Monthly Archives: March 2014

Michigan Bankruptcy Exemptions to Increase on April 1, 2014

iStock_000013926497Small (2)If you are planning to file for bankruptcy in Michigan, you might want to wait a few weeks. On April 1, 2014, the dollar amounts for some of the bankruptcy exemptions will increase. This means if you wait to file for bankruptcy until on or after April 1st, you can keep more property in Chapter 7 bankruptcy.

What Are Bankruptcy Exemptions?

If you file for Chapter 7 bankruptcy, your property becomes part of the bankruptcy estate. The bankruptcy trustee can sell your property and use the proceeds to repay your unsecured creditors. Some property, however, is safe from the trustee – this is called exempt property. (Learn more about the role of exemptions in Chapter 7 bankruptcy.) Each state has a list of property you can exempt in that state, usually up to certain dollar amounts.

In Chapter 13 bankruptcy, your exempt property plays a role in how much you must repay unsecured creditors over the life of your plan. So even though you keep your property in Chapter 13, being able to exempt most or all of your property is still advantageous to your case. (Learn more about the role of exemptions in Chapter 13 bankruptcy.)

Michigan Bankruptcy Exemptions

Like other states, Michigan law sets forth a list of property that you can protect if creditors are trying to collect from you. You can use these exemptions in bankruptcy as well. For a full list of Michigan bankruptcy exemptions (not all of them changed), see Nolo’s article Michigan Bankruptcy Exemptions.

Every three years the Michigan state treasurer adjusts the exemption dollar amounts to take into account inflation. The latest adjustment will go into effect on April 1, 2014. If you file for bankruptcy on or after April 1, 2014, the following exemption amounts will apply to your case:

  • Household goods, furniture, utensils, books, appliance, and jewelry, up to $600 per item, but not to exceed a total of $3,775 for all items. (The previous amounts were $550 and $3,525 respectively.)
  • Pew in a place of worship, up to $650 (previously it was $600).
  • Crops, farm animals, and feed for the animals, up to $2,525 total (previously it was $2,350).
  • Pets, up to $650 (previously it was $600).
  • Motor vehicle, up to $3,475 (previously it was $3,250). (Learn more about the Michigan motor vehicle exemption.)
  • Computer and accessories, up to $650 (previously it was $600).
  • Tools of the trade, up to $2, 525 (previously it was $2,350).
  • Homestead exemption to $37,775 (previously it was $35,300) or to $56,650 if you are 65 years old or disabled (previously it was $52, 925). (Learn more about the Michigan homestead exemption.)

You can find these exemption laws in the Michigan Compiled Laws Annotated §600.5451(1). However, the statutes do not reflect the adjusted amounts. You can find the Michigan bankruptcy exemptions adjusted for inflation on the Michigan Department of Treasury’s website.

Can Student Loans Help You Qualify for Chapter 7 Bankruptcy?

StudentLoans_iStockIf you plan to file for bankruptcy and have a bundle of student loan debt, those loans might make it easier for you to be eligible for Chapter 7 bankruptcy.  A Texas bankruptcy court recently ruled that because a bankruptcy debtor’s substantial dentistry school loans were not consumer debts, he did not have to take the means test in order to file for Chapter 7 bankruptcy.

What Is the Chapter 7 Means Test?

In order to qualify for Chapter 7 bankruptcy, you must pass the means test. The Chapter 7 means test looks at your income and expenses and determines if you have enough money left over to repay your unsecured creditors a portion of what you owe.

The means test often prevents high earners from filing for Chapter 7 bankruptcy. For many debtors, Chapter 7 is preferable to Chapter 13 because it allows you to discharge most or all of your debts, and you don’t have to make payments to a plan for three to five years. (Of course, there are many situations when Chapter 13 is better than Chapter 7.)

Exceptions to the Means Test Requirement

There are several situations when debtors do not have to pass the means test in order to file for Chapter 7 bankruptcy. One of those is referred to as the business debt exception:  If the majority of your debts are not consumer debts, you don’t have to take the means test.

Texas Court:  Dentist School Loans Are Not Consumer Debts

In In re De Cunae, No. 12-37424 (Bkcy S.D. TX 2013), Mr. De Cunae, a dentist, filed for bankruptcy. He lost his dental practice after a difficult divorce, was a single father, and couldn’t work for a time because of a stroke. At the time of his bankruptcy filing, he was once again working as a dentist on a contract basis. He filed for Chapter 7 bankruptcy.

Mr. De Cunae argued that he did not have to pass the means test (his income was high enough that if he did have to pass it, he would have failed) because his student loans from dentistry school were nonconsumer debts, and therefore the majority of his debts were nonconsumer.  The Texas bankruptcy judge agreed, ruling that the portion of his dentist school loans (about $200,000) that was used for tuition, books, and fees, was not a consumer debt. On the other hand, the portion of the student loans that he used for household expenses (about $30,000) was consumer debt.

Loans Incurred With an “Eye Towards Profit” Are Not Consumer Debts

Bankruptcy courts often struggle to distinguish consumer and nonconsumer debts. The Fifth Circuit Court of Appeals (Texas is in this circuit) has come up with the following definition: A nonconsumer debt is one that the debtor takes out “with an eye toward profit.”

The Texas bankruptcy court found that Mr. De Cunae did not attend dentist school, nor incur loans to attend dentist school, only for self-improvement or self-esteem, as the United States Trustee argued. Instead, the court found that Mr. Cunae’s intent was to enhance his ability to earn a future living.  To the court, that seemed to fit squarely within the profit motive category — and therefore they were not consumer debts. The portion of student loans that Mr. De Cunae used for household expenses, however, were consumer debts.

Because he could classify most of his dentist school student loans as nonconsumer debt, Mr. De Cunea’s  total nonconsumer debt load outweighed his consumer debt load – and he was allowed to file for Chapter 7 bankruptcy without passing the means test.

Can a Credit Card Debt Be Reported on a Child’s Credit Report?

Real bank or piggy-bank?ASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon, 

I got a Chapter 7 discharge about a year ago. Long before filing bankruptcy I got an extra credit card for my daughter to use. At that time the bank assured me that I would be the only person liable for charges on the card. My daughter just got her credit report and the credit card account appears as a charge off. 

How did the company get her social security number? And didn’t it violate the agreement it made with me? My daughter is now 17 years old, and I’m sick over the thought that I ruined her credit. 

Yours truly, 


Dear Marjorie,

I suggest that your daughter dispute the debt on her credit report. It’s not hard to do. You can learn how in Nolo’s article How to Dispute Errors on Your Credit Report.

In her dispute, she should state two things:

  • that the credit card account is not hers, and
  • that even if it was, she is under age 18 and is now voiding the contract, so does not owe the credit card company anything

I think this credit dispute will be quickly resolved in her favor. If it is, that annoying item will disappear from her credit report.

Here is a little background on each of these arguments.

The Credit Card Account Is Not Hers

The credit card company told you that you would be the only one liable for the charges, so the account never belonged to your daughter. Your daughter should state these facts in her dispute.

What If the Agreement Did Hold Your Daughter Liable?

But what if the credit card agreement did hold your daughter liable?  It’s likely you no longer have documents proving the contrary. And credit card companies do issue extra cards to authorized users and hold the user liable. In this case, because the bank has her social security number, is it possible the agreement said she would be liable?

A Minor Can Void a Contract

Even if the credit card agreement did hold your daughter liable for the credit card debt, she can void the contract before she turns 18.

Because the law says that minors lack the capacity to enter into a contract, it gives minors the option to either (1) honor the contract, or (2) void the contract before he or she turns 18.  (There are a few exceptions: Minors cannot void contracts for necessities, like food and shelter.)

Your daughter should immediately notify the credit card company and the credit repair agency that she is voiding the contract.  She can do this by stating:

“While I believe that I never had a contract with [credit card company], if I did, I am now voiding the contract.  I am under the age of 18.”

At that point, since there is no contract in place, your daughter does not owe the credit card company anything, and she can dispute the entry on her credit report.

A Novel Argument?

And if you want to try something new, consider this. Last July, the new Children’s Online Privacy Protection Act Rule (COPPA Rule) took effect in California. If you use the above tactics and still cannot get the item removed, you could hit the credit card company with a demand to remove the item on the ground that it is violating COPPA by publishing information pertaining to the identity of a minor.  It might be a stretch to say that a credit report (which has a limited viewing audience) is “publishing” information about a minor and therefore violating COPPA, but it doesn’t hurt to make the argument. Rather than test new legal waters, perhaps the credit card company (or the credit reporting agency) will back down and remove the item.


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+

Law v. Siegel: Did the U.S. Supreme Court Let a Conniving Bankruptcy Debtor Off the Hook?

US Supreme CourtIn a recent case, Law v. Siegel, the U.S. Supreme Court said that a bankruptcy trustee cannot “surcharge” (redirect funds from) a bankruptcy debtor’s exempt property to pay for the trustee’s attorney’s fees — even if the debtor defrauded the court. The decision was a blow to bankruptcy trustees. But it certainly doesn’t mean that debtors who lie and cheat will get off without penalty.

The Facts of Law v. Siegel

In 2004 Mr. Law filed for Chapter 7 bankruptcy in California.  His home was worth $363,348 and he claimed the full $75,000 of California’s homestead exemption. He also listed two liens against his home that, taken together, exceeded the value of his home. Because these three liens meant that he had no equity in his home, there was nothing left for creditors and he proposed to keep his home in the bankruptcy.

The bankruptcy trustee, Mr. Siegel, questioned the existence of one of the junior liens – that of Lin’s Mortgage and Associates. Long story short: After five years of litigation, the bankruptcy court ruled that the Lin’s Mortgage loan was fictitious. Law had made it up just so he could keep his home. The bankruptcy court ruled that Mr. Law defrauded his creditors and the court.

At this point, Mr. Siegel was in the hole for attorney’s fees to the tune of a whopping $500,000. Bankruptcy law allowed Mr. Siegel to take his fees out of the proceeds of the home sale, after paying off Mr. Law’s first mortgage. But that amount didn’t make a dent in Mr. Siegel’s fees. So, Mr. Siegel asked the court to “surcharge” Mr. Law’s $75,000 homestead exemption. Essentially, he asked the court deny the exemption, and allow Mr. Siegel to use the $75,000 to defray his attorney’s fees.

Needless to say, Mr. Law was not a sympathetic character and the bankruptcy court did not have a problem giving the $75,000 to Mr. Siegel. When Mr. Siegel appealed to the Bankruptcy Appellate Panel of the Ninth Circuit, those judges agreed with the bankruptcy court. He then appealed to the Ninth Circuit, which also agreed with the bankruptcy court.

Split in the Circuit Courts Over Surcharging

Although the bankruptcy court’s ruling seems like a no-brainer, there has been a split between the circuit courts over surcharging – and for good reason. The federal bankruptcy law (§522) which allowed Mr. Law to exempt $75,000 in his home specifically states that the exempted amount “is not liable for” administrative expenses, including attorney’s fees.  And that’s exactly what Mr. Siegel proposed – to use the $75,000 to pay his attorney’s fees.

But here’s the rub. The Ninth Circuit and a few others have ruled over the years that surcharging is allowed because:

  • §105(a) of the bankruptcy code gives the bankruptcy court the authority to do what is necessary to carry out the provisions of the bankruptcy code, and
  • the bankruptcy court has “inherent power”  to sanction litigation practices.

Enter the Supreme Court

The bankruptcy bar awaited the result with baited breath. On the one hand was the group of lawyers who serve as bankruptcy trustees. They were hoping the U.S. Supreme Court would allow the surcharge.

On the other side was the group of lawyers who regularly represent debtors. Those lawyers didn’t want a decision which gave bankruptcy courts more power to take away debtors’ exemptions. And this case was worrisome because “bad facts often make bad law.”

The Supreme Court Says No to the Surcharge

In the end, the Supreme Court held its nose and ruled for Mr. Law.

Its reasoning was fairly simple: A bankruptcy court cannot take an action that is specifically prohibited by another section of the bankruptcy code.

The Supreme Court said that while the bankruptcy court does have inherent power to sanction fraudulent debtors, and §105(a) does give it power to make orders to carry out the code, nonetheless, the bankruptcy court cannot do so if it contravenes another provision of the code. Here, the bankruptcy court’s actions overrode §522, which allows a debtor to exempt certain property. To be sure, §522 does allow a bankruptcy court to deny an exemption, but only for a reason specifically outlined in that section. To that end, §522 lists quite an array of exceptions and limitations to a debtor’s use of exemptions. In what has quickly become a popular quote among bankruptcy attorneys, the Supremes said:

“The Code’s meticulous – not to say mind-numbingly detailed – enumeration of exemptions and exceptions to those exemptions confirms that courts are not authorized to created additional exceptions.”

(Anyone who has dealt with bankruptcy exemptions, both attorneys and debtors alike, will agree that they are mind-numbing. It was nice to have that fact recognized by the highest court in the country.)

What Does This Mean for Bankruptcy Trustees?

The decision is not a good one for bankruptcy trustees. Mr. Siegel labored for five years to prove that Mr. Law had defrauded the court and his creditors. And now he can’t even touch the $75,000 exemption. Yes, there are consequences for Mr. Law (see below), but they don’t necessarily help Mr. Siegel recover his attorney’s fees.

What Does This Mean for Debtors?

This decision certainly doesn’t give free reign to debtors to play fast and loose with the bankruptcy code, or worse, to defraud the court.

The U.S. Supreme Court was very careful to point out the many sanctions that are available to deal with debtors like Mr. Law.

  • The bankruptcy court can deny Mr. Law’s discharge, so that he’d still be on the hook for his debts. (The Court recognized that in this case, because of a settlement, Mr. Law didn’t have any debts to discharge. In most bankruptcy cases, however, this would be a big stick.)
  • The bankruptcy court can impose sanctions on a debtor for bad faith litigation tactics. It won’t take much to put Mr. Law in this category.
  • A debtor who commits fraud can be subject to criminal prosecution, and possibly go to jail for up to five years.

Can a Lender Take Your Mortgage Statements Hostage to Force You to Reaffirm?


Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon, 

I filed Chapter 7 bankruptcy in California the spring of 2013. I have a first and second mortgage on my home. Although it was, and still is, underwater, I want to keep it. My lawyer said I didn’t need to do anything in the bankruptcy other than continue making payments on both loans. 

My mortgage payments have not been appearing on my credit report. And my mortgage lender recently stopped sending monthly mortgage statements. When I called, the lender told me that because I didn’t reaffirm the debt in my bankruptcy, it cannot send mortgage statements or report my payments to the credit bureaus. 

The lender said that the only way to remedy this is to reopen my bankruptcy and reaffirm the loan. Did my lawyer mess up? 


Dear Carol,

Your lawyer did nothing wrong. Here’s why.

Courts Don’t Like Home Loan Reaffirmations in Bankruptcy 

When you sign a reaffirmation agreement in bankruptcy, you agree to resume personal liability on a debt that the bankruptcy would have otherwise wiped out.

In California, most bankruptcy judges routinely refuse to approve the reaffirmation of mortgages. Bankruptcy judges don’t want people to saddle themselves with debt loads that were set to be discharged in bankruptcy. Most judges believe that it’s not in anyone’s best interest to reaffirm a mortgage. For the most part, reaffirmation agreements are unnecessary if you want to keep your home – if you keep paying your loan on time, you can keep the home.

If you don’t reaffirm, your payments won’t appear on your credit report. But the courts are more concerned with keeping everyone out of future debt trouble than with helping them get back into it.

Why It’s Usually Not a Good Idea to Reaffirm Your Mortgage

The danger of reaffirming is that if you later change your mind about keeping the house, or fall behind on payments and lose your home to foreclosure, you’ll be on the hook for a deficiency.

What’s a deficiency? If your home is underwater and you lose it to foreclosure, the difference between the sale proceeds from the foreclosure and what you still owe on your mortgages is called the deficiency. (Get details on how deficiencies work.)

In most situations, California law does not allow a mortgage lender to come after you for a deficiency on a first mortgage of your residence (but there are exceptions). Not so for the second mortgage. The mortgage lender can sue you to recover the deficiency and then once it gets a judgment, garnish your wages, levy your bank account, and more. (Learn more in Deficiency Judgments After Foreclosure in California.)

Your bankruptcy wiped out your personal liability on both the first and second mortgages – so the lender cannot come after you for a deficiency if you later lose the home to foreclosure. It would not have been in your best interest to reaffirm those loans in the bankruptcy, because then you would be liable for a deficiency. Of course, it would have been in your mortgage company’s best interest for you to reaffirm.

Your Lender Is Holding Your Mortgage Statements Hostage to Force You to Reaffirm

You say your mortgage company recently stopped sending you statements. If it couldn’t send statements because you didn’t reaffirm the mortgage, then why was it able to send statements from the spring or 2013 up until now? Obviously, your lender can send statements, if it chooses to.

And thanks to a new federal law, your mortgage lender might be required to send you periodical mortgage statements. There are exceptions to this new rule though.  (To learn more, see Nolo’s article The Periodic Statement Rule: Monthly Mortgage Statement Requirements.)

What Can You Do?

Your mortgage company has stopped sending statements in order to coerce you into reaffirming your loan. Nice people, huh?

I suggest you send a letter to your mortgage company referring to the periodic statement rule and requesting that it comply with the rule and start sending mortgage statements. You can tell the company that if it doesn’t comply with the rule, you’ll submit a complaint with the Consumer Financial Protection Bureau.

If that fails, talk to a lawyer.


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+

Real Housewives of New Jersey’s Teresa and Joe Giudice Commit Bankruptcy Fraud

Serious male judgeTeresa and Joe Giudice, cast members of The Real Housewives of New Jersey, clearly did not read Nolo’s bankruptcy articles before they filed for Chapter 7 bankruptcy in 2009. Last week in federal court, the Giudices admitted to committing bankruptcy fraud by failing to list income and assets.  (They also admitted to conspiracy to defraud banks through mortgage and loan fraud — but that’s another blog.)

Never, Ever, Hide Income and Assets in Bankruptcy

When you file for bankruptcy, you complete a packet of papers where you list your income, assets, and debts.  You must sign your bankruptcy petition and schedules under penalty of perjury, so if you lie, you are committing perjury (a crime). For this reason, you should never deliberately fail to list assets or income on your bankruptcy schedules.  (See Nolo’s article Filing Bankruptcy? Disclose Everything, Hide Nothing.)

How Did Real Housewives Stars Teresa and Joe Commit Bankruptcy Fraud?

According to news reports, Teresa and Joe failed to list an array of income sources and assets, including:

  • Teresa’s true income from “Real Housewives”
  • income and speaking fees from personal and magazine appearances
  • businesses they owned, and
  • rental income.

You Will Get Caught

Teresa and Joe Giudice may be dippy, but they must have known that lying on their bankruptcy schedules was a no-no. But they did it anyway, probably thinking they wouldn’t get caught. Bad idea. Listen to what bankruptcy lawyers say — you will get caught. Bankruptcy trustees have the power to do a bunch of asking and digging. And bankruptcy trustees are good at spotting red flags that might inspire them to do some digging.

And even if you’ve already gotten your discharge, you are still not home free. The bankruptcy trustee might find fraud after your bankruptcy is over – which is what happened with Teresa and Joe. They filed for bankruptcy in 2009 and for a while probably thought that they had gotten away with their fraud. Ha.

Bankruptcy Fraud = Big Trouble

So what can happen if the bankruptcy court finds out that you’ve hidden assets and income or otherwise lied on your petition and schedules?  A lot.

  • The court can deny your discharge. The court can deny your discharge. Which means all of those debts you wanted to get rid of in bankruptcy will now be yours again.
  • The court can revoke your discharge. If your bankruptcy case is closed, the trustee can ask the court to revoke (take away) your discharge up to one year after closure.
  • No discharge in later bankruptcies. Don’t think you can just refile and discharge the debts the second time around. If the court denied the discharge of your debts because you hid assets, you won’t be able to discharge them in bankruptcy again, ever.
  • You could face criminal charges. Here’s the worst case scenario – criminal charges. You sign your bankruptcy schedules listing your assets under penalty of perjury, representing that they are true and accurate.  The penalty for making a false statement or concealing property is a fine of up to $500,000 or imprisonment for up to five years, or both. (Learn more about the consequences of hiding income and assets in bankruptcy.)

Jail Time for the Real Housewives’ Stars?

Teresa Giudice could face up to two years and three months in prison, and Joe could face three to four years of prison time for the bankruptcy and mortgage fraud.

How to Complete Bankruptcy’s Schedule F: Untangling the Morass of Creditors and Debt Collectors

File Stack and Magnifying GlassASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon, 

I’m trying to fill out a set of Chapter 7 bankruptcy schedules for myself.

I am going crazy over how to list my creditors on Schedule F. I have my credit reports for the past few years, and some of the collection agencies that used to be on the reports don’t show up on my latest report. 

Also, my reports list some collection agencies but don’t show who the original creditor was. To top it off, the dates and amounts don’t all match and the account numbers used by some collection agencies don’t match those of the original creditors. What the heck should I do?  This is so confusing. 



Dear Sara,

Welcome to my world.

On Schedule F of your bankruptcy paperwork, you must list all of your unsecured, nonpriority debts. (Learn what an unsecured, nonpriority creditor is and what information is required in Schedule F in Nolo’s article How to Fill Out Schedule F.) But, as you have discovered, figuring out who all those creditors are can be a nightmare.

Here’s how to fill out Schedule F when you are confronted with a big jumble of intimidating information.

Develop a System

First, list each one of your original creditors. If you know that a collection agency is collecting a particular debt right now, you still should list the original creditor, and then separately list the collection agency.

How to Write a Description for Each Debt

When you list an agency, you can note that it is collecting for a particular original creditor. For example, list your credit card debt at the Bank of Boot Hill, and then list the Hired Gun Collection Agency, noting it as the “assignee for the Bank of Boot Hill”.

How to List Debts From Your Credit Report That You Don’t Recognize

If you have some collection agencies that you can’t match up to an original creditor, list them anyway. When you don’t know for whom or what an agency is collecting for, you are still allowed to schedule it. List the debt as “possible claim” or “collector for an original creditor not identified.”

When in Doubt, List It

You won’t get in trouble for over listing. When in doubt, list it and include whatever you know about it.

If you list a collection agency that no longer has the debt, no harm is done to you. But doing so protects you, just in case you are wrong.

Don’t Rely Solely on Your Credit Reports

The key to hammering out a successful Schedule F list of bankruptcy creditors is to list ’em all, with a name and address. Dig deep in all your old papers, looking for creditors.

Your credit reports are a great source of information. But do not rely solely on your credit reports. You might have debts that never made it onto your reports. For example, old landlords, magazine subscriptions, vet bills, medical bills, bounced checks, and home repair services.


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+

Mortgage Service Companies Blasted by Regulators and Housing Advocates

Customer service satisfaction surveyThe big banks have earned a pretty bad reputation over the last decade when it comes to servicing mortgages and, in particular, dealing with homeowners facing foreclosure or struggling to make mortgage payments. So regulators and housing lawyers were hopeful when some of the biggest banks began relying more on mortgage servicing companies to handle accounts. Unfortunately, according to a recent New York Times article, mortgage services are no improvement over the banks when it comes to serious blunders and terrible customer service. In fact, some say they are worse.

What Are Mortgage Servicers?

Your home loan holder (for example, the bank you took out your loan from) can transfer the servicing rights to your loan to a specialty mortgage servicing company. The bank pays the company to service your loan, which includes collecting mortgage payments and forwarding them to the loan holder, setting aside taxes and homeowner’s insurance (if you have an escrow account), and generally managing your account. Loan servicers can also negotiate foreclosure avoidance workouts, handle loan modification applications, and supervise foreclosure procedures.

While mortgage services are not new to the mortgage scene, in the last few years banks have been transferring servicing duties to these companies in record numbers.  Today, specialty mortgage servicers (the two biggest are Ocwen Financial and Nationstar) handle six times more mortgage accounts than they did in 2010.

Complaints About Specialty Mortgage Servicing Companies

According to the New York Times, the number of complaints about mortgage servicing companies has surged in recent years.  Here are just a few of the gripes against mortgage servicers (for a more detailed list, see Common Mortgage Servicer Violations in Loan Modifications).

  • The companies often fail to appoint a single point of contact and instead give homeowners the runaround when they are trying to get a loan modification or negotiate a workout.
  • Companies repeatedly ask homeowners for the same documents during loan modifications, so that homeowners get stuck on an endless document production treadmill without any resolution of their application.
  • Companies lose loan modification files when transferring the loan to another company.

A recent settlement highlights some of the specific complaints against Ocwen. According to the investigation that ended in the settlement, in the past few years Ocwen:

  • used robosigners (employees signed foreclosure documents but had no knowledge about the information in the documents)
  • charged improper fees
  • provided false or misleading reasons for denying loan modifications, and
  • dropped the ball on loan modification applications that were processed by previous servicers. (To learn more about the investigation and settlement, see Foreclosure Relief for Homeowners With Ocwen Mortgages.)

Worse Than the Banks?

According to regulators, customer service is sorely lacking with the mortgage servicing companies, even more so than with the banks.

What Can You Do?

If your mortgage servicer is stalling, giving you the runaround, or has made errors in your account, take action. Here are some things you can do.

Consult with a foreclosure attorney. You can contact a foreclosure or debt attorney to step in and help.

Submit a complaint to the Consumer Financial Protection Bureau. You can submit an online complaint with the CFPB.  The CFPB won’t represent you, but it does gather complaints so that it can track trends and take action where necessary. It will also forward your complaint to the mortgage servicer – but it won’t stop the foreclosure.

Contact Ocwen. If your loan is with Ocwen, you might be able to get assistance under the terms of the settlement agreement.  Call 800-337-6695 or email

Facing an HOA Foreclosure? Get State-Specific Information From Nolo

Map of USAIs your homeowner’s association (HOA) or condominium association (COA) foreclosing on your home? Or are you struggling to make HOA dues and assessments and fear you will soon be in foreclosure? Turn to Nolo to find the information you need.

Learn About HOAs and HOA Foreclosures

In Nolo’s new HOA foreclosure section, you’ll find articles on

  • what constitutes an HOA assessment
  • the importance of your CC&Rs
  • what an HOA lien is and when an HOA or COA can foreclose on a lien
  • defenses to HOA foreclosures
  • how an HOA foreclosure will affect your credit score, and
  • when you might be able to get your home back after an HOA foreclosure.

And if your question is more specific, check out the Q&A section, which answers some of the more common questions people have about HOA foreclosures. For example, did you know that an HOA can foreclose on your home if you get behind in dues, even if you’re current on your mortgage payments? And that if your state provides a right of redemption, you might be able to get your home back after an HOA foreclosure?

State-Specific HOA Foreclosure Information

When you get down to the nitty-gritty of HOA and COA foreclosure procedure, state law governs.  Nolo recently published a 50-state article series on HOA foreclosures (it includes the District of Columbia too). Click on your state’s link to find your state-specific HOA foreclosure article. You’ll learn about:

  • what types of charges the HOA or COA can include in its lien
  • what the HOA or COA must do before foreclosing on its lien (for example, in some states it must record the lien in the county records office)
  • whether your state allows for HOA super liens
  • what notice procedures the HOA or COA must follow before foreclosing
  • whether the HOA has a limited period of time to foreclose on the lien (called the statute of limitations), and
  • where to find the statutes that cover HOA and COA foreclosures in your state.

Tax Tips: Student Loans and Your 2013 Tax Return

Tax Return 1040As you get ready to file your 2013 tax return, review these tax tips if you have student loan debt. Understanding how taxes and student loan payments intersect could help you save money. And if you will soon pay off a student loan with forgiven principal, you might need to prepare yourself for a tax hit.

Tax Tip 1: You Might Be Able to Deduct Interest on Student Loan Payments

If you paid interest on student loans during 2013 and your modified adjusted gross income (AGI) is less than $75,000 if you are single, and less than $155,000 if you are married filing jointly, you can deduct up to $2,500 on your 2013 federal taxes. (There is no deduction if you are married filing separately.)

The amount you can deduct depends on:

  • How much student loan interest you paid.  If you paid less than $2,500, then your deduction is limited to the amount you actually paid.
  • How much income you earned. If your AGI is between $60,000 and $75,000 for singles, or between $125,000 and $155,000 for married couples filing jointly, the IRS prorates your deduction.  This means your deduction will be lower than if your income was less than $60,000 (single filing) or $125,000 (married filing jointly).

For details on the formula for determining your tax deduction, what counts as a student loan interest, and examples of how this works, see Nolo’s article Tax Deductions for Student Loans.

Tax Tip 2: Filing Status Can Reduce Your Future Student Loan Payments

If you are married and are paying student loans under one of the federal income-driven student loan repayment programs, your filing status can affect your student loan payment amount for the next year.

Under the federal Income Contingent Plan (ICR), the Income Based Plan (IBR), and the Pay as You Earn Plan (PAYE), the amount of your student loan payment is based on your income, family size, and basic living expenses. Each year, the loan servicer uses the information in your tax return to reset the amount of your student loan payment. (Learn more about how these repayment plans work in Nolo’s article What’s the Difference Between Income Contingent Repayment Plans and Income Based Repayment Plans?)

If you are married and file a joint tax return, your loan servicer will consider the income of both you and your spouse in setting your student loan payment  amount. But, if you are married and file a separate tax return, your loan servicer will consider only your income when setting your student loan payment amount. If your spouse’s income is significant, filing separately could reduce your student loan payment for the next year.  (For more information and examples of how this works, see Nolo’s article Tax Filing Status and Student Loan Payments.)

Tax Tip 3: If You Have Forgiven Student Loan Debt, You Could Face a Tax Hit

If you enter into one of the federal flexible student loan repayment plans, such as ICR, IBR, or PAYE, your student loan payment is determined by your income. After you have made payments for the full loan term (which can be up to 30 years), if any debt remains, the federal government will forgive it.

The problem, come tax time, is that the IRS treats forgiven debt as income. If the forgiven student loan amount is more than $600, your loan servicer will send you a 1099-C and you’ll have to report the forgiven debt on your tax return as income. This can result in a hefty tax increase.

Fortunately, there are some exceptions to this tax rule. For starters, forgiven loan debt for some types of student loan forgiveness programs doesn’t count as income for IRS purposes.  If the government discharged (wiped out your loan) for certain reasons, that also does not count as income. And you might be able to avoid a tax bill if you were “insolvent” at the time of forgiveness. (Learn more about the exceptions to paying income tax on forgiven student loan debt.)

If the federal government has forgiven, or will soon be forgiving, some of your student loan debt, talk with a tax expert to determine your tax liability, any exceptions you may qualify for, and how to prepare for the tax hit, if it comes to that.