Banks Shouldn't Freeze Your Checking Account When You File for Bankruptcy

The Bankruptcy Appellate Panel for the Ninth Circuit has just ruled that Wells Fargo Bank, N.A. violated the automatic stay by freezing a bankruptcy debtor’s bank accounts, despite the fact that the debtor did not owe Wells Fargo any money.  Even after the debtor’s attorney sent Wells Fargo a letter instructing Wells Fargo to release the funds to the debtor, Wells Fargo continued the freeze, arguing that only the bankruptcy trustee could request the funds to be “unfrozen” and turned over into his/her possession.

The filing of a bankruptcy case causes the commencement of an “automatic stay” which prohibits creditors from doing things such as collecting debts, garnishing wages, continuing with foreclosure proceedings, or repossession of assets.  The automatic stay also prohibits creditors from “exercising control” over all of the property owned by the debtor at the time his or her bankruptcy case was filed, otherwise known as the “bankruptcy estate.”  Because Wells Fargo’s hold on the account was viewed by the Court as an exercise of control over the debtor’s money, Wells Fargo was found to be in violation of the automatic stay.

What does this mean for you?  With certain exceptions (which you should discuss with your attorney), banks are prohibited from freezing your account simply because you have filed bankruptcy.  If you feel that your bank has improperly frozen your account because you filed bankruptcy, you should speak to an attorney who can advise you of the appropriate steps to “unfreeze” the accounts and whether any damages resulting from the freeze may be available to you.

FTC settles claim against Countrywide for overcharging struggling homeowners

The FTC complaint states that Countrywide (now owned by Bank of America) charged borrowers who fell behind on their payments with charges for property inspections, lawn mowing and other services to protect the lender's interest in the property.  However, Countrywide would dramatically mark up the cost of these services- sometimes by 100% or more.

Also, the complaint charges Countrywide with making false or unsupported claims to borrowers about amounts owed or the status of their loans while borrowers were in Chapter 13 bankruptcies to save their homes.  Countrywide also aded new fees and escrow charges and then imporperly attempted to collect these amounts after the bankruptcy closed.

The settlement requires Countrywide to pay $108 million which will be refunded to homeowners who Countrywide overcharged before July 2008. 

For information on the refund program, visit http://www.ftc.gov/countrywide

Read full article here: FTC.gov

Foreclosures no Worse on Credit Score than Short Sale

How much does foreclosure affect your credit?  Just about the same as a short sale.

CNNMoney.com has published an article regarding the way your credit score is impacted by certain events, such as bankruptcy, foreclosure, short sale, and delinquent credit payments.  Until now, Fair Isaac, developer of the FICO credit score has kept this information under its belt.

In the article, Maxine Sweet, vice president for public education at Experian, says that credit bureaus generally ding credit scores equally for borrowers whose credit reports show a foreclosure, short sale, or deed-in-lieu of foreclosure.  But despite the hit, Sweet advises that for people who are in unaffordable mortgages, it's better to recognize that fact and cut their losses rather than prolonging the problem. She states,  "You need to do what you need to do to get yoru finances back in order.  Don't worry about your credit score."

The good news?  If you want to “walk away” from your home, stick with foreclosure.  Based on the conclusions presented in the article, it is a waste of your time and energy to take part in a short sale in the hopes to save a few credit points.

Read full article here: CNNMoney.com

The Supreme Court Rules in Favor of Debtor in FDCPA Case

On April 21, 2010, the Supreme Court ruled that debt collectors could not avoid liability under the FDCPA by claiming they misunderstood the law.  In the case, a debtor (Jerman) sued an attorney collection firm (Carlisle) who filed a foreclosure lawsuit against Jerman although she did not actually owe the debt.  The complaint included a notice that the debt would be considered valid unless the debtor disputed it in writing.  This was a vaiolation of the FDCPA because debtors do not have to dispute the debts in writing, but can do so orally.  Carlisle argued that they were mistaken in their understanding of the law and that this mistake qualified as a bona fide error which is a defense under the FDCPA. 

The Supreme Court disagreed, limiting the bona fide error defense to clerical or factual mistakes.  Because of the general rule that ignorance of the law is never a defense, a mistake of law is not a bona fide error.