DuPage County Bankruptcy Attorney

I recently posted about debt buyers and some of the tricks they use to revive old, non-collectable debt. In order to attempt to collect a debt, many creditors hire outside companies to collect on their behalf. The majority of the complaints that the Federal Trade Commission receives involve debt collectors. 

The Fair Debt Collection Practices Act protects consumers from the bad acts of debt collectors. For example, it is unlawful for a debt collector to threaten you, swear at you, insult you, or to call a third party and discuss your debt. Once your attorney has notified a lender that you are represented by an attorney, that lender cannot contact you in an attempt to collect a debt. 

FDCPA violations are often found in violations of the bankruptcy automatic stay, and in violations of a bankruptcy discharge. The remedies for these violations are not mutually exclusive -- you can collect damages for a violation of the automatic stay and for a violation of the FDCPA. If you are being harassed by creditors either during or after your bankruptcy, your bankruptcy attorney should be aggressively seeking relief from the misbehaving creditor. 

The FTC has a useful FAQ regarding debt collection. Our firm has also compiled a guide entitled, "Creditor Harassment Best Practices." Both resources are a good starting point for all consumers who want to learn more about their rights regarding debt collectors. If you are being harassed by debt collectors, you have rights and you have a remedy. 

Although for many folks who have limited means, not having a large mortgage hanging over their heads seems like it would alleviate their burden and stress, foreclosure is only a short-term solution.

As we discussed in our previous post, there are many long-term advantages to remaining as a homeowner and avoiding foreclosure if possible.

With the current depressed state of the real estate market and economy in Illinois, many people have been facing tough financial decisions. Many have lost their homes to foreclosure, mostly because they incorrectly believe that they had no other options.

However, considering that those who have been foreclosed upon still need a place to live and most likely their only possibility is to rent until they can get on their feet again, this is not always a wise financial plan for the future.

Professor Adam Levitin of Georgetown Law drafted a proposal for mortgage foreclosure-based bankruptcy called "Chapter M." You can find the proposal here. Prof. Levitin's proposal would create a new chapter under Title 11 of the U.S. Code, which would deal solely with mortgage foreclosures.

Chapter M would automatically remove all state foreclosure actions to the federal bankruptcy courts. The foreclosure action would be tried by the bankrupcty judge. If the lender wins, the homeowner would be offered a standardized repayment plan modeled around the HAMP loan modification guidelines. Homeowners who default on their plan would be placed into a fast-tracked foreclosure sale process using the power of the Chapter 7 trustee. A trustee's sale would solve some of the underlying chain of title issues we are seeing in our daily foreclosure defense work -- trustee sales convey clear title. 

I have some concerns over whether the U.S. Supreme Court's recent decision in Stern v. Marshall would preclude bankruptcy judges from issuing a final judgment on the foreclosure actions, as they are primarily state actions. 

Prof. Levitin's plan does not resolve other consumer debt. He notes that his plan would allow for a subsequent Chapter 7 or Chapter 13 filing to resolve those debt issues. His plan includes cramdown on negative equity. This removes the problem of incentivising principal writedowns, which is currently the main sticking point for those advocating such a remedy. 

On the whole, this is an interesting plan. It could actually work. Bankruptcy judges are clearly qualified to hear foreclosure cases -- many homeowners file bankruptcy to save their homes from foreclosure. Bankruptcy judges are aware of the issues that are part and parcel of foreclosure situations. Servicer abuses, chain of title problems, etc. are all argued in U.S. bankruptcy courts on a daily basis. 

I think this plan also obviates many of the moral hazard arguments that are made in opposition to other foreclosure relief plans. If a homeowner can't or won't make the plan payments, they lose the house. Keep in mind that the plan involves cramming down negative equity, so this is a more generous plan than what is normally available in a Chapter 13 bankruptcy plan. 

A great idea, but given the current gridlock on the Hill, unlikely to go forward any time soon.