Filing for Bankruptcy Requires Legal Expertise

Prospective bankruptcy filers are often tempted to forgo dedicated legal representation and attempt to manage the process on their own, or hire a cut-rate “bankruptcy mill” that specializes in high volume and extra-low fees. The desire to cut costs here is understandable: for someone in financial trouble it can be difficult to envision paying a lot of money for an attorney, and filing bankruptcy can appear simple at first glance to a layperson reading about it online. But appearances can be deceiving. The bankruptcy process can be surprisingly long and drawn out, and dealing with recalcitrant creditors can be confusing and very stressful. What may initially seem like a straightforward bankruptcy can turn out to be a complicated and strongly contested legal dispute. A recent case that we successfully argued before the United States Court of Appeals for the Ninth Circuit vividly illustrates the importance of having an attorney who knows your rights and will fight for them in the face of creditor misconduct.

Snowden v. Check Into Cash of Washington, Inc. (In re Snowden, 769 F.3d 651 (9th Cir. 2014))

The automatic stay is a cornerstone of the federal bankruptcy system and one of the most important protections the law gives to bankruptcy filers. When a debtor files for bankruptcy, the automatic stay instantly stops all creditors from attempting to collect any debts held by the filer. This includes phone calls, threatening letters, cashing checks held by the debtor, and any other collection activities. The automatic stay can be a literal lifesaver for someone who’s besieged by rude, aggressive debt collectors. Clients often tell us of the overwhelming sense of relief they feel knowing that they don’t have to be afraid to answer the phone or open the mail anymore. When a creditor violates the automatic stay, though, that relief goes away, and the nightmare of dealing with creditors returns. That’s a serious matter, and the courts take it very seriously. But it can take a lot more than simply notifying the court to ensure that your rights are protected. As we learned arguing the Snowden case, it can take a lot of time, effort, and legal expertise to bring a misbehaving creditor to justice and win a debtor the relief to which she is entitled.

In November of 2008, Ms. Snowden obtained a $500.00 payday loan from Check Into Cash, a national chain of payday lending outlets. Like many people, Snowden ran into financial difficulties after missing some work due to an injury, and informed Check Into Cash that she was contemplating having to file bankruptcy and might not be able to repay the loan.

Snowden filed for bankruptcy in January 2009. About a month later, Check Into Cash initiated an electronic funds transfer to recover the outstanding loan from Snowden’s bank account. The unexpected transfer caused Snowden’s account to be overdrawn, which in turn resulted in several hundred dollars’ worth of overdraft and returned item fees. In total, the withdrawal and subsequent charges cost Snowden more than $800.

In April of 2009, as attorneys for Snowden, we filed a motion in Bankruptcy Court requesting sanctions against Check Into Cash. Snowden requested the return of the original sum plus the overdraft fees, punitive damages, emotional distress damages, and attorneys’ fees. In the subsequent trial, the Bankruptcy Court awarded $27,483.55 to Snowden, an amount that included $12,000 for emotional distress damages and $12,000 in punitive damages, in addition to loan and bank fee reimbursement and attorneys’ fees. After several appeals the case was heard by the Ninth Circuit Court of Appeals. Despite Check Into Cash’s ongoing insistence that the punitive and emotional distress damages awarded by the prior court were not justified the Ninth Circuit Court of Appeals upheld all damages awarded to Snowden.

What Does This Case Mean For You?

In the Snowden case, Check Into Cash fought hard to avoid paying punitive and emotional distress damage, which resulted in us spending many hours of effort on our client’s behalf both in and out of court on this matter. Without effective legal representation, a lone bankruptcy filer would have no hope of obtaining relief in a case like this. Fortunately, we were able to recover significant compensation for the distress and trouble our client went through, and because the bankruptcy code provides for the recovery of attorneys’ fees incurred in stopping and fixing automatic stay violations, our client did not have to see that award get swallowed up by her own legal bills.

From the point of view of a debtor contemplating filing for bankruptcy, this case shows that high quality legal representation is imperative for effective handling of a bankruptcy case. We believe that it is imperative that debtors understand their rights and be empowered to hold creditors who violate those rights accountable. It takes a thorough understanding of the bankruptcy code and its many nuances to recognize when a creditor is not playing by the rules and see that justice is done.

Senate Report on Financial Crisis Points Finger at WaMu

Just in case you weren’t mad anymore, a new U.S. Senate report called “Wall Street and the Financial Crisis: Anatomy of a Financial Collapse” reveals even more details about how reckless a number of major financial institutions were during the housing bubble:

Singled out for criticism is the Office of Thrift Supervision, which oversaw some of the nation’s most aggressive lenders, including Countrywide Financial, IndyMac and Washington Mutual, whose chief executive was Kerry Killinger. Noting that the agency’s officials viewed the institutions it regulated as “constituents,” the report said that the office relied on bank executives to correct identified problems and was reluctant to interfere with “even unsound lending and securitization practices” at Washington Mutual.

The report describes how two risk managers at the bank were marginalized by its executives. One of them told the committee that executives began providing the regulator with outdated loss estimates as the mortgage crisis widened. After the risk manager told regulators that the estimates it had received were dated, Mr. Killinger fired him.

From 2004 to 2008, for example, the regulatory office identified more than 500 serious deficiencies at Washington Mutual, yet did not force the bank to improve its lending operations, according to the report. And when the Federal Deposit Insurance Corporation, the bank’s backup regulator, moved to downgrade the bank’s safety and soundness rating in September 2008, John M. Reich, the director of the Office of Thrift Supervision, wrote an angry e-mail to a colleague. Referring to Sheila Bair, the F.D.I.C. chairwoman, he wrote: “I cannot believe the continuing audacity of this woman.” Washington Mutual failed two weeks later.

Banksters to Public: Don’t Even Ask About Your Mortgage

Apparently you cannot even request the name and information of the owner of your loan without getting your credit report dinged. This sobering story from the Huffington Post tells the story of a poor chap who had a 780 credit score that dove to 740 after he simply asked the question of his mortgage loan servicer. (Notably, the credit expert noted in the article, Evan Henricks, is currently working with one of our clients on a credit reporting case. If your credit has been dinged due to no fault of your own, call us!)

HAMP and Chapter 13 Bankruptcy

Yet more proof that HAMP alone may not be enough to save your home from foreclosure:

Some struggling homeowners say they’re being unfairly foreclosed on despite making all their payments under trial mortgage modification programs.They equate that to mistreatment by banks who agreed to help borrowers when they took part in the government’s $700 billion Wall Street rescue.

If you’re lucky enough to have gotten through the HAMP application process and have been given a trial modification program, as this article makes clear, it doesn’t mean you’re out of the woods.

Your HAMP trial modification is based on a formula that requires you to make a payment based on your income and suggests that your mortgage debt-to-income ratio should be 31% of your gross (pre-tax) monthly income.  The trial modification will give you a reduction if you qualify for a modification. (See the calculator at http://www.makinghomeaffordable.gov/payment_reduction_estimator.html).

However, if your trial payment is less than what your current payoff of the loan would be at a 3.0% fixed interest rate over 30 years, it is unlikely you will be approved for a permanent loan modification and you could be headed for foreclosure.

Don’t take that risk!  If you have received a foreclosure notice from your bank, regardless of your process in the loan modification you should consider filing a Chapter 13 bankruptcy.  A Chapter 13 cannot change the terms of the loan you already have–it can only cure existing arrears over time and strip off wholly unsecured second mortgages. But a HAMP loan mod combined with bankruptcy may be the ticket to solve your problems. You have the security to know that the bank cannot foreclose on you because you have filed a bankruptcy, which gives you that assurance and protection, and you can still pursue the HAMP loan modification process while in BK.

Also, Seattle Debt Law, LLC has just recently agreed to assist in the HAMP loan modification process through the use of a special computer portal that cuts through the hassle of spending hours on the phone with the bank counselors, better known as the “Burger King Kids,” and you will have the piece of mind that your situation is being taken care of.

For more info on the “Burger King Kids” issue, see this October 13 New York Times article.

Consumer Protection in America: Go Big or Go Home

In case you haven’t heard, the House of Representatives passed a bill in December 2009 calling for the creation of a Consumer Financial Protection Agency, an independent federal agency solely devoted to protecting Americans from unfair and abusive financial products and services.  Now the Senate is kicking around proposals of their own, as discussed in this Huffington Post article

In the article,  Elizabeth Warren (a leading consumer advocate and Harvard Law professor) argues that a toothless consumer protection agency would be worse than none at all.  To be effective, says Warren, the new CFPA must include 4 key elements:

  • A chief appointed by the president, confirmed by the Senate;  
  • Independent budget authority, so it won’t be subject to the whims of Congress or an anti-consumer administration; 
  • Independent rule-making authority, without interference by bank regulators or others who may focus on bank profitability before focusing on consumers;
  • And independent enforcement powers, so the agency’s investigators can go after abusive lenders.
  • Warren isn’t the only one who understands the necessity of a strong, independent consumer protection agency.  In a recent column, economist and NY Times writer Paul Krugman opined that an important factor in the stability of Canada’s economy, as opposed to our volatile one, is the existence of an independent Financial Consumer Agency.

    For the sake of America’s future, let’s hope the Senate takes their responsibility seriously and does not create, as Warren put it, “some mouthful of mush that doesn’t get the job done.”

    Up in ARMs (Adjustable Rate Mortgages, that is)

    It’s a lot like waiting in line for a ride at Disneyland: you wait for 45 minutes, turn a corner, and find yourself at the end of another long line. Just when we thought we finally hit the bottom of the housing market, there appears to be an entirely new level on the horizon: a massive re-setting of option ARMs. 

    Many of you are probably familiar with option ARMs—loans popular during the housing boom because they gave borrowers the option of paying very low monthly payments (less than the interest) for the first five years.  The Seattle Times reported that between 2004 and 2008, more than $750 billion of option ARMs were originated in the U.S. (58% of which were in California!).  As many as a million of those loans are estimated to reset higher in the next four years. 

    Most option ARM borrowers assumed the value of their house would steadily increase, allowing them to refinance or sell before the reset date.  Instead, the values have dropped dramatically, meaning many borrowers will be stuck with the reset loan payments, which may be double the initial amount (or even more in some cases).

    What does this mean for the economy at large? It’s not a pretty picture, according to real-estate finance professor Susan Wachter, as reported in the Seattle Times article:

    “Owners may surrender properties to the bank rather than make higher payments for homes that have plummeted in value…The option ARMs will drive up the foreclosure supply, undermining the recovery in the housing market…The option ARMs will be part of the reason that the path to recovery will be long and slow.”

    For more information, take a look at this New York Times article  published last week.

    Welcome to the Blog!

    Welcome to the Seattle Debt Law Blog! With the mortgage and credit crisis coming to dominate news headlines, I’ve decided to start this blog to help educate consumers in the Seattle area and around the nation about the fundamentals of bankruptcy and debt law and how it affects us all.

    My name is Christina Latta. I am an attorney specializing in bankruptcy and consumer law practicing in Seattle, Washington. I have a BA from Dartmouth College and a JD from Boston College Law School, and I spent 2 years as a law clerk for a bankruptcy judge in Fresno, California before going into private practice. I spent another 2 years representing mortgage lenders in bankruptcy court before “switching sides” and working for debtors exclusively, which I’ve done since 2004. My experience on both sides of the aisle has given me a useful understanding of the bankruptcy system and the way creditors and debtors resolve their differences under the law.

    In the coming weeks and months I hope to use this platform to discuss current topics, legal trends and issues of interest, new legislation affecting mortgages and other debt, cases of interest coming before the court, and other important developments. The legal system can be a bit intimidating and scary to people who’ve never had to deal with it before, so I’d also like to help demystify it a bit by explaining how it works, and about the options that are open to debtors facing foreclosure, harassment by creditors, mortgage troubles, and so on. Stick around and see how it develops.