Posts Tagged ‘Minneapolis consumer attorney’

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Why did a debt collector send me a 1099-C?

Wednesday, February 22nd, 2012

1099-CRe-posted for the upcoming tax season! This post describes how tax reporting of forgiven debt works. It also gives some solutions if you’ve been hit with a 1099-C for debt forgiveness.

It’s time to face the tax man again, and some consumers are surprised to receive a 1099 from a lender or debt collector they dealt with in the last year, counting income to the consumer for debt forgiveness. The amount on Form 1099-C states the income “derived” from the forgiveness or settlement (for less than the full value) of a debt. Because the lender wrote off a debt (or a portion of a debt) it believed it was owed, it has the right (but not necessarily the obligation) to charge the income to you. Here are some exceptions.

1. A lender can’t send a 1099-C for debt discharged in bankruptcy. If a debt was discharged in bankruptcy, the lender can’t issue a 1099-C for debt forgiveness. However, let’s say a debt was settled in January of 2010, and then you filed bankruptcy in February–then the debt forgiveness would be income.

2. Discharge of debt on principal residence. The federal Mortgage Forgiveness Debt Relief Act allows taxpayers to exclude debt forgiveness income from the discharge of debt on their principal residence up to $1 million. So debt reduced in a mortgage modification, as well as debt forgiven as part of the foreclosure process, will not generally count as income.

3. You were “insolvent” when the debt was forgiven. The insolvency exception is a powerful tool for many people. If, on the day before the debt was settled or forgiven, all your assets (including your retirement accounts) were less than your total debts (including your mortgage)–then you don’t have to count a 1099-C as income. File IRS Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness

4. The debt is disputed and the lender can’t prove you owed it. If you don’t owe the debt and the lender can’t prove it’s legit. you may be able to contest a 1099-C. Contact a tax attorney for help.

We aren’t tax attorneys. If you need help with a tax issue, please consult a specialist. But if you’ve received a 1099-C and you think you fall under one of these exceptions, get in touch.

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Posted in Bankruptcy, Debt Collection | 1 Comment »

Can a debt collector leave messages on my voicemail?

Friday, June 10th, 2011

The Fair Debt Collection Practices Act (FDCPA) makes it illegal for a debt collector to communicate with any person other than you or your attorney about your debt. When a debt collector leaves a message on your answering machine (does anyone have these anymore?) or voicemail, it runs the risk that other people will overhear that a debt collector is contacting you. Embarrassing, right?

According to FDCPA case law here in Minnesota, if a debt collector leaves a voicemail and either a) identifies itself as a debt collector or b) mentions a debt that you owe, it has broken the law. If so, you may be entitled to $1,000 statutory damages plus any actual damages you incurred (such as emotional distress damages for invading of your privacy). The best part? You get your attorney’s fees from the debt collector. That means you don’t have to pay us unless we win your case.

If a debt collector leaves you a voicemail and someone else hears it, give us a call right away.

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Posted in FDCPA | 2 Comments »

Can I run up my credit cards before filing bankruptcy?

Monday, April 25th, 2011

Chapter 7 Bankruptcy will often wipe out your credit card debt. But people who are looking to file bankruptcy are often still living off their credit cards, or at least using them on a regular basis. So our clients ask us, “can we use our credit cards before filing bankruptcy?” There are a couple of basic rules to follow:

1. Don’t buy a jet ski on your credit card right before your bankruptcy. The bankruptcy law says a debt is non-dischargeable (meaning that it won’t be wiped out in bankruptcy) if the debt was incurred under false pretenses. False pretenses may include the fact that you didn’t intend to pay the debt when you incurred it. But the creditor will have to prove that you didn’t intend to pay the debt, which is usually an uphill battle for them.

This is why the law gets more specific. Purchases greater than $550 made on a credit card for luxury goods and services within the 90 days before filing are presumed to be non-dischargeable–meaning that to get them discharged, you’ll have to prove that the jet ski was necessary for the health and welfare of you or your family. That’d have to be one special jet ski.

2. OK, so you can’t buy a jet ski, but you can probably buy diapers. “Luxury goods and services” isn’t defined in the bankruptcy code, but the law does say that the term doesn’t include “goods or services reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor.” So although I can’t promise you a judge will think your particular purchases were necessary, I’d guess you’d be able to make a strong argument that food, medicine, diapers, or gas station purchases would normally pass the test.

3. Don’t take large cash advances right before your bankruptcy either. Cash advances more than $825 from a single creditor within 70 days before filing bankruptcy are presumed nondischargeable. Which brings up an important point. If you try to avoid the presumption limits (such as taking $824 in cash advances 71 days before filing your bankruptcy case) the creditor can still try to prove false pretenses generally, and if you’re trying to skirt the presumptions, it may look like you’re hiding something and attract unwanted attention from your creditors and the court.

4. Once you file bankruptcy, you won’t be able to use your credit cards. So why not start living on cash right now? We usually recommend that our clients cut up their credit cards and see if they can make their monthly expenses for roughly three months before the bankruptcy. Living without credit can be hard after you’ve become accustomed to it, so it makes sense to get some practice before you file bankruptcy.

Questions about non-dischargeability? Don’t make these decisions without an experienced attorney. Call us to talk about your individual situation.

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Posted in Bankruptcy | 4 Comments »

We are NOT Central Prairie Financial, LLC

Friday, April 8th, 2011

We get a lot of notices of bankruptcy filings. This makes sense, because we represent people filing bankruptcy. Even though we’ve already received the same information via e-mail, we make a point of opening the letters and verifying that all the information is accurate. Then we fold up the letters into paper airplanes and play Red Baron in the office. It is often the highlight of our day.

Lately, we’ve been getting notices on bankruptcies that have nothing to do with us. We are neither the attorney of record, nor do we represent any creditors. It turns out we’re getting bombarded with mail because one particular creditor, Central Prairie Financial, LLC, doesn’t have much presence on the internet.

When you Google “Central Prairie Financial” what you’re most likely to see is one of our blog posts lambasting the practices of this “Laura Ingalls Wilder of the Debt Buyer World.” There appear to be some law firms out there who think that because we mention Central Prairie Financial that we are Central Prairie Financial, so they send their bankruptcy notices to our address. That is kind of like assuming that Fox News is the official mouthpiece of President Obama, because they say his name a lot.

I don’t mean to sound like I’m getting on the case of other bankruptcy attorneys. Central Prairie is very mysterious. All we really know is that they buy debts and hire local law firms to sue on them. Or maybe they are owned by those local law firms. It is very difficult to tell from online research. The one thing I have been able to determine is that they are registered as a Limited Liability Company in Delaware, which, last time I checked, was nowhere near the central prairie.

If you get sued by Central Prairie you can definitely call us, but please don’t address your birthday cards and holiday letters for them to our address.

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Posted in Debt Collection | No Comments »

What happens to my credit score when I file bankruptcy?

Monday, April 4th, 2011

If you’re considering filing bankruptcy, you’re probably concerned about what will happen to your credit–and rightfully so. Credit scores may temporarily be trashed when a client files bankruptcy, but the real question to ask is–who cares?

Credit scores are based on the last 7-10 years of reporting information, but according to the credit scoring formula, things that happened in the recent past are weighted far more heavily than things that happened a long time ago. This is great news for the potential bankruptcy filer–your score may dip in the short term, but you can build your credit back quickly by opening new, positive credit accounts and letting that old stuff fade into the distance.

1. If you’re in the position to be considering bankruptcy, your credit score is probably on the brink anyway. There are alternatives to bankruptcy (working with debt management nonprofits or their more unsavory cousins, debt settlement and credit repair companies)–but anyone who tells you that these alternatives are gentler on your credit score is probably trying to sell you something. Once you have late payments, defaults and collection accounts on your credit, it’s hard to get them to come off, and paying off collection accounts actually doesn’t improve your score at all. Think about whether your credit score can be saved before you pay someone to save it.

2. I think it’s time you and credit take a little break from each other. If you’re considering bankruptcy, you’re probably not planning to take out a mortgage or open a bunch of credit cards in the near future, and so you probably don’t need to have a sky-high credit score right now. Your credit score may be a factor for renting apartments or finding new jobs, but having a recent bankruptcy may be less of a big deal to most people than if you haven’t resolved your issues and have a bunch of debt collectors clawing after you. Sure–you’ll need your credit to rebound eventually, but for now, explain your situation to a potential landlord or employer. If you’re honest and upfront, you’ll likely find that people are willing to overlook your earlier problems.

3. We have strategies for building back your credit. Remember, the recent past is much more important than the distant past when it comes to credit. The credit scoring models will reward you for opening new, positive credit accounts and paying on time every month. By stopping all new reporting on old accounts, bankruptcy cleans the slate so that your creditors don’t keep dragging down your credit score month after month.

Once you file bankruptcy, you’ll be inundated with new credit solicitations. But these offers aren’t the ones you want–they tend to be expensive and predatory. We can point you toward safe credit building products–credit building loans and secured credit cards–that will help you build your credit back up slowly and surely. We also meet with you at no charge six months after your bankruptcy to make sure that all the negative information that was on your credit report pre-bankruptcy was cleaned up the right way. If you build new credit and pay on time, banks will begin to consider you for low-interest car loans and mortgages as soon as a year or two after your bankruptcy.

If you want to know more about how bankruptcy may affect your credit score, get in touch with us.

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Posted in Bankruptcy, Credit Reports | 1 Comment »

Different time limits on store credit cards may protect consumers

Wednesday, March 30th, 2011

As we mentioned in another post, the statute of limitations for a credit card debt is six years in Minnesota. This means that a debt collector can only sue a consumer on a credit card debt within the six years after default on the card. Once six years have passed, there’s very little a collector can do to get the money.

Not very many people know that there is a separate, shorter statute of limitations of four years for store credit cards. This is because store cards are governed by the Uniform Commercial Code (UCC), a set of laws that govern installment sales of goods, among other things. So figure out whether the shorter limitations period applies, we need to figure out whether the card was a sale of goods (four years) or money loaned (six years). Some cards are tricky–for example, Walmart has both a store credit card and a Visa card. To figure out which limitations period applies, we ask the following questions:

Did the card have a Visa/Mastercard/Amex/Discover logo? If not, the four-year period may apply. If it’s been years since you cut up the card and you can’t remember whether there was a logo on it, we can generally use the card number to find out. Amex cards begin with the numbers “34″ or “37.” Visa cards begin with 4. Mastercard begins with 5. Discover begins with “6011″ or “65.” If the account number began with any other numbers, it most likely was a store card.

Did you apply for the card at the cash register? If you did, it’s easier to argue that you bought goods on installment and therefore it was a store card. If you applied for the card from home, it may be more likely that it was a credit card.

Could you take a cash advance on the card? Store credit cards don’t allow you to take cash advances. Credit cards generally do. If you couldn’t take a cash advance, the four-year period may apply.

If a collector has sued you after the end of the limitations period, not only is it a defense to the lawsuit, but in some cases it is a violation of the Fair Debt Collection Practices Act if they knew that the debt was too old to be sued on. A good consumer lawyer should understand how to fight these zombie debts and may be able to help you recover damages. If you think you’re being sued on a store credit card, give us a call for a free case evaluation.

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Posted in Debt Collection, FDCPA | 3 Comments »

My ex is filing bankruptcy. What does that mean for me?

Monday, March 28th, 2011

One of the questions we are most frequently asked is, “What happens to me if my former spouse declares bankruptcy?” The answer is, as always, it depends. Mainly it depends on whether you are obligated on any of your ex’s debts. These could be credit cards, car loans, or mortgages that the two of you entered into jointly or that you are a co-signer for.

A proactive first step is to pull your credit report and see if any of your ex’s debts appear on it.  You are entitled to get one free copy of your credit report each year from each of the three credit reporting agencies. You can get yours online at www.annualcreditreport.com.

If you find debts on your credit report that relate to your former spouse, it may be smart to review your divorce decree and see if they were, or were supposed to be, resolved as a term of the divorce. You may want to call your divorce attorney for clarification.

If you have taken out joint debts and your ex files bankruptcy, you may be facing liability for 100% of them.  If you find yourself in this position it is probably worth your time to come in for a free consultation.  It is possible that your ex is filing bankruptcy due to an imminent creditor lawsuit.  As soon as s/he files, that creditor may turn their attention toward you.

If your ex has filed bankruptcy, or if you’re considering filing and want to know how it will affect your ex, give us a call.

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Posted in Bankruptcy, Credit Reports | No Comments »

The Means Test: What is a means test and is it going to stop me from filing Chapter 7?

Wednesday, March 23rd, 2011

The means test is one of the bankruptcy mysteries our clients ask about most often. The means test was created by the 2005 bankruptcy amendments, and was meant to make it harder for high-income folks to file bankruptcy.

To decide whether clients qualify to discharge their debts in Chapter 7, the courts are concerned with two major questions: 1) Does a consumer have enough assets to pay off their debt? and 2) Does a consumer have enough income to pay off their debt? The means test helps the court answer the second question.

To figure out whether a consumer has enough income to pay creditors, you might just compare what the consumer actually makes with what he actually spends, and see if there’s anything left over at the end of the month. But looking at each consumer’s individual budget would require the court to make some tricky judgments about whether his grocery bills are reasonable or whether he’s spending too much money on pay-per-view. So instead, the means test looks at some of the most common expenses and standardizes them so everyone gets the same deduction.

Here’s how this works in practice–your attorney will compile the last six months of all income your household has received, and compare it against the median household income of a family your size in your state (for example, as of this post, the median household size for a family of two in Minnesota was $61,690.) This information is available on some handy tables on the U.S. Trustee’s web site. If your household income is less than the median, congratulations–you’ve finished the form and you can file Chapter 7!

If your household income is more than the median, you may still be able to file Chapter 7, but there are a whole set of other calculations that your attorney will need to go through involving your monthly expenses to find out. These include some standard expenses that can be found on the U.S. Trustee’s web site, as well as some actual monthly expenses. Once you deduct these expenses from monthly income, the goal is generally to have a very low number for your leftover–or disposable–income.

But filling out the means test form requires a whole lot more than just looking up some numbers and plugging them into a chart. First of all, some of the deductions are backward-looking over the past six months. Some are forward-looking. And some are hypothetical (an expense is allowed if you should be spending on it). Also, many of the expenses have rules–you can’t take the expense unless certain criteria are met. These rules are based on the Bankruptcy Code and court cases interpreting the bankruptcy law. This is why you’ll need a good attorney who knows the ins and outs of bankruptcy, not just someone who will fill out your bankruptcy forms without much legal analysis.

These are just the basics. In future posts, we’ll try to go more in-depth so you can understand more about the means test and how you can qualify for Chapter 7 bankruptcy. Give us a call if you’re wondering if you’ll pass the means test.

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Posted in Bankruptcy | 3 Comments »

What if I incur new debt during my bankruptcy?

Monday, March 21st, 2011

Someone we know recently called to ask for help. She had filed bankruptcy with a big local firm, and about a month and a half after filing her case, her son had a medical emergency and they needed to call an ambulance. The bill was going to be high. But since the debt was incurred after she filed her case, the debt wouldn’t be discharged in bankruptcy.

We told her that she may be able to dismiss her bankruptcy case and then file a new case. But her bankruptcy attorney had made a mistake. When she completed her second credit counseling course, the attorney filed it with the court right away, even though it didn’t need to be filed for more than a month. Once the credit counseling certificate was filed, the case was put on track for a discharge, making it much more difficult to dismiss the case.

We’re always looking out for our clients, and we want to make sure we can take care of it when there’s an unexpected emergency. We almost always wait until the last possible day to file the credit counseling certificate, just in case something bad happens to the debtor and they need to dismiss their case. If they need to dismiss, we just let the deadline pass without filing credit counseling, which automatically dismisses the case.

Every once in a while, a little procrastination can pay off.

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Posted in Bankruptcy | 1 Comment »

New rule protects federal benefits from bank levies

Wednesday, March 9th, 2011

Starting May 1, 2011, banks will no longer be able to turn over some federal benefits held in their accounts to creditors. Previously, when a creditor got a bank levy against a consumer, they could take all the funds in an account, and the consumer would have to use a time-intensive process to claim a state or federal exemption to get the funds back. But in the meantime, the consumer could not access that money.

The new rule issued by the U.S. Treasury Department will require banks to check, before turning funds over to a creditor, whether federal benefits (Social Security, SSI, VA benefits, etc.) were deposited into the account within the previous two months. If so, the banks will not be able to send those two months of federal benefits to the creditor. The new rule does not apply to garnishment by a child support agency.

In addition to the new protection, money not protected by the new rule may still be protected under state law. Consumers will still need to fill out the exemption notice for exempt benefits beyond the ones covered by the new rule.

One very important note–this new protection will not apply to federal benefits deposited by paper check. To get the protections, a recipient must sign up for direct deposit or a Direct Express card. Also, the protection wil not apply to funds transferred to another bank account. So if you receive the money in your checking account, and transfer it to your savings account, it is no longer protected by the new rule.

If your bank account is being levied, give us a call.

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Posted in Debt Collection, Levy/Garnishment | No Comments »

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