Category Archives: Bankruptcy & Debt

Credit Reporting Agencies Agree to Better Consumer Protections

This month, the three nationwide credit reporting agencies (Equifax, Experian, and TransUnion) agreed to significant changes in their credit reporting practices and the way they handle consumer disputes. These voluntary changes, which resulted from a settlement with New York Attorney General Eric Schneiderman, are set forth in what the credit reporting industry is calling The National Consumer Assistance Plan. (Learn what a credit report is and what is contains in Credit Report Basics.)

Here are the highlights of these new policies:

180-Day Waiting Period Before Reporting Medical Debts

In what many consider to be the most significant change in the plan, the credit reporting agencies (CRAs) have agreed to a 180-day waiting period before recording delinquent medical debt on a credit report. As we all know, insurance companies are notoriously slow in determining what will, and will not, be covered and then issuing payment. This waiting period will mean that consumers won’t have negative marks on their credit reports for medical bills that are tied up with the insurance company.

As a corollary to this new policy, the CRAs will also remove notations of delinquent medical debt for those accounts that have subsequently been paid by insurance.

Traffic Tickets or Government Fines Won’t Appear in Credit Reports

Credit reports will no longer contain negative information about traffic tickets or government fines. The CRAs will only record information about debts that arose from a contract or agreement.

More Information When Disputing Inaccurate Information

If you dispute an item on your report and are not happy with the result, the CRAs will now provide you with information about your options and further steps you can take. And if you successfully dispute an error after getting your free annual credit report, you can get another free report within the year. (Learn how to dispute errors on your credit report.)

Enhanced Dispute Resolution System for Identify Theft, Fraud, and Mixed Credit Files

The three nationwide CRAs are devising enhanced dispute resolution procedures for victims of identity theft and fraud, and for those whose credit file was mixed with another’s file.

When Will These Changes Take Effect?

The CRAs will start implementing the new policies over the next several months. Experts anticipate that they will take from three to thirty-nine months to complete (depending on the particular policy).

Can You Keep Horses and Other Pets in Bankruptcy?

2horsesASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon, 

I am considering Chapter 7 bankruptcy and am wondering what will happen to my two pet horses if I file? They are not worth much; I probably couldn’t even give them away. But I don’t want to file bankruptcy if I have to give them up.


Dear Alysia,

There are a few issues that arise when you file for Chapter 7 bankruptcy and have horses or other household pets. The first is whether the bankruptcy trustee will sell the horses and use the proceeds to repay your creditors (since your horses aren’t worth much, this is unlikely). The second is whether the bankruptcy trustee will dismiss your Chapter 7 bankruptcy because your pet care expenses are unreasonable.

Your Horses Are Property of the Bankruptcy Estate

When you file for Chapter 7 bankruptcy, all of your assets become property of the bankruptcy estate. This includes all of your personal property, and animals are personal property. However, state and federal law allow you keep certain types of property – called exempt property. The idea is that you shouldn’t be left without basic items for living and working. (Learn how bankruptcy exemptions help you keep property.)

Are Your Pets Exempt Property?

A few states have laws that exempt pets. If you live in one of those states, you may be able to use the exemption to keep your horses.

Most states don’t have a specific exemption for pets, but many have a wildcard exemption. A wildcard exemption allows you to exempt a certain dollar value of any type of personal property.  Because your horses aren’t worth much, you may be able to use a wildcard exemption to keep them. (To find out if your state has a pet exemption or wildcard exemption, see Bankruptcy Information for Your State.)

Will the Trustee Abandon Your Horses?

Even if you cannot exempt your horses, the trustee may decide to abandon (not take and sell) them. A trustee will do this if your horses have little value, or because it would be too hard for the trustee to sell them.  (Learn more about when a trustee will abandon property in bankruptcy.) In your situation, since your horses aren’t worth much, this is likely to happen.

Keep in mind though, if your horses are valuable (when I say value, I mean market value), the bankruptcy trustee will explore the possibility of selling them.

Are Your Pet Care Expenses Unreasonable? 

When you file for bankruptcy, you fill out a number of forms that contain information about your income, expenses, debts, assets, and recent financial transactions. If the bankruptcy trustee feels that your living expenses (listed on a form called Schedule J) are unreasonable high, he or she may ask the court to dismiss your bankruptcy case. Spending money to care for horses could be an issue if the court thinks that money should go to your creditors.

Here’s what the court is likely to look at:

The cost of maintaining your horses.  The higher the cost, the more likely the court will balk. For example, if you spend $100 per month on pet care, that is unlikely to be questioned. On the other hand, if you regularly spend $1,000 per month caring for your horses, the court is more likely to toss your case.

The amount of your other expenses.  The court is likely to look at your other living expenses as well. If you spend far below average on other things so that you can pay for your horses, that fact will cut in your favor. For example, things like driving a very old, inexpensive car, scrimping on food and utilities, and foregoing any kind of middle class luxury could persuade a trustee to let your case to proceed.

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.

Find Leon on Google+

Can I Refinance a Mortgage That Was Discharged in Bankruptcy?

Leon Bayer PhotoASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon, 

I filed bankruptcy in 2009. One of the debts discharged in the bankruptcy was a mortgage with Wells Fargo. Upon the advice of my lawyer, I did not reaffirm the mortgage in the bankruptcy. I kept my house, and I have stayed current on my mortgage.

I just asked Wells Fargo to refinance my mortgage at a lower rate. It told me that it cannot refinance the mortgage because I did not affirm the loan in the bankruptcy. It also told me that no bank will refinance the loan, for the same reason.

Should my lawyer have advised me to reaffirm the loan? Is there anything I can do? 



Dear Shirley,

What Wells Fargo told you is partially right, and partially wrong. If the only issue is that you did not reaffirm the home loan in your bankruptcy, you will be able to refinance your loan with a different lender. Your lawyer was not remiss in advising you not to try to reaffirm the mortgage.

What Is Reaffirmation in Bankruptcy?

Most types of debts are wiped out in Chapter 7 bankruptcy. If you want to keep a particular debt, however, you can reaffirm it. Essentially you sign an agreement with the lender that waives the discharge of the debt. (Learn more about how reaffirmation works in bankruptcy.)

The effect of reaffirming a mortgage is that if you later default on the loan and the lender forecloses, you will be liable for a deficiency (the difference between what you owe and the value of your home). If you don’t reaffirm your mortgage in bankruptcy and later default, the lender cannot go after you for a deficiency. (Learn why reaffirming a mortgage is almost always a bad idea.)

Refinancing a Discharged Loan

If a debt is discharged in bankruptcy, the lender is prohibited from trying to  collect on that debt. The lender cannot sue you, call you, or send you a bill or mortgage statement.

When you refinance a discharged mortgage loan with the same lender who currently holds the mortgage, the proceeds of the refinance go back to that lender to repay the loan balance. This violates the bankruptcy discharge and that’s why Wells Fargo won’t refinance your mortgage. However, this  should not prevent other lenders from refinancing your mortgage.

It’s unfortunate that Wells Fargo was not able to explain the law correctly, or clearly.

Should You Have Reaffirmed Your Mortgage?

But should your lawyer have recommended or tried to get your mortgage reaffirmed? Most likely not.

In bankruptcy, a reaffirmation agreement must be approved by either

  • the bankruptcy judge, or
  • your bankruptcy lawyer.

Bankruptcy court approval. Most bankruptcy judges will not approve mortgage reaffirmations, reasoning that a debtor can keep the house without reaffirming as long as he or she makes timely payments. This makes the reaffirmation an unnecessary liability. Often the only reason in favor of reaffirming is to reestablish a good payment history. (Without a reaffirmation agreement, your future payments probably will not appear on your credit report.) Most bankruptcy judges feel that building future credit is not a sufficient reason to burden a debtor with mortgage liability.

Lawyer approval. If the judge won’t sign off on the reaffirmation, then it won’t be valid unless your lawyer signs a legal declaration stating that the reaffirmed debt will not impose an undue hardship on you or your dependents. Lawyers are very hesitant to sign such a document because they don’t know what their own responsibility will be if you default. Lawyers also reason that if judges won’t sign these agreements, then they shouldn’t either.

The end result: Mortgages are almost never reaffirmed in bankruptcy.


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.

Find Leon on Google+

10th Circuit Rules: No Tax Discharge in Bankruptcy If You File a Late Return

The 10th Circuit Court of Appeals recently ruled that if a bankruptcy debtor files a “late” income tax return, the underlying income tax debt cannot be discharged in Chapter 7 bankruptcy even if the debtor meets the other criteria for discharging tax debt in bankruptcy.

The Criteria for Discharging Income Taxes in Bankruptcy

Although many income tax debts are not dischargeable in bankruptcy, you can discharge a tax debt if it meets the following criteria:

  • The tax debt is for federal or state income taxes.
  • The tax return was due at least three years ago (this includes all valid extensions).
  • You filed the return at least two years ago.(This is where the “late filed” return issue arises, see below.)
  • The taxes were assessed at least 240 days ago.
  • You did not file a fraudulent frivolous return and you are not evading tax laws.

(To learn more, see Tax Debts in Chapter 7 Bankruptcy.)

The Split in Authority

According to most bankruptcy courts, a late-filed return does not constitute a “return” for purposes of the third prong in the above criteria for discharging tax debt.

What is a late return? Your return is “late” if all of your filing extensions have expired and the IRS has filed a substitute return without your assistance. Your return is not late if the IRS files a substitute return with your assistance under Internal Revenue Code Section 6020(a) — something the IRS may, but is not obligated, to do.

However, some courts have found otherwise:  That a late return is still a “return” for the purposes of the third prong. This means that if you filed a late return at least two years before your bankruptcy and meet the other criteria, you can discharge the underlying tax debt.

The 10th Circuit Decision: In re Mallo

In a recent decision, the 10th Circuit Court of Appeals embraced the first line of authority:  That is, a late filed return does not constitute a “return” for purposes of the bankruptcy dischargeability test. In re Mallo, No. 13-1464, 2014 WL 7360130 (10th Cir. Dec. 29, 2014). The 10th Circuit did say that if the IRS files a return with your assistance under IRC Section 6020(a), then the return does count as a “return” for the third prong of the test.

This case may go to the U.S. Supreme Court; we’ll keep you posted.  In the meantime, if you have income taxes you’d like to discharge in bankruptcy, be sure to speak with a local bankruptcy attorney.

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.