Why judges need to scrutinize debt buyers’ evidence more closely (and how to do it)

One prominent defense against a debt buyer collection lawsuit is to challenge the admissibility of the debt buyer’s evidence. Credit card billing statements and other account documents are generally considered hearsay under the rules of evidence. Although there is an exception for business records, a debt buyer must first provide specific testimony–from someone with personal knowledge–that demonstrates that the business records are accurate and reliable.

Debt buyers are very good at providing the precise testimony required to trigger the business records exception. But admissibility shouldn’t be about whether a debt buyer has recited verbatim the requirements of the exception. These requirements have been cheapened to the point of meaninglessness by debt buyers’ boilerplate affidavits that are robo-signed by low-level employees who don’t know the first thing about the legal concepts that they are testifying to. Rather, admissibility should be about whether the evidence is actually reliable.

Although a few judges focus exclusively on whether the debt buyer has met the technical requirements of the hearsay exception, in my experience the overall reliability of the evidence is the primary concern of most judges. Fortunately for debt buyers, many judges (not unreasonably, perhaps) believe that credit card billing statements are inherently reliable and are therefore willing to overlook technical deficiencies in a debt buyer’s evidentiary foundation. I’m not blind to the other challenges that judges face when handling collection cases. In many contested cases, the consumer doesn’t have an attorney and may not even challenge the admissibility of the debt buyers’ evidence. When the consumer does raise the issue on his own, it’s often in a poorly researched and incomprehensible brief obtained from a questionable source on the internet. Judges probably can’t raise the reliability issue sua sponte, because then they risk veering from impartial decision-maker into the consumer’s advocate. I also understand that budget challenges have placed enormous pressure on judges to get cases off their docket. An busy trial judge can be forgiven for holding her nose and granting a debt buyer’s summary judgment motion, despite its evidentiary shortcomings, rather than scheduling a $2,500 collection case for a trial.] But alarming evidence has recently surfaced that suggests that these judges’ perception of the inherent reliability of credit card statements might be misplaced.

A March 2012 story by American Banker reported that

JPMorgan Chase & Co. took procedural shortcuts and used faulty account records in suing tens of thousands of delinquent credit card borrowers for at least two years, current and former employees say.

In a similar story on Bank of America, AB discovered that

In the “as is” documents Bank of America has drawn up for [sales to debt buyers], it warned that it would initially provide no records to support the amounts it said are owed and might be unable to produce them. It also stated that some of the claims it sold might already have been extinguished in bankruptcy court. B of A has additionally cautioned that it might be selling loans whose balances are “approximate” or that consumers have already paid back in full.

Read the American Banker stories for yourself. They offer detailed, on-the-record information the provides a glimpse into the profit-at-all-costs mentality that plagues some banks’ legal collection departments. At the very least, there is enough in the stories to cast serious doubt on the reliability of the banks’ records. And debt buyers rely heavily on the perceived reliability of the banks’ records because they don’t have any way to independently verify records that they didn’t create.

So what’s the solution? Courts and legislators should resist the temptation to create a more comprehensive list of factors a debt buyer must establish to admit business records into evidence. It’s far too easy for debt buyers to create another self-serving, boilerplate affidavit to meet any new requirements and have them robo-signed by the thousands. Instead, debt buyers should be required to provide specific testimony about why the records are accurate and reliable. This needs to be more than a vague and unverifiable statement that the debt buyer is familiar with the records, has reviewed them, and that they’re accurate. To truly evaluate reliability–especially in light of the troubling allegations uncovered by American Banker–courts need much more specific testimony. What type of software is used? How often is it audited? When was the last audit? What was the error rate? What is the industry standard for acceptable error rate? This testimony should come from someone with actual knowledge of these systems–not a robo-signer who claims to have such knowledge–and the affiant should explain in detail how they came to possess such knowledge.

Sure, this heightened reliability analysis may slow down the freight train that is legal debt collection. But debt buyers, and the banks that they buy debt from, have earned the additional scrutiny after cutting corners with relative impunity for so long.


My Chapter 13 was confirmed. What now?

Chapter 13 confirmedThis post describes what happens after a Chapter 13 bankruptcy is confirmed. Confirmation is the biggest hurdle in Chapter 13, but it’s not the end.

Congratulations, your Chapter 13 plan has been confirmed! (If our congratulations are early, don’t worry–your turn will come too). Since you’ll be in Chapter 13 for three to five years, you probably have a bunch of questions about what to expect. We’ll tackle a few of these below. If you have other questions, please leave them in the comments below.

1. When do I make my first payment to the trustee? Your first Chapter 13 plan payment is due within 30 days of filing your case. The payment must be by money order to the P.O. Box specified on your welcome letter form the trustee’s office. Future payments can be made by automatic debit from your bank account, if we arrange that ahead of time with the trustee’s office.

2. Which of my bills should I pay while I’m in Chapter 13? You’ll need to pay your new, ongoing bills on time. This always includes utilities, generally includes your mortgage, and sometimes includes your car loan and student loans. Every once in a while, it’ll include a credit card if you have a cosigner. But your bankruptcy lawyer should have the final word on what bills to pay. If you’re not sure, ask.

3. I’m still getting calls from creditors. What do I do? Your creditors are breaking the law if they contact you after you file Chapter 13. On the first call, you can tell the creditor you filed bankruptcy and give them your case number. If you keep getting calls, you should let your bankruptcy lawyer know right away.

4. I need to buy a new car. Can I take out a loan while I’m in Chapter 13? You’ll need permission from the court to take out any new loan while you’re in Chapter 13. If you absolutely need financing, call us first so we can take you through the steps of the process.

5. What do I do if I’m going to miss a payment? If you’re in danger of missing a Chapter 13 payment, or if you already missed one, call your bankruptcy lawyer. In some cases, we can work with the Chapter 13 trustee’s office to help you get caught up on your payments. Otherwise, we might be able to modify your plan. If you don’t get in touch before missing a payment, the trustee can move to dismiss your case. The most important thing is that you let us know in advance so we can prevent this from happening.

You’re probably starting to pick up on a trend here. If you have a question, call your bankruptcy lawyer. Most of the problems that come up with confirmed Chapter 13 plans can be avoided as long as we know about them in advance. But let us know in the comments below if you have other questions.


How to prepare for your free consultation

1. What to expect. The first time you meet with us, we’ll give you at least an hour of our time for a free consultation. See the pictures on the About Us of our site? You’ve got Dave, Todd, Bess and Ginger. If you don’t see any of us, you’re probably in the wrong place.

And just so you know, your free consultation isn’t like a visit to the doctor, where you spend most of your time with a nurse or intern until the doc breezes through at the very end. When you come in to see us, you will always meet with an attorney (or sometimes two of us, depending on how busy we are that day).

2. Bring documents. We ask you to bring documents to your free consultation that help us understand the issues you’re facing. We send prospective clients a copy of our new client form by email before your free consultation (don’t worry–it shouldn’t take too long to fill out). The most important things we need from you are your last six months of paystubs (or other proof of income if you don’t receive paychecks) and a list of your household income and expenses. We need these things to figure out whether Chapter 7 or Chapter 13 will be a better fit for you.

Do your best to bring these documents. If you can’t find everything, don’t worry about it, but if you bring everything we ask for, we can get more accomplished during the free consultation.

3. Brush up on bankruptcy. We’re happy to explain the ins and outs of bankruptcy to you. We do this stuff all day, and we like to share what we know with you. But if you study up a little bit and understand the basics, we might be able to delve into deeper issues on the first meeting, meaning we can get more accomplished in the free consultation. If you’re the type who likes to do your own research, our blog is a good first resource. We also recommend the Bankruptcy Law Network’s posts, but remember that they’re focused nationally, and because the law is different from state to state, not all the information will apply to you.

4. After the free consultation. Sometimes we can sort out all the major issues in your free consultation and decide on a course of action.If there are more complex issues, it may take a week or two of collecting information after the first meeting to figure out how best to help you. Bess will usually help you gather all the information we need. Once we decide what we can do in your case, we can talk about price, timing of your filing, etc. Throughout this process, feel free to ask any questions that come to mind.

Still have other questions before you’re ready to make that first appointment? Let us know.


Friedman Iverson featured in Pollen!

Blake and Dave talk about helping creative business in the latest issue of Pollen, the newsletter that connects creative and civic-minded professionals in the Twin Cities. Writer Regan Smith nails our approach to law for creatives:

The plaid-wearing duo display local band posters in their conference room, frequently dole out legal advice free of charge, and would rather hold meetings over a beer at the CC Club than across a desk at the office. Despite this unconventional approach to law—or, more appropriately, because of it—Friedman Iverson is quickly becoming a household name throughout the Twin Cities creative community.

Read the whole article.

How to dispute an error on your credit report

It’s an unfortunate reality that many consumer credit reports contain errors. Here’s what to do if you discover an error on your credit report:

1.   Write a letter to the credit reporting agency explaining what information you believe is inaccurate. When the credit reporting agency gets your letter, they must conduct an investigation and remove any information that cannot be confirmed as accurate. The CRA is required to send the furnisher (the business providing the information on the report) all of the information that you provide. Your letter should contain the following:

  • (a) Your full name and address. You may also consider including your social security number to ensure that the CRA locates your file.
  • (b) Identification of every single item that you believe is inaccurate. One way to do this is to include a copy of your credit report and circle each of the items you dispute.
  • (c) An explanation of why each disputed item is incorrect. Be detailed and describe your dispute as if you were explaining it to a young child. CRAs may disregard your dispute if it isn’t sufficiently detailed.
  • (d) Attach copies of all of the proof that you have that supports your dispute.
  • (e) Tell the CRA if you have previously disputed these items, provide the details of these prior disputes (including any phone disputes), and explain how the CRA’s failure to correct the errors is harming you.
  • (f) Most importantly, tell the CRA what you want them to do (ie. delete the incorrect entry; modify it, etc).

2.   Mail the letter certified, return receipt requested, and keep a copy of the letter and green card for your records. Address the letter to the credit reporting agency whose report contains the error. Some experts advise sending a copy of the dispute letter to the furnisher. This isn’t a bad idea, but you’re not required to do so. The CRA is required to send the furnisher all the information that you provide them with.

3.   You may have to write several dispute letters. The CRA may not fix the error after your first letter. Be persistent and write follow-up dispute letters until you get the mistake fixed. Avoid the shortcut of just sending the CRA another copy of your first dispute letter. Read their response to your previous dispute letter and do your best to address the reasons they denied your dispute in your follow-up letter. Don’t be afraid to detail your previous attempts to fix the error and to describe the harm the CRA’s failure to correct the mistake has caused you in these follow-up letters. And be sure to keep copies of all the letters that the CRA sends you in response to your dispute letters.

4.   If you’ve written multiple letters and the CRA still hasn’t fixed the error, it’s time to talk to a consumer attorney. If you’ve followed all these steps and the error hasn’t been fixed, contact a consumer attorney with experience handling cases under the Fair Credit Reporting Act.

5.   Finally, a few words of caution:

  • It’s perfectly acceptable for a CRA to report accurate negative information. Don’t abuse the dispute process by seeking removal of accurate negative information. Similarly, be very wary of any credit repair “specialist” that promises to improve your credit score by using repeated and shallow dispute letters or similar questionable tactics.
  • It’s much better to write dispute letters than to dispute over the phone or to use the CRA’s internet form. Writing letters creates a paper trail for your records and it allows you to attach proof of your dispute. It’s also possible that a CRA’s internet dispute form might require you to waive some of your rights when submitting your dispute electronically.
  • Avoid using sample dispute letters that you find on the internet. Many of the sample letters you will find on the internet are shallow, deceptive, or even fraudulent. There is no magic language for writing a good dispute letter. Just adequately identify yourself, identify the account you’re disputing, and provide a detailed explanation of the error. It’s much better to use your own words than to rely on boilerplate language from a possibly untrustworthy source on the internet. If you must look at a form letter before writing your own, there’s a sample letter on the Federal Trade Commission web site.

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

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. 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

3. 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.


Can I wipe out tax debt in bankruptcy?

tax debtThis post describes how to deal with tax debt in bankruptcy. 

Tax debt is one of the hardest kinds of debt to shake. First of all, the IRS knows where you are. Also, they have special enforcement powers to collect their debt. They can put a lien on your house or your property without suing you. They can take money in your bank account without a judgment. They can seize tax refunds. They can take you social security. And they can also garnish your wages, often for a lot of money. But contrary to popular belief, tax debt can be wiped out in bankruptcy , especially if it’s old. Here’s how it works.

1. The rules: For income tax debt to be wiped out in bankruptcy, the following three rules must apply:

Rule 1: The income tax return must have been due more than three years ago. The first question we ask to figure out income tax dischargeability is whether the tax return was due more than three years before the date of bankruptcy filing. 2008 income taxes were due on April 15, 2009. Today is February 8, 2012. These taxes are not dischargeable today, but they pass this test if we wait until April 16 to file. But there’s one wrinkle. If you filed for a six-month extension that year, your tax return wasn’t due until October 15, 2009. So if you’re looking to discharge income taxes, we can’t file your bankruptcy case until October 16, 2012.

Rule 2: The income tax return must have been filed more than two years ago. This one seems easy. If the return was filed more than two years before today, this test is satisfied. In some cases, the taxpayer never actually files a return, and so the tax agency files one for them (sometimes called a “substitute return.”). When that happens, the two-year clock never starts running, and until the taxpayer actually files his/her own return, this test can never be met.

Rule 3: The tax must have been assessed more than 240 days ago. This means that the tax agency’s determination that you owe a debt must have been made more than 240 days ago. The “determination” can be a few different things–wither you filed your return and acknowledged you owe a balance. That’s an assessment. Or the IRS changed your return to say that you owed a balance. That’s an assessment too. Finally, if you were audited, and the IRS added a balance based on the results of the audit, that’s an assessment too. This part of the test is the most confusing, and you might want to see a tax professional (tax accountant or attorney) to figure out the assessment date.

2. Other factors add time to the clock. If you’ve filed bankruptcy before, the amount of time your case was open, plus six months, are added to all the time limits above. Also, filing an Offer in Compromise with the tax agency can stop the clock.

3. Some kinds of taxes are never dischargeable. Income taxes can be discharged if they meet all the above tests. There are other kinds of debts, such as sales taxes or payroll taxes collected on behalf of an employee, that will never be dischargeable. See a tax attorney if you’re facing these types of debts.

4. If a tax debt can’t be discharged, you still may be able to stop collection by filing Chapter 13. Chapter 13 bankruptcy stops all collection efforts by a tax agency, and allows you to spread the tax debt over a three to five-year period. This can be a big relief when the tax agency is looking to put liens on your property or garnish your wages, sometimes up to 90 percent of your income.

If you’re struggling with tax debt, give us a call for a free consultation. Often, there’s lots we can do to help.


Is a short sale better than foreclosure?

Short sale vs. foreclosureThe short sale industry has been a huge windfall for real estate agents. Some of them scare people into short sales on their home, even though a short sale usually has no advantages over letting your house go into foreclosure. Why do they do this? Simple, it’s the fees. Realtors stand to make up to 6 percent from the short sale of your home. On a $200,000 house, that’s a tidy $12,000 for the realtors ($6,000 for the seller’s agent, $6,000 for the buyer’s agent) . Turns out, that’s just about enough incentive to pressure you into a short sale, even when there’s no benefit to you.

1. Most short sales are no better for your credit score than foreclosure. Both short sales and foreclosures are major credit events that can have a big impact on your score. But there’s no support for the myth that a short sale is easier on your credit than a foreclosure. In fact, FICO, the leading credit-scoring company, says the opposite. If you compare a borrower who goes into foreclosure with a borrower who does a short sale where there is a deficiency balance, the credit impact is the same. If the second mortgage company will agree to wipe out your balance, then yes, the credit hit from a short sale may be softer. But this isn’t what usually happens.

2. Your realtor probably can’t wipe out your second mortgage, despite what he/she tells you. For people who have second mortgages, short sales can be tricky. Remember, in Minnesota, a second mortgage company can sue you after foreclosure for any remaining balance left on their loan. A lot of times, the second lender will release their lien if they can get a few thousand bucks from the closing of the sale, but won’t release your liability on the loan. This benefits the buyer, because they can buy the house without the lien, but it doesn’t do anything for you, since the second mortgage company can still ask you for the remaining balance. So there’s no benefit for you–you’re on the hook for practically the same amount of money as if you had gone into foreclosure.

3. Foreclosure may suck, but it has its advantages, too. Short sale has a big disadvantage over foreclosure that your realtor will probably forget to tell you. If you sell your house, you’ll probably have to leave within a month or two. If you just let your house go into foreclosure, you may have between six months and a year to live in your house mortgage-free and rent-free, while the foreclosure runs its course. That’s a lot of time to save up some money for whatever comes next–such as a security deposit and moving expenses. If you short sell your home, you’ll be giving up this right.

4. Don’t get caught by the details. I know, I know. Most realtors are honest. But when it comes to short sales, there are a lot of sleazy operators out there who’ll tell you anything to get you to sell. We’ve heard lots of cases of realtors telling the client one thing, and when they get to closing, the deal is totally different than they were led to believe. If you’re thinking of a short sale, you probably need an advocate who’s working for you, not for the commission. We represent homeowners in trouble with their mortgages. We also review short sale documents to make sure you’re getting the deal you think you are. Give us a call to talk about your situation.


TCPA robocall cases can now be brought in federal court

Lately, it’s not often that the U.S. Supreme Court rules in favor of consumers. But yesterday, SCOTUS ruled 9-0 that cases under the Telephone Consumer Protection Act, known as the TCPA, can be filed in federal court, not just in state court. The case, Mims v. Arrow Financial Services, involves annoying auto-dialed phone calls made by a debt collector to a consumer without his consent.

We’ve written about the TCPA on this blog before. The TCPA prevents harassing phone practices such as calling a cell phone with an automatic dialer and calling a home phone line to leave a prerecorded message. The law awards up to $1,500 in damages for each offending call.

If you are receiving robo-calls to your cell phone, or prerecorded messages to your home phone, get in touch.