About: Kathleen Michon

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New Protections for New Yorkers Against Debt Collection Abuses

The New York Department of Financial Services recently released new regulations that will better protect New Yorkers from the debt collection industry’s rampant abuses. Once the majority of the regulations go into effect on March 3, 2015 (a few of the regulations will begin in August), New York will have some of the strongest laws in the country when it comes to debt collection.

The Scope of the Problem: Debt Collectors Gone Wild

According to Governor Cuomo, in 2014 New York consumers filed more than 20,000 complaints about debt collection practices. Common complaints include harassment, aggressive collection tactics, and trying to collect the wrong amount or from the wrong person.

Many of those complaints were levelled against debt buyers – companies that buy old debts for pennies on the dollar and then try to collect them. Debt buyers often do little to verify that the debt is in fact owed. As a result, debt buyers often try to collect debts that have already been paid or settled or for which the time period to sue has passed. Debt buyers rarely give consumers any information about the debt – so consumers don’t know when it was allegedly incurred, who the original creditor was, how much the original debt was, and so on. (Learn more about how debt buyers operate.)

The complaints in New York complaints mirror those in the rest of the country; the problem abusive and unfair tactics in debt collection is widespread. The federal Consumer Financial Protection Bureau has taken notice and is attacking the problem in its own way. But it’s particularly heartening to see a state such as New York take the bull by the horns and promulgate such tough regulations. Let’s hope other states follow suit.

The New York Debt Collection Regulations

Here’s a summary of a few of the most important new rules that will soon govern debt collectors in New York.

Required Disclosures

Within five days of first contacting a consumer about a debt, a debt collector or debt buyer must provide the consumer with general information about his or her rights as well as actions the collector cannot take when collecting the debt.

The collector or debt buyer must also give the consumer information about the debt including: the name of the original creditor and an itemized accounting of the debt.

And finally (and this is a big one) if the debt collector knows or has reason to know that that statute of limitations (the time period in which the collector must bring a lawsuit to enforce the debt) may have expired, it must tell the consumer this, along with what this means if the collector sues or the consumer makes a payment anyway.

Substantiation of Debts

If the consumer disputes that he or she owes the debt, the debt collector must provide information on how to request “substantiation” of the debt. Once the consumer requests substantiation, the collector must then provide documents and statements about the debt, such as the judgment, original contract, the charge-off statement, a description of the chain of title from the original creditor to the present owner of the debt, and records of payments and settlements.

The collector must stop collection efforts until it provide substantiation.

Will the debt buyer industry have to change? Because debt buyers often don’t have information about the debts they collect (remember, they often buy them in bulk), it will be interesting to see how they deal with this new regulation. The law makes clear that the collector cannot resume collection until it provides the required documents and statements.  It follows that debt buyers will probably be barred from collecting some of the debts in their portfolios. Does this mean debt buyers start looking more closely at the debts they buy and demand better records and information from the sellers?  Let’s hope so.  Although any such change will probably occur only after a number of debt buyers get slapped by NY prosecutors for violating the regulations.

Written Confirmation of Payment or Settlement

If the collector and consumer agree upon a debt payment schedule, the collector must confirm this in writing. Written confirmation is also required once the consumer pays off the debt.

Email Communications

The debt collector may correspond through email if the consumer consents. This may be a good option for consumers that want to keep track of the debt and the status of collection but don’t want to receive annoying or harassing telephone calls.

Governor Cuomo’s press release characterized this provision as the consumer’s “right” to receive email communications. But the language of the statute says the collector “may” use email, which seems to indicate that the collector can choose not to use email.

Getting More Information

For more detailed information about the regulations, see Nolo’s article New York Laws Regulating Debt Collectors and Debt Buyers. You can also find the full text of the regulations here.

FHA Reduces Mortgage Insurance Premiums for FHA Loans

Scissors_Cutting_MoneyThe Federal Housing Administration recently announced that as of January 26, 2015, it will reduce the annual mortgage insurance premiums for FHA loans by .5%.  On average, the reduction could save an FHA loan borrower about $900 per year. (Learn more about FHA Loans.)

What Are FHA Mortgage Insurance Premiums?

If you get an FHA-insured loan you’ll have to pay mortgage insurance (mortgage insurance protects the lender in the event you default on loan payments). There are two types of mortgage insurance premiums (MIPs) that you must include in your FHA loan agreement:

  • Upfront premium. This is a one-time payment that you make when you first get the loan. It is currently 1.75% of the loan amount. The new FHA rules do not change this premium amount.
  • Annual premiums. Unless your loan-to-value rate is substantial, you’ll also be required to pay annual mortgage insurance premiums. Although called annual premiums, you pay them monthly. The amount you pay is based on the length of your loan, the amount you borrow, and your loan-to-value rate.

Reduction in FHA Annual Mortgage Insurance Premiums

The FHA’s new rules reduce the annual premium by .5% for loans that are greater than 15 years. While the total percentage that you must pay for annual premiums varies based on a number of factors, most people are currently paying 1.35% for loans greater than 15. The new rates for these loans will be .85%. (The MIP rates on loans that last less than 15 years will not change; those loans already have a rate lower than .85%.)

U.S. Department of Housing and Urban Development Secretary Julian Castro predicts the new rates will save the average FHA loan borrower about $900 per year.

When Does the Premium Reduction Go Into Effect?

The new rates will apply to loans made on or after January 26, 2015.

What If You Already Have a Loan With Higher Premiums?

The FHA announced two fixes if you already have a loan with higher premiums or if you are currently in the loan process.

Cancel loans in process. The FHA will allow lenders to cancel loan files already in process so that borrowers can start over and get the lower premium rate.

Refinance. If you have an FHA loan made after May 31, 2009, you can refinance in order to get a new loan with the lower premium. (Loans made prior to May 31, 2009 already have lower rates.)

Can I Extend My Chapter 13 Bankruptcy Plan Beyond Five Years to Pay a Claim?

Leon Bayer PhotoASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon, 

I have been in Chapter 13 bankruptcy for five years and just made my last plan payment. But the trustee now says I have to pay an additional $8,000 before I am done with my bankruptcy and can get a discharge. The trustee has filed a motion to dismiss my case. 

I have talked to several bankruptcy lawyers, and they all agree that the trustee is correct – I do in fact have to pay the additional $8,000 into my Chapter 13 plan. 

I don’t have the money right now and my five year plan is over. I’m worried that if the trustee dismisses my case, the unpaid interest on my credit cards will become due. But I don’t have the money to make the $8,000 payment. 

Can I extend my case beyond the five years in order to spread this payment out over time?  I have a hearing next month on the trustee’s motion to dismiss. 



Dear Grace,

Unfortunately you are not allowed to extend your Chapter 13 payment plan beyond five years (60 months). (Learn more about the Chapter 13 bankruptcy plan and how long it can last.) If the trustee dismisses your case, you’ll owe the $8,000 plus interest on all the debt you paid through your plan over the past five years. This could be a lot of money.

Another Way Around the Five Year Plan Limit

But you might be able to get extra time to pay a different way. Hire a lawyer and have that lawyer file an opposition to the trustee’s motion to dismiss.

In the opposition, explain what happened, tell the court that you need six more months to pay off the $8,000, and ask the court to continue the hearing on this matter, giving you time to finish the job. After filing the motion, your lawyer should ask the Chapter 13 trustee if he or she will agree to continue the hearing. I think any decent trustee will agree, probably giving you a series of continuances over the next six months so you can pay as promised.

Why This Might Work

While you can’t officially modify your plan to extend it to 66 months, there is nothing in the law preventing the trustee from accepting your voluntary payments, even after your plan is over.

If the trustee will not agree, then make your argument to the judge. I think there is a good chance the judge will agree to the proposal if you have had a good Chapter 13 payment record up to now.

Good luck.

Leon Bayer is a Los Angeles bankruptcy attorney.  He is a partner at Bayer, Wishman & Leotta, a California law firm specializing in bankruptcy.  The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer.

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President Signs Bill to Extend Mortgage Forgiveness Tax Break Through 2014

tax_cut_imageOn December 19, 2014 President Obama signed H.R. 5771, the Tax Increase Prevention Act. One of the provisions of that Act extends the tax break for homeowners who have had mortgage debt canceled or forgiven in 2014.

When Is Mortgage Debt Forgiven?

Thousands of financially struggling homeowners had mortgage debt forgiven by their lenders in the past year.  Mortgage debt forgiveness might happen as part of a mortgage modification – lenders often forgive part of the principle in order to make a loan more affordable. It also sometimes happens after foreclosure. If you go through a foreclosure and still owe money to your lender (because your mortgage was higher than the value of your home), the lender might forgive that debt (in some states and under some circumstances the lender must forgive the debt). Your mortgage lender might also agree to forgive any remaining mortgage debt after a short sale. (Learn more about tax consequences after foreclosure or short sale.)

Forgiven Mortgage Debt as Income for Tax Purposes

Prior to 2007, if your lender forgave or canceled mortgage debt, the IRS would treat that canceled debt as income. That means you’d have to pay taxes on it.  Ouch.

The Mortgage Forgiveness Debt Relief Act of 2007

Congress changed that when it passed the Mortgage Forgiveness Debt Relief Act of 2007. The Act allows homeowners to exclude up to $2 million of forgiven mortgage debt on their principal residence from their taxable income.  Congress initially limited this tax break to debt forgiven between 2007 and 2010. It later extended the time period through 2012, and then again through 2013. (There are other important conditions that you must meet in order to qualify for this exclusion. To learn more, see Canceled Mortgage Debt: What Happens at Tax Time?)

HR 5771 Extends the Tax Break Through 2014

Congress’ latest extension (in H.R. 5771) extends the tax break to debt forgiven in 2014.

Permanent Relief on the Horizon?

So what happens if some or all of your mortgage debt is forgiven in 2015? As it stands now, you’ll be out of luck. However, relief may be on the way. Representative Alan Grayson introduced H.R. 5785 into Congress on December 3, 2014. It is now in the House Ways and Means Committee. If enacted, H.R. 5785 would make permanent the tax break for forgiven mortgage debt. Stay tuned.

Consumer Scams: 1971 & 2011 Comparison

Consumer fraud has come a long way in the last 40 years. Although scams thrived in the 1970s, the Internet brought the scamming trade to new heights in the 21st century. Let’s take a look at what the scam scene looked like in 1971 and what it looks like today – and how you can protect yourself.

  • 1971: Spam was canned meat that looked (and some say, tasted) like cat food, phishing was something you did with your grandfather, a virus was something to be celebrated because it meant you got to stay home from school, and cramming was what you did before a test.
  • 2011: Savvy consumers must be on the lookout for Internet spam, phishing (when fraudsters try to obtain sensitive information via email by posing as a legitimate company), computer viruses, and phone cramming (when a company bills you for a service you didn’t agree to, order, or use).
  • 1971: The average consumer scam involved a relatively small number of victims and most fraud victims had personal, face-to-face contact with the scammer. Think used car sales, door-to-door sales, and small-time investor schemes.
  • 2011: The Internet enables scammers to perpetrate fraud quickly and easily on a very large scale and allows the scammer to remain faceless and nameless. This makes getting your money back difficult, and poses challenges for government prosecutors.
  • 1971: Because scammers in the 1970s knew that many Americans were sitting on a treasure trove in the form of their house, fraudsters came up with all sorts of home improvement and contractor scams to suck money out of homeowners.
  • 2011: While home improvement and contractor fraud are still biggies, today resourceful scammers have invented thousands of new home scams in every variety and flavor. Tricking elderly homeowners into signing their home away, stealing equity from homeowners through elaborate refinancing schemes, and taking money from folks to buy land that does not exist are just a few.
  • 1971: If you were the victim of a Nigerian scam, it meant you had traveled to Nigeria and got pick-pocketed in an open-air market.
  • 2011: Today, the Nigerian scam is just one of many “advance fee” scams that rip off businesses and individuals alike – causing folks to lose cash and risk identity theft to impersonators over the Internet. (You can learn about the Nigerian scam and other advance fee scams from the FBI.)
  • 1971: Although the term “identity theft” was first coined in 1964, the vast majority of Americans in 1971 remained untouched by (and often unaware of) this crime.
  • 2011: Identity theft is the most common consumer fraud reported to the Federal Trade Commission, with 1.3 million reported cases in 2010. Some estimate the number of actual victims per year to be 10 million.
  • 1971: Smart consumers could reduce the chance of being scammed by arming themselves with information. Luckily Nolo entered the scene in 1971, providing plain English legal information to everyday folks.
  • 2011: The advice on how to reduce your chance of becoming a scam victim hasn’t changed much over the years — know what scams are lurking about and learn how to protect yourself. Fortunately, Nolo can help you do just that. Today, Nolo’s Solve Your Money Troubles, Credit Repair, and Stopping Identity Theft provide consumers with sound advice on how to avoid scams, protect your money, and protect your good credit. Or, with the click of a mouse (not the 1971 kind that eats cheese), you can download and fill out one of Nolo’s many eForms (drafted by our top-notch in-house lawyer-editors) in the consumer protection and money management area. And thanks to the Internet, Nolo now has hundreds of free articles and FAQs on consumer protection – so you can learn about lemon laws, avoid eBay fraud, spot the most common travel scams, protect your good credit from identity thieves, check out the newest home equity scams, and more.

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