Many clients come to me after they have attempted to work out payment plans with their creditors, usually by signing up with a so-called “debt settlement” company. Debt settlement is an alternative to bankruptcy that could be useful – if the debt settlement companies actually did any work. Usually, I hear that all the company did was take the debtor’s money without doing any work. A government investigation into the debt-settlement industry has found that many debt settlement firms misled consumers by claiming to be affiliated with federal stimulus programs and exaggerating their ability to reduce consumers’ loans.
The general debt settlement scheme tends to be a sixty-month plan in which the debtor forgoes paying their debts and instead pays the debt settlement company a set monthly amount. The first eight to ten months of payments usually go to the pay the debt settlement company’s fees. After that, the payments go into a “trust” account for the client that builds up value until there is a sufficient amount available for the debt settlement company to begin negotiating lump-sum settlements of the debtor’s obligations with the debtor’s creditors.
The problems begin when the creditors stop receiving their payments and begin calling the debtor six times a day. The debt settlement company might send out cease & desist letters pursuant to the Fair Debt Collections Practices Act. This requires the creditor to stop all phone calls but does nothing about the debtor’s obligation to repay the debt.
But the biggest problem is timing. The sixty-month payment plan set up by the debt settlement company is longer than the four year statute of limitations a creditor has to file a lawsuit for breach of contract. That means that the creditor will likely sue the debtor for breach of contract prior to the debtor completing the debt settlement company’s payment plan. If the creditor wins, which is very likely, the debtor is now responsible for the original principal, accrued interest, attorneys’ fees, and cost of suit. Furthermore, the debtor’s credit is trashed by years of non-payment, judgments, and possible judgment liens.
If you have questions about debt or your ability to repay your current obligations, make an appointment for a free initial consultation with Modesto bankruptcy attorney Brian Haddix. Mr. Haddix has extensive experience in dealing with debt and creditor claims. He can advise you about your options and let you know what is best for you.
The slowdown in foreclosures by banks appears to be creating a whole new set of problems, according to an article in today’s New York Times. “This crisis takes a situation that’s already bad and kind of cements it into place,” said Joshua Shapiro, chief United States economist for MFR Inc., an economic consulting firm.
With the sudden halt of foreclosures, new buyers who were in the process of preparing to move into foreclosed homes now find themselves in limbo. Amanda Ducksworth was supposed to move in to her new home this week, a three-bedroom steal here in central Florida with a horse farm across the road. Instead, she is camped out with her 7-year-old son at her boss’s house.
Like many buyers across the country, Ms. Ducksworth was about to complete the purchase of a foreclosed house when it suddenly went off the market. Fannie Mae, the giant mortgage holding company that buys loans from commercial lenders, is pulling back sales of homes that might have been foreclosed in bad faith.
There has been no foreclosure halt in California – yet. But some in government, including Nancy Pelosi, are calling for an investigation into foreclosure fraud.
If you are facing foreclosure, you should call Modesto bankruptcy attorney Brian Haddix for a FREE BANKRUPTCY CONSULTATION
Bank of America has temporarily frozen all foreclosures as it examines whether it rushed the foreclosure process for thousands of homeowner’s without reading the documents. In an e-mailed statement, Bank of America said it would “amend all affidavits in foreclosure cases that have not yet gone to judgment.”
The reason for the halt stems from a document obtained by the Associated Press which shows a Bank of America official acknowledging in a legal proceeding that she signed thousands of foreclosure documents a month without reading them. The official, Renee Hertzel, said in a February deposition that she signed 7,000 to 8,000 foreclosure documents a month and typically didn’t read them. Bank of America is the third bank behind GMAC Mortgage and JP Morgan Chase to temporarily halt mortgages.
The trend is troubling, to say the least. At best it demonstrates sloppy legal work by the law firms hired by the banks – law firms that no doubt charge the banks hefty fees – a cost the banks no doubt eventually pass onto their customers. At worst, it indicates wide spread fraud in the foreclosure process. Regardless, it appears such practices are rampant in the industry. All the attention could be good news for homeowners in the Northern San Joaquin Valley, however, which has been ground zero for the foreclosure crisis after the housing bubble burst.