to help you.   The banks couldn’t care less whether or not they took TARP money when they decide whether or not to give you a deal on your credit card bill.

Lets discuss the pros of debt settlement.

OK now we’re done.

Lets discuss the process.  First of all, you either got a post card from Florida, California, or Nevada telling you they can help you with your debt, that or you hear one of those radio or TV advertisements laced with lies about the wonder that is debt settlement and you called a phone number to speak with a representative.

If you sign up, you will be given a 36 month target in which you will be able to pay off your debt.  Concentrate on the word target.  If you miss the target, its not the debt settlement company’s problem, its yours.

The first five payments will got to pay for debt settlement.  The reason they take their payment up front is because they know you are probably not going to finish the program, so they need to get paid now.  Often the fee is 1/4 of your debt, so if you have $20,000 in debt, the debt settlement company will eventually pay $5,000 for the service.

During those five months, you will probably notice that your phone has stopped ringing.  The debt settlement company will send a letter to each of your creditors asking them not to contact you and instead contact them.

Every one of your credit cards will go past due, and each time you go past due your credit will take a hit.  By the time this process hits its stride, you will be treated by the credit bureaus as if you have filed Chapter 13 bankruptcy.

After five months, with their fee in hand, the debt settlement company will start to contact your creditors from smallest balance to largest and start negotiating for a better deal.

Some of them claim they can cut your balance by 60%, but here is the problem, what are they cutting?  If you start with a $1000 balance and you go past due five months, what do you suppose happens?  Well, you get a late fee, most likely $39… if you go overlimit, and you probably will, you get an overlimit fee of $39.  Finally your interest rate will spike to a level that would make Al Capone blush, and on that $1000 balance you could be getting charged $30 per month in interest.

After five months of this, your balance is now $1540, and then the debt settlement company says they got you a settlement of 40% on your balance, or $924 off your $1000 debt, what a deal!!!

So for a fee of 20% of your debt, you get to risk getting sued, having your credit destroyed, and piling up debt without any guarantee of getting a deal.  There are a lot of creditors who will not deal with debt settlement companies!

Chapter 7 bankruptcy is superior to debt settlement.

For starters, in Chapter 7 bankruptcy, your debts (certain debts are not discharged) are erased, not negotiated, so the banks are forced to stop collecting the debt and leave you alone.

In Chapter 7 bankruptcy, your lender must stop all collection efforts or face a potential bankruptcy stay violation.

While it is true that Chapter 7 bankruptcy will hurt your credit report, the damage is done in one fell swoop, not the death by a thousand cuts that debt settlement programs hit you with.  Unlike debt settlement, you can literally begin improving your credit the day your bankruptcy is discharged.

Bankruptcy is not for everyone, but I don’t know anyone who has ever made it through debt settlement successfully.  Debt settlement has an awful track record and usually leaves the consumer in worse shape, and with a lighter wallet.

Don’t buy the lie, there is no government program to bail you out of your debt, but there is bankruptcy.