Archive for the ‘The Law and Your Money’ Category

Monday, June 13th, 2011

Inherited Money in Bankruptcy

One question that many potential bankruptcy filers have is how the bankruptcy court handles inherited money and money that bankruptcy filers expect to receive in the months after their filing. The answer depends on a few variables. Here’s a look at some of them.

  • The 180-day rule. One of the most important rules about bankruptcy and inheritance is that funds inherited within 180 days (or about six months) of the filing of a bankruptcy petition are generally considered to be part of the bankruptcy estate. This means that the bankruptcy court has the right to use those funds to repay creditors, pay court fees or do anything else it deems appropriate.
  • Date of death. In the case of money inherited from a deceased person’s estate, the date of death will be taken into consideration. If the person died within the 180-day window, then the funds generally go to the bankruptcy estate, even if the filer doesn’t receive them until some time later.
  • Type of inheritance. Another factor bankruptcy courts consider is how a person inherited money. Depending on laws in your state, the court might treat an actual will differently than another type of contract designating you as heir to certain money or property. A bankruptcy lawyer in your state can help you figure out how the court is likely to treat your expected inheritance.
  • Exemptions. In some states, inherited property might be protected by bankruptcy exemptions. In certain cases, even if an inheritance falls within 180 days of a bankruptcy filing, the filer may be able to keep the inherited property.
  • Bankruptcy fraud. It’s important to note that filers must report any expected inheritance on their bankruptcy petitions. If a filer tries to lie about or conceal inherited assets, the court could convict him of bankruptcy fraud, which is punishable by a serious fine and up to five years in jail.

Inherited Money & Debts

If you have reason to expect that you will inherit money or assets in the near future, it’s a good idea to start thinking now about how you plan to use that money. While debt repayment is one option, it’s not the only one.

Consider speaking with a financial adviser about your options for setting up an emergency fund, negotiating your debts, and taking money management or investment classes. If you have debt, taking advantage of an influx of cash to improve your overall financial system may be more effective than simply making a one-time debt repayment.

Alternately, if you’re expecting an inheritance and wondering whether or not filing bankruptcy makes sense for you (either now or later), you may want to seek the counsel of a bankruptcy attorney.

A recent news article from LoanSafe.org tells the story of a woman who broke some important bankruptcy laws and ended up with almost $48,000 in fines to pay, on top of a five-year probation period. If that doesn’t sound like a good deal to you, read on to find out what she did wrong.

According to sources, the woman’s case worked like this:

  • In 2005, the woman in question filed for Chapter 7 bankruptcy. Chapter 7 is designed to help filers eliminate certain unsecured debts without making creditor payments through a repayment plan (that only comes into play in Chapter 13 bankruptcy).
  • As bankruptcy law requires, the woman testified to the completeness and accuracy of the information in her bankruptcy petitions as part of the Chapter 7 process.
  • Before filing her bankruptcy petition, the woman apparently transferred a piece of property (worth more than $47,000) to her son. She did not mention this transfer in her bankruptcy documents.
  • After the Chapter 7 case ended, the woman reportedly sold the “transferred” property and used the money to buy a home in a different state without reporting the proceeds of the sale.

Avoiding Bankruptcy Fraud

The woman’s crime was that she improperly transferred property with the intention of shielding it from the bankruptcy court. Had she proceeded lawfully without transferring the property, it would have been considered part of the bankruptcy estate.

Depending on the specifics of the woman’s case, the property might have been sold to raise money to repay her creditors in part; however, lying about the property ended up costing her in the long run.

One reason most insiders recommend that potential bankruptcy filers work with a bankruptcy lawyer is to help them avoid bankruptcy fraud, which includes all of the following.

  • Reporting incorrect or incomplete information: While the bankruptcy court may excuse honest mistakes on paperwork, more serious “mistakes” will likely lead to some legal action.
  • Attempting to repay a favored creditor before filing: Singling out one creditor (say, a family member or friend who lent you money) to repay before discharging other debts in bankruptcy is not allowed. Those who attempt to do so could face charges of bankruptcy fraud.
  • Improperly concealing or transferring property: This could be considered a branch of the “complete and accurate” rule, but it deserves its own section. Attempting to hide or pretending to give away assets to shield them from bankruptcy is not permitted.
  • Omitting known future income: Whether you’re expecting a tax refund or a hefty inheritance, it’s important to include it in bankruptcy petitions. Otherwise, you risk being charged with bankruptcy fraud.

As the story above illustrates, bankruptcy fraud is serious business: fines can get as high as $500,000 and those convicted may face jail time. Neither of those options sounds like a good way to get back on your feet financially.

The Federal Trade Commission announced this week that according to a recent study, there has been an increase in the number of drug companies engaging in pay-to-delay deals with generic drug producers.

The FTC has denounced the actions, and with good reason: medical costs are one major contributor to many personal bankruptcy filings of U.S. citizens. So how might these types of deals affect you and your family?

  • Background information: Once a drug company patents a certain drug, generic producers of drugs of similar chemical composition may file a challenge to the patent, with the goal of being able to produce a chemically similar (or identical) version to sell more cheaply.
  • How the deals work: If these challenges went to court, it’s possible that they would result in judges ruling in favor of the generic producers. In order to avoid that outcome (and thus secure the market for themselves for a longer period of time), some brand-name drug manufacturers settle out of court with generic drug producers.
  • Who makes money: Most settlements include an agreement that the generic manufacturer will not produce the generic version of the drug until a certain date; some settlements include a financial incentive from the brand-name manufacturer to lengthen the delay period (i.e. the brand-name manufacturer pays the generic manufacturer to delay its release of its cheaper product). The FTC found that in cases involving a payment, generic drug release waiting periods increased by an average of 17 months.
  • Who loses money: The FTC notes that in 2010, 22 name-brand drugs were targeted in pay-to-delay deals. The total number of such deals reportedly jumped from 19 in 2009 to 31 in 2010 (an increase of more than 60 percent).
  • What it costs us: The total dollar toll these deals have taken on Americans comes to $3.5 billion per year, according to FTC estimates. The difference comes from the fact that generic drugs can cost anywhere from 20 to 90 percent less than their name-brand counterparts. That’s a lot of money people could be putting toward paying down mortgages or credit card debt.

Are Generic Drug-Delay Deals Legal?

Anyone familiar with antitrust laws may wonder whether deals to delay competitive drugs are even legal in the U.S. The answer is a little murky. It seems that the FTC has filed a number of lawsuits against pay-to-delay agreements and has demonstrated its support of bills in Congress designed to eliminate such activity among drug manufacturers.

How can you take action? While there may not be much you can do about the problem of pay-for-delay agreements, if you’re worried about paying your medical bills, you can (and should) ask your physician whether generic versions are available any time you need medicine.

In the wake of tax season, the Internal Revenue Service has issued a statement warning Americans about how to spot and rectify identity theft that may affect their taxes. Identity theft can be a difficult crime to deal with, and can cost victims hours of time and even money to repair.

Here’s a look at what you need to know about identity theft and your taxes.

  • The IRS does not initiate contact by email. If you receive an email from someone claiming to be the IRS, report it as spam and do not click on any links or provide any of your personal information.
  • Pay attention to any snail mail contact. If the IRS contacts you by postal mail and indicates that multiple tax forms were filed in your name or that records show you received wages from an employer you don’t know, you should suspect possible identity theft.
  • Contact the IRS. If and when you receive a notice from the IRS by mail that indicates unusual or suspicious activity, you should contact the IRS by responding to the address or number provided on the form you received.
  • Check your credit report. If you’re interested in knowing more about whether your identity might be at risk, visit www.AnnualCeditReport.com to check your credit report for any suspicious activity. You are entitled to view a credit report from each of the three major reporting bureaus for free once per year.

It’s best to act quickly if you suspect identity theft related to your taxes, because if someone else filed a tax return in your name (or using your Social Security Number), that person could be eligible for a return – and you might not get one.

Online Resources to Protect Yourself

One of the best ways to combat identity theft is to prevent it. And, seeing as identity theft can cost serious money (and even triggers bankruptcy filings for some victims), it’s never too soon to start protecting yourself, your sensitive information and your money.

The Federal Trade Commission, the IRS and a number of other government organizations have teamed up to create the web site OnGuardOnline.gov, which offers information, tools and tips for staying safe in the digital world.

The site’s online resources include:

  • Detailed instructions for dealing with identity theft (tax-related or otherwise);
  • Pointers for keeping your information, accounts and passwords safe at WiFi hotspots;
  • A number of games designed to educate users about various digital risks and how to protect against them;
  • Informative videos that include expert interviews and how-tos designed to help people stay on top of digital and cyber safety; and
  • Tools to use to protect yourself in your everyday life.

Debt collectors using new media to contact debtors, raising an issue that Consumer Financial Protection Bureau head Elizabeth Warren has indicated should be a top priority for lawmakers and attorneys general in every state.

A recent post from WalletPop.com highlights the issue, which has become more prominent and consumers - and marketers - embrace the latest technology.

Here’s a look at why this issue needs attention and how it might affect you.

Debt Collection Rules

Thanks to the Fair Debt Collection Practices Act, originally passed in 1978, debt collectors have to follow certain rules when contacting consumers about debts they owe. Generally, these rules are designed to make sure debtors are treated respectfully.

But new communication devices and debt collection practices have raised questions about what should be legal. For example:

  • Pre-recorded messages: Many debt collectors have apparently begun leaving pre-recorded messages on voicemail accounts or home answering machines. While these messages have “disclaimers” that indicate a listener should hang up if the name in question is not their own, it’s easy to ignore that instruction and learn about another person’s debt (information that should be private, according to the FDCPA).
  • Facebook messages: Some debt collectors have reportedly contacted debtors and their friends and families over social networking sites, which is not explicitly prohibited by the FDCPA (because Facebook wasn’t around when it was made law), but which many insiders argue should be considered “embarrassing media.”
  • Text messages and cell phone calls: Other debt collectors are apparently using cell phone contact to reach debtors, a method that has raised the question of usage fees. Regulators are asking whether there should be restrictions on contact that debtors must pay for by the unit.

Proposed Regulations in Some States

As of now, a few states have begun to take action to regulate the new media debt collectors have been using. The Attorney General of New Mexico has reportedly announced that debt collectors must disclose to debtors the expiration dates for debts (that is, when collectors are legally prohibited from attempting to collect them).

In Massachusetts, Attorney General Martha Coakley has released a statement introducing proposed changes to that state’s debt collection rules, which would include:

  • Extension of collection rules to apply to new media, including online, text and recorded messages;
  • Amendment of the definition of a “household” to take into account use of cell phones and email addresses;
  • Extension of rules for primary debt collectors to apply to so-called passive debt collectors (who often buy expired debts cheaply and aggressively attempt to collect on them); and
  • Requirement for debt collectors to make a good faith attempt to determine whether a debt is too old to be legally collected.

Even if you don’t live in New Mexico or Massachusetts, you could see changes to debt collection laws and practices where you live in the near future. And, if you suspect that a debt collector has broken existing rules in attempting to contact you, don’t hesitate to contact a lawyer to learn more about your rights.

The Federal Trade Commission announced this month that it has settled charges with two men who allegedly bilked consumers out of hundreds of thousands of dollars by using an online payday loan “matching” scam. Here’s what the FTC says happened:

  • The web site offered to match consumers with payday lenders in their areas.
  • As part of the online application process, consumers were reportedly sent to a page that had an offer for a debit card. The “yes” box to order the debit card was pre-checked on this page.
  • Consumers who clicked through to the “finish” page without realizing they’d agreed to the embedded debit card offer were automatically signed up for the debit card. Clicking through reportedly also meant consumers granted authorization for their bank accounts to be charged for the funds.
  • Victims of the scam were apparently charged up to $54.95 extra for the debit card they did not intend to apply for.

Terms of the Settlement

The newest settlement, which reflects an amended charge filed in April 2010, means that the men charged with the offenses, Matthew Patterson and Mark Benning, will be prohibited from doing the following:

  • Presenting false or misleading information about any product or service, including information about how customers will be charged or billed;
  • Misrepresenting the cost or status of a product or service (e.g. incorrectly suggesting that something is free or a “bonus”) for any of its terms and conditions;
  • Charging consumers without complete disclosure of how much will be charged to them, all terms and conditions of the transaction, what billing information will be used and to what account the payment will be charged; and
  • Failing to keep track of affiliates to make sure that they comply with all the above terms (and those laid out in the court order).

In addition to these restrictions, the FTC settlement imposes a $5.2 million judgment on the two men, which will reportedly be suspended for Patterson once he pays $800,000 over a period of 10 years and for Benning when he provides the court with money raised from the sale of his house.

Protecting Your Finances from Predatory Lenders

While a number of consumer protection groups and government organizations exist to police the market and keep scammers from finding new victims, perhaps your best defense against predatory lenders is knowledge.

Take a look at this predatory lending glossary to get an idea of what kinds of loans and offers qualify as “predatory” and how you can keep your money from falling into the wrong hands (and keep yourself from falling into bankruptcy).

As you may already know, consumers in the United States are protected by a number of consumer protection laws designed to make sure merchants and service providers do not take more than a reasonable amount of consumers’ money.

One consumer protection law, the Fair Debt Collection Practices Act, outlines how debt collectors are permitted to do their job and puts certain restrictions on them. Each year, the Federal Trade Commission issues a report on the state of various consumer protection laws and its recommendations for modifications and changes in rules and enforcement.

Here’s a look at what the FTC had to say about 2010.

Debt Collection Complaints in 2010

Last year, consumer debt collection complaints topped the list, at 140,036 individual filings (an increase from 119,609 in 2009). Specifically, people identified these debt collection issues:

  • Repeated or continuous phone calls: Debt collectors are explicitly restricted from calling debtors repeatedly or with the intent to harass or annoy. Further, the FDCPA mandates that debt collectors can call only between the hours of 8 am and 9 pm local time.
  • Misrepresentation of a debt: Consumer complaints cited debt collectors who misrepresented the character, amount or status of debts owed, and in some cases demanded payments in amounts greater than those permitted by law. All such actions are prohibited by the FDCPA: debt collectors cannot lie about any aspect of a debt or about their legal authority to collect it.
  • Failure to provide adequate written documentation: The FDCPA requires that debt collectors send debtors written documents outlining the specifics of a debt and detailing the consumer’s rights regarding the debt and its collection. According to consumer complaints, though, many debt collectors are not adhering to these requirements.

Changes to Enforcement and Consumer Protection

Thanks to the implementation of the Consumer Protection Act in 2010, a new consumer rights bureau (the Consumer Financial Protection Bureau) will have authority to create and enforce (with help from the FTC) rules governing how debt collectors must operate. In future years, reports about the status of the FDCPA will be developed and issued by the new consumer protection bureau.

How to Take Action against Dishonest Debt Collectors

So what can you do if you’re plagued by debt collectors who don’t play by the rules? Take the following steps.

  • Learn your rights: Check out a summary of the rules debt collectors must follow so you know when your rights have been violated.
  • File a complaint: Visit the FTC’s complaint page to file a complaint electronically.
  • Get legal help: If a debt collector is harassing you during or after a bankruptcy filing (especially for a debt that was discharged in bankruptcy), you may want to enlist a lawyer to help.

Wednesday, March 16th, 2011

New Consumer Protection at the Bank?

A recent press release from the National Consumer Law Center highlights a new federal rule that, if not modified in the next two months, will take effect May 1st and should better protect the bank accounts of people receiving government benefits. Here’s what you need to know.

When Creditors Can’t Garnish Your Money

If you’ve ever filed for bankruptcy or been in serious debt, you may be familiar with the practice of garnishment, which occurs when a creditor collects money directly from your wages or bank account to cover a debt you owe.

  • Current law protects certain funds: As federal laws now stand, creditors are prohibited from garnishing certain payments from the accounts of debtors (that is, people who owe them money). These funds include Social Security payments, disability payments, veterans’ benefits and other benefits for low-income and disabled people.
  • Current practice permits the garnishment: Despite the prohibition against garnishing such funds from bank accounts, it seems that many banks regularly freeze the accounts of customers whose creditors request a garnishment from the bank. While customers can have these funds unfrozen, doing so generally requires hiring a lawyer and can take time. During that time, these customers may not have access to the funds in their account that they need to make basic purchases.
  • High monthly toll on the poor: Reports note that every month, as many as 100,000 Americans are victimized by this improper garnishment.
  • Immediate action is essential: A recent New York Times Op-Ed piece notes that if customers do not act quickly enough to unfreeze their accounts, creditors may end up garnishing the funds regardless of the federal laws prohibiting such action.
  • “Uncertainty of origins of funds”: Apparently, banks have justified their freezing of accounts legally protected from garnishment by claiming that they have no way of tracking the origins of funds in any given account, and that if they were to ignore orders of garnishment, they could face legal repercussions.

The New Rule: Electronic Tags for Special Funds

The new rule, then (if it is not modified or struck down before May 1), will allow the government to electronically mark the money it deposits into beneficiaries’ bank accounts. With such tags in place, banks should be able to easily identify which funds are eligible for garnishment and which funds are protected.

The National Consumer Law Center noted in a press release that the new rule is especially good news for retirees, veterans and Americans with disabilities, as their accounts tend to most often be the ones with the types of money in question.

Stay posted to the Total Bankruptcy blog to find out the latest updates and changes to this rule as the public comment period comes to a close.

The U.S. Equal Employment Opportunity Commission (EEOC) has filed a lawsuit alleging that the practice of conducting pre-hiring credit checks by Kaplan Higher Education Corporation, a company that provides test-preparation and post-secondary services, discriminates against certain classes of Americans and is therefore unlawful.

And, in case that’s a little too much legal information for your comfort level, here’s what that means and why it’s good news if you’re struggling with debt and/or recovering from bankruptcy.

So What’s the Deal with Pre-Hiring Credit Checks?

Here’s a look at the basics of employer-conducted credit checks.

  • What they are: As part of the hiring process, many employers (as many as 60 percent, according to some polls) have begun running credit checks on job applicants (in addition to conducting criminal background checks). In theory, these credit checks are valuable to employers because they divulge information about an applicant’s overall capabilities.
  • Why they’re controversial: While few people oppose the practice of running credit checks for applicants to positions that involve finance, many consumer advocates have spoken out against credit checks for applicants in non-financial fields. After all, if the current recession has taught us anything, it’s that poor credit can have little to do with a person’s responsibility, intelligence and job worthiness. Further, a few states have already made pre-employment credit checks illegal for non-finance jobs.
  • The current lawsuit: The EEOC’s charges against Kaplan include allegations that Kaplan’s practice of conducting credit checks before making hiring decisions constitutes to discrimination, because black and Latino Americans reportedly have statistically lower credit scores than white Americans.
  • The legal reasoning: According to a Credit.com piece on the issue, the case has teeth because it applies legal reasoning the EEOC used to show that criminal background checks also disproportionately affected black job applicants because blacks are more likely to be arrested than whites.
  • The reason it’s important: If the court rules that pre-employment credit checks lead to discriminatory hiring decisions, such credit checks could be outlawed in more states, potentially making employment easier to find for people who have struggled with debt problems.

Potential Outcomes of the Case

While the lawsuit is still in its early stages at this juncture, it has the potential to change the current state of pre-employment credit checks in the U.S. The court could, depending on the evidence presented, rule that pre-employment credit checks amount to discrimination in the hiring process.

This could be good news for people recovering from a bankruptcy filing or otherwise fighting debt burdens, because being denied employment for credit-related reasons can lead to a frustrating and debilitating debt cycle.

In the mean time, you may want to consult with a bankruptcy lawyer if you have been denied employment because of something in your credit report.

Since news of the so-called “robo-signer” scandal broke a few weeks ago, a lot has happened in the foreclosure business in this country. Here’s a look at some of the latest developments and what they might mean for individual homeowners and the nation’s housing market.

Record Number of Home Seizures

Bloomberg news reports that mortgage foreclosures in the United States reached record high levels in September, just before the robo-signing story pushed many mortgage lenders to pause their home repossessions. Here are some details (before you read on, we want you know that Chapter 13 bankruptcy is designed to stop foreclosure and repossession. Ok, that's it. Have fun reading on!):

  • More than 100,000 homes foreclosed: In September alone, according to figures from RealtyTrac, lenders repossessed 102,134 U.S. properties. This figure apparently represents the highest monthly total ever recorded (going back to 2005). The previous high came a month earlier, in August of this year.
  • Foreclosure filings at record high: In addition to actual lender repossessions, other steps in the foreclosure process (including notices of default and auction) reportedly occurred at high levels last month: 347,420 total foreclosure notices, which means that one in every 371 U.S. homes was in some stage of foreclosure.
  • Sales of foreclosure properties high: While the record foreclosure levels aren’t exactly good news, there seems to be a small bright spot: Bloomberg notes that one-third of all home sales in the U.S. in September were sales of foreclosed properties, meaning that at least people are buying houses again.
  • National foreclosures halted: Of course, Bank of America, JPMorgan Chase & Co. and Ally Financial Inc., three major mortgage lenders, have paused foreclosure proceedings in some or all of the country to address the legal issues raised by the alleged improprieties of robo-signers. While a pause to foreclosures might be good news for families in danger of losing their homes, it could have a negative impact on home sales.

Will You Have to Pay Your Legal Fees?

The New York Times reported this week on a new state law in New York that will require lenders to pay the legal fees of homeowners who triumph in foreclosure proceedings. Here’s the scoop:

  • Not a national law: While the law currently only applies to New York residents, it may gain popularity elsewhere, depending on the effect it has on foreclosure cases there.
  • Correcting an imbalance: Currently, in most states, mortgage lenders apparently include a provision in loan papers that requires borrowers to pay lenders’ legal fees in the event of foreclosure.
  • A better shot for homeowners: With the potential of higher payments (because lenders tend to have more capital than individuals facing foreclosure), consumers looking to fight foreclosure cases may have an easier time getting lawyers to take on their cases and thus fare better in court.

Considering the hubbub in the news concerning foreclosure right now, it will likely be an interesting few months or years to see if and how the foreclosure process changes in the United States.