Debtors Can Face Uphill Battle to Remedy Creditor Mistakes

So many Americans today are facing debt collection efforts that the system often appears to be overwhelmed.  Mistakes seem to be getting more and more common.

A recent article by Teresa Dixon Murray in the Cleveland Plain Dealer described how a minor mortgage payment error can lead to unbelievable consequences with a bank or other creditor.

The article explains that several months ago a couple in Rocky River, Ohio made a 70 cent mistake in a $1,500 mortgage payment.  The next invoice arrived with $256 in late fees.  That was followed by urgent phone calls from the bank threatening the couple with foreclosure.  The couple spent hours on the phone with various bank offices and repeatedly tried to pay the 70 cents, but the bank was unable to correct its records for months.  To make things even worse, the bank applied subsequent payments entirely to interest, causing a loss of over $2,000 to normal principal reduction. 

The bank finally straightened out its records after many months - - but only after the Cleveland Plain Dealer reporter intervened.  I have represented several clients recently who had to hire an attorney to resolve creditor errors.  Mortgages are frequently transferred from bank to bank and that makes it even more difficult to resolve even minor errors. 

Millions of Americans today are facing collection actions.  The system frequently seems overwhelmed, and common sense is sometimes in short supply.  Almost anyone can suddenly find themselves facing unanticipated debt collection efforts.  It is very unfortunate that a lawyer - - or even a newspaper reporter - - is sometimes required to correct even a minor error.

Federal Agency Receives Thousands of Consumer Complaints About Debt Collectors

An article in last Sunday’s Cleveland Plain Dealer by Sheryl Harris noted that since July, the Federal Consumer Financial Protection Bureau (CFPD) has received more than 5,300 consumer complaints about debt collectors.  More than 40% of those complaints were by people who said they were being pursued for debts they do not owe.  Other complaints were about debt collectors making repeated, excessive calls and not even having much information about the alleged debt. 

No one questions the right of creditors to make reasonable attempts to collect debts.  But where is the line between reasonable collection efforts and harassment? 

The CFPD is currently asking consumers to suggest ways to improve the Federal Debt Collection Practices Act.  If you have any suggestions that you want to offer, go to the article by Sheryl Harris and you will find all of the information you need to contact the CFPD.

Beware Of Debt Collection Scams

A recent article in the Cleveland Plain Dealer put the spotlight on phantom debt collectors.  The Federal Trade Commission has shut down bogus debt collectors in the past, but this continues to be a significant problem.  If you are in debt, you need to be sure that any debt collection efforts against you are legitimate. 

Anyone who feels they may have been the victim of a bogus debt collection scheme should notify the Federal Trade Commission and/or the Better Business Bureau. 

Many Americans have incurred crushing debt in recent years.  Pressure from legitimate debt collectors is bad enough.  We should certainly not have to tolerate bogus debt collection schemes.

Why Is It So Difficult to Correct Your Credit Report?

A recent article by Jeff Sovern and Ira Rheingold in the New York Times explains why consumers have such a hard time fixing faulty credit reports.  A mistake on your credit report can be a big problem for you.  But such an error can be difficult to correct.

The authors point out that the Federal Trade Commission has found that at least 20% of consumers had errors in their credit reports.  A majority of those people see an improvement in their credit scores when the errors are corrected.

But as Jeff Sovern and Ira Rheingold note, credit bureaus are heavily dependent on lenders for both revenue and information.  Consumers have little power over credit bureaus.  Thus, credit bureaus have every reason to favor lender’s interests; and there is little incentive to help a consumer.  This of course does not mean a credit bureau would deliberately report a mistake.  But there is little or no incentive to assist a complaining consumer. 

New laws and regulations may be necessary to better protect consumers from errors in their credit reports.

New Federal Agency Will Monitor Debt Collection Companies

Debt collection companies will come under federal supervision beginning in January when the Consumer Financial Protection Bureau begins its oversight of large collection agencies.  The new federal agency will have authority to issue rules that will be binding on the larger debt collection companies throughout the United StatesAn October 24, 2012 article in the New York Times by Edward Wyatt contains a good description of the new agency. 

 As I have said before, there is certainly nothing wrong with debt collection - - as long as it is done in a responsible and legal manner.  Due to abuses in this area, we now have new federal regulation.

Credit Card Debt Collection Plagued with Problems

 Credit card companies certainly have the right to collect legitimate debts.  But a recent New York Times article by Jessica Silver Greenberg reports that many of the recent lawsuits being filed by credit card companies rely on erroneous documents, incomplete records and generic testimony.

I recently represented a third-generation business owner who lost his business in the recent recession.  Several credit card companies sued the owner and his wife for corporate credit card debt – even though they had signed no personal guarantees or any other written agreements.  In each case the credit card company alleged that some fine print buried in generic online documents somehow subjected the owner to personal liability.  My experience was exactly the one reported by the New York Times.  The credit card companies had incomplete records and they were filing lawsuits without doing much investigating prior to filing.

This is another reminder that your personal assets can come under attack in ways that you could have never reasonably anticipated.  Having an asset protection plan in place can be a huge benefit in the event of an unexpected lawsuit.

Ohio May Increase its Homestead Protection

In my post of May 1, 2012, I reported that there was pending legislation in Ohio (House Bill 479) that would essentially provide an unlimited homestead exemption, similar to that in Florida, Texas and several other states.

On May 22, 2012 the Ohio House of Representatives passed House Bill 479, but it had significant changes from the original version.  The original proposal was amended to provide a complete exception for the state of Ohio and all its political subdivisions.  The proposed full homestead exemption was also amended to provide a maximum exemption of $500,000 per person.  It is important to note that this is still proposed legislation.  The legislation is currently before the Ohio Senate, and there are likely to be further changes.

The Ohio Creditors' Attorney Association and others are fighting the homestead exemption and other parts of the proposed law.  There is still no assurance as to what the ultimate outcome will be.

I will continue to monitor this very significant proposed legislation.

Debt Collectors Now Pursuing Patients Inside Hospitals

A front page article in yesterday's New York Times (by Jessica Silver-Greenberg) reports that hospital patients waiting in an emergency room (or even convalescing after surgery) may find themselves confronted by a debt collector -- right in the hospital!  The Minnesota attorney general, Lori Swanson, claims that one of the nation's largest medical debt collectors (Accretive Health) was engaging in such practices.  The Minnesota attorney general has not yet filed any formal action.  But her comments have raised concerns that such practices may have become common at various hospitals across the country.

I served on a hospital Board of Trustees for ten years, and I am certainly sympathetic with the increasing financial pressures faced by hospitals nationwide.  Hospitals obviously have to employ various tactics to collect debts.  It seems, however, that some hospital collection efforts may be crossing the line of what is reasonable.

The New York Times article is another vivid reminder that debt collectors in general are getting more and more aggressive.  Focusing on asset protection (including insurance needs) before a problem arises is more important than ever.

Another Debt Collection Firm Agrees to Change its Collection Practices

Debt Collector NCO Financial Systems will pay $1.5 million and change some of its collection practices to end an investigation by 19 states, including Ohio.  That is according to an article today in the Cleveland Plain Dealer, by its Consumer Affairs Reporter, Sheryl Harris.  The article reports that consumers in various states may be eligible for refunds if they had paid NCO for a third party debt they did not owe, or if they were charged interest on a debt that was not permitted by law or the original contract.  NCO also agreed to change some of its collection practices.

This is yet another reminder that debt collectors can be very aggressive -- and sometimes too aggressive -- in attempting to collect debts.  Debt collectors are subject to various fair debt collection and credit reporting laws.  This recent settlement shows once again that debt collectors sometimes fail to abide by the applicable requirements.

You can pretty much count on a creditor using all lawfully permitted means to attempt to collect a debt from you.  You should likewise take advantage of available laws to protect your assets to the greatest extent that you are able to do so.

Even Libraries Are Using Debt Collection Agencies

According to a recent article in The Cleveland Plain Dealer, the Cleveland Public Library has hired a national collection firm to recover fines and overdue items.  Director Felton Thomas reported that the agency had collected $550,000 in fines and $2.6 million worth of outstanding material; and fees were less than $90,000.  So it would seem that using an outside agency for collection will continue.  Other libraries have taken similar action.

My point in bringing this article to your attention is not simply the fact that libraries are now using outside collection agencies.  The main point is that almost all creditors seem to be getting more and more aggressive in their collection efforts.  For example, real estate developers and business owners in the past could reasonably assume that a bank would not immediately call a loan if you failed to meet certain financial covenants.  That is simply no longer the case.  Having been burned by so many bad real estate loans, banks and other lenders are not going to be as lenient as they used to be if any problems develop with your loan.

Stated another way --- if even libraries are using collection agencies, you can imagine what might happen with your business or real estate loan if your circumstances suddenly change.  All of this makes asset protection planning more important than it was in the past.

Debt Collectors Sometimes Go Too Far

The Ohio Attorney General's office recently settled a lawsuit filed against Allied Interstate, one of the country's largest debt collectors.  According to the Columbus Dispatch, Allied Interstate agreed to pay $150,000 and make changes in its practices.  Allied faced two dozen allegations of misconduct after a state investigation -- for instance, calling before 8:00 a.m. and after 9:00 p.m., and even making unauthorized withdrawals from bank accounts.  It was also accused of calling people's employers, despite being asked to stop; making idle threats; and repeatedly calling the wrong people.

This settlement came shortly after a $350,000 agreement reached in August between the State of Ohio and Credit Bureau Collection Services, which has its headquarters in Columbus.  According to the Columbus Dispatch, Allied agreed last year to pay $1.75 million to settle a similar federal probe; and Credit Bureau Collection Services agreed to pay $1.1 million.  The Ohio Attorney General has reached settlements with other collection firms as well.

If you feel you have been the victim of an unlawful debt collection practice, you should contact your state attorney general or other state consumer protection agency.  Debt collection is of course perfectly valid -- as long as it is conducted in accordance with applicable law.

Debt Collectors: What They Can and Cannot Do

A July 31, 2011 article in The Sacramento Bee had a good summary of what a debt collector can and cannot do.  The article was written by Claudia Buck (McClatchy Newspapers).  It included excerpts from an interview with Robert Tavelli, former president of a private California debt collection firm.

Debt collectors are subject to a number of legal restrictions.  For example a debt collector cannot contact you before 8:00 a.m. or after 9:00 p.m.; and cannot contact you at work once they have been told you cannot take calls there.

This article caught my attention because it mentioned that debt collectors will generally not pursue individuals who look like they are financially unable to pay the debt.  This of course makes perfect sense -- a debt collector would gain nothing by pursuing someone who appeared to be uncollectable.

This same concept applies in general to asset protection planning.  A creditor is going to be far more likely to aggressively pursue you if it appears all of your assets can be seized with relative ease.  The harder it looks to collect from you, the more likely a creditor will settle for a lesser amount. So taking appropriate steps to lawfully protect your assets before you have any creditor problems is highly advisable.

Can a Creditor Freeze Your Assets Before Getting a Judgment Against You?

In the United States, a creditor usually has to obtain a court judgment against you before attempting to seize any of your assets. But there are some exceptions to this general rule.

In some cases, a court can issue a temporary restraining order (TRO) or an injunction against a debtor that effectively freezes the debtor’s assets. This frequently happens in divorce cases. Rule 65 of the Federal Rules of Civil Procedure provides rules governing injunctions and TRO’s. Most states have a similar rule.

In other countries, it is often easier for a creditor to freeze a debtor’s assets prior to obtaining a court judgment. In England and most other common law countries, courts are more likely to issue a pre-judgment asset freeze to prevent the defendant from transferring assets. This has become known as a Mareva injunction.  The name comes from an English case, Mareva Compania Naviera S.A. v. International Bulkcarriers S.A., 2 Lloyd's Rep. 509.

So no matter where your assets are, there are some instances in which those assets could be frozen before a judgment is obtained. The key point to remember from all of this?  Asset protection is most effective when done well in advance of any creditor issues.

Creditors Have Many Options Once They Have a Judgment Against You

An article in the September 20, 2009 Business section of the Cleveland Plain Dealer contains a good summary of the various remedies available to a creditor who has a judgment against you.  Cleveland Plain Dealer columnist Sheryl Harris is discussing a $3,000 judgment obtained in a small claims court in Rocky River, Ohio; but the alternatives she outlines would be just as applicable to a $3 million judgment in Ohio and many other states.

Here are a few of the things a judgment creditor may be able to do:

  • Garnish your wages
  • Attach your bank accounts
  • File a lien against your home and/or other real estate that you own
  • Force a sale of your home and/or other real estate that you own
  • Attach your personal property

There are of course limits on these remedies.  A creditor can garnish only a certain percentage of your wages.  As I have discussed in other posts, a small portion of the equity in your home will be protected in Ohio pursuant to Ohio Revised Code Section 2329.66 (while states such as Florida and Texas protect almost all the equity in your home).  It may be possible for the creditor to seize the full amount of your bank accounts, up to the amount of the judgment against you.  Transferring assets after a judgment has been entered (or even after a lawsuit has started) will likely be a prohibited fraudulent conveyance under Ohio Revised Code Section 1336.04 and similar statutes in other states.

The situation that columnist Sheryl Harris is writing about sounds like one in which we would all be rooting for the creditor.  The creditor is trying to collect on a judgment against a roofing company that failed to make proper repairs.  In many cases, however, I am representing a potential debtor.  And in those situations I want to lawfully protect the assets of that person or entity to the greatest extent reasonably possible under applicable law. 

The Cleveland Plain Dealer article is a good reminder that while debtors have many rights, so do creditors.  Asset protection attorneys must have a thorough understanding of the rights of creditors.  When an attorney is working to protect your assets, he or she must be knowledgeable about the various techniques that can be used to seize those assets.