Pam Stewart writes about debt collectors suggesting a cash advance on the card they were collecting on to pay the arrears. That one ups the story I’ve heard twice in the past 2 months: the collector offers a new credit card if you will settle the amount due on the card he is collecting on!

Clearly, it’s a crazy world in the realm of debt collectors. Collectors have to be imaginative or compelling to get you to write the check, or authorize the bank account debit for money they can’t reach otherwise.

Debt collectors rely on fear, shame or harassment to get you to pay them money they can’t get at. As long as you understand their game, you can be resolute and pay first things first.

While there are an endless number of misconceptions about filing bankruptcy, the one I’ve encountered more often in the past weeks is the belief that participation in a debt management program or debt settlement program meets the new requirement for a “credit briefing” as a condition of filing bankruptcy.

To be clear, the credit briefing that is required in order to file bankruptcy must be from an organization approved by the UST in the district in which the bankruptcy case is to be filed. Most commercial debt settlement outfits are not approved. Here’s the list of approved agencies . The briefing must be completed within 6 months of filing the case.

Among the bad information out “there” about credit counseling is that the counseling takes 6 months. No. The usual credit briefing session is between 30 minutes and an hour. It must take place within 6 months of filing.

Another complexity that I’ve seen twice in three weeks are individuals who attempted credit counseling on the internet and encountered a computer or connection glitch such that they didn’t “complete” the session. In each instance, the bankruptcy case was dismissed for failure to complete the briefing before filing.

While there is no evidence that credit counseling serves any useful purpose, it is the law. Fail to get credit counseling and the case is likely doomed.

One of the petty struggles I have with clients is convincing them that they need to include all of their debts in bankruptcy. Sometimes, they will tell me they don’t want to include their car loan in the case because they “need the car”. Sometimes I find the student loan payment in the budget but not on the list of creditors.

Part of the issue is grounded in confusion between scheduling a debt and discharging the debt. Debtors are required to list all of their debts and risk denial of discharge if they don’t. However, debts are not necessarily discharged just because they are listed. The Bankruptcy Code specifies a number of debts that simply aren’t dischargeable in bankruptcy. Those debts still must be listed.

The desire to exclude debts from the schedules is sometimes fanned because debtors don’t know that they can reaffirm debts during their case. A reaffirmation agreement essentially waives the discharge as to that particular debt and puts the parties back on the same legal footing as they had before the bankruptcy was filed.

Clients are frequently surprised when they learn that they can continue to pay a discharged debt voluntarily if they wish. “Pay the dentist after the case is filed if you wish, but list them in the bankruptcy if you owe money when the case is filed. ”

Then, there are the clients who “love” their credit card issuer and want to keep paying because of loyalty or out of fear of being without plastic. I have to tell them that for some card issuers, the love is one sided, and the issuer will cancel the card independently of being listed or not in the case.

Moral of the story, there are a number of options for debts post filing, so don’t get tripped up by leaving out creditors.

I know that those in financial difficulty are frequently not operating at their peak. But for the life of me, I can’t understand how the recipient of a summons and complaint from a California court can take from the papers only that they have a “court date”. Arghhh!

The basic outline of a collection suit is that the creditor files a complaint with the court. The court issues its summons, which validates the complaint and puts the defendant on notice that there is a legal suit pending.

The summons tells debtors plainly that they must file a typewritten answer to the complaint within 30 days of service, or the defendant may get a judgment for the relief prayed for, which is usually money.

Served with the complaint is a notice of case management conference on a given date, well after the date on which the answer is due. At the case management conference, assuming that an answer has been filed, the court will set deadlines, trial dates, etc. But none of this scheduling is necessary if the defendant has not contested the complaint by filing an answer.

Why is it that a consumer debtor grasps only the date of the case management conference, and absorbs none of the rest of the message that says clearly, in two syllable words, that one must file an answer for there to be anything for a court to decide?

I should have a cassette tape to play to tell clients that the case management conference date is meaningless if you didn’t file an answer. If you don’t have a defense to the action, that’s fine. Just don’t obsess about a date that means nothing if you didn’t take the time to read the summons and understand that filing an answer is the price of admission.

There’s more on the subject of collection suits at Bankruptcy in Brief.

The Mercury News had a great article on CCCS of Santa Clara County and its president Joy Thormodscard. It reinforces my advice to clients that CCCS is the only credit counseling agency whose advice on alternatives to bankruptcy I trust.

Take a look at their downloadable booklet on Getting Smart About Credit.

Also on point is their input on avoiding foreclosure and on reverse mortgages. Keep up the good work, CCCS.

The fact that debt collectors are only marginally acquainted with the law was highlighted today when a client reported that her ex husband had been told by a debt collector that the former marriage made him personally liable for his exwife’s debts.

There must be an emphatic, yet polite, word for b***s****. Wish I knew it… “Balderdash” seems so weak. In my most generous view, this could be debt collectors from outside of California who are clueless about community property law. Or, more realistically, they’ll say whatever they think will scare a payment out of someone.

For the record, living in a community property state such as California does not make each spouse personally liable for the contractual debts incurred by their spouse. If your spouse in California takes out a credit card and runs up a balance, you are not liable to the card issuer for the debt. The community property is liable for the debt, but you are not liable. If there is no community property, by reason of divorce or a marital property agreement, then only the person who contracted the debt is liable for it.

This is but one of the “whoppers” told by debt collectors. Engage skepticism when dealing with this breed.

Tax lawyer Mark Muntean sent around the following thought on lowering the appraised value of a home in a world of declining real estate values.

I think it was Bruce Springsteen who said “Every cloud has its silver lining.”1 One such possible silver lining is emerging from the sub-prime meltdown. My wife was bemusing our property tax bill the other day, and it was my chance to prove that I am not totally worthless around the house.

Similar to many California counties, Alameda County, allows for an Informal Request for the Decline in Market Value Reassessment (Prop. Eight) to be filed, reducing a property owner’s annual property tax bill. This is not a formal property tax appeal. Instead, this is a one page form that any property owner can fill out.

The real beauty of this form is that it does not require a formal appraisal. The property owner merely gives their opinion of value based on recent market information, which most likely found on the Internet.

Nearly every California county has a similar process. However, a word of caution is that this informal process has a deadline for this year. While Alameda County’s deadline is April 10, 2008, according to Los Angeles County’s Decline-In-Value Reassessment Application (Prop.Eight) form, the form must be filed by December 31, 2007. Interestingly, San Mateo County’s form does not list a deadline. However, additional information can be found on the county assessor’s website.

It is possible that a taxpayer may benefit from filing a form this year, reflecting a decrease in value to date, and a second form next year, if there is an additional fall in value. Commercial net leases frequently require the lessee to pay property tax. Thus, the lessee may explore possible property tax savings as well.

Formal property tax appeals can be pursued in 2008. To timely file a property appeal for the 2008/2009 tax roll year, a completed Application for Changed Assessment form must be submitted to the county Assessment Appeals Board where the property is located no later than September 15, 2008. September 15, 2007 was the deadline for the 2007/2008 tax roll.

Service of a summons in a collection suit seems often to be the prod that gets procrastinating debtors into my office to file bankruptcy. Yet it is not the emergency that they think. Their financial world will not end if a judgment is entered before they file bankruptcy.

These collection actions are usually on credit card debts and almost always the client admits the debt and has no defense to the suit. Therefore, filing a truthful answer would do little to alter the situation.

Second, the debt is just as dischargeable in bankruptcy if embodied in a judgment as it is as a monthly bill in default. There is no loss of rights should the judgment be entered before commencement of the bankruptcy case.

Procedurally, even when the defendant (the person who has been sued) fails to timely answer, the plaintiff must jump through several more hoops just to get the piece of paper that is the judgment, and still more hoops to compel some sort of payment on that judgment. It all takes time, and it is usually not nearly as important to the plaintiff as to the defendant.
If you are served with a summons, take a deep breath. It probably signals that you need to file and you need to face up to that fact, but it doesn’t mean the world ends in 30 days, when the answer is due.

Gather up all of your bills, your paystubs, and your last tax return, and see a bankruptcy lawyer.

More on lawsuits

Cathy Moran

My blood boils when I read tripe like this pitch from a lender promoting a debt consolidation loan: it’s not a loan, says the headline, it’s a way out of debt. I’m sorry, but that’s baloney.

About sixth grade, I learned that 3+7 and 5+5 both equaled 10. No matter what order the numbers came in, they still totaled the same sum.

Likewise, a consumer is no better off if, instead of having five accounts of $2,000 each, they have one account of $10,000. They still owe $10,000. As my colleague Kurt O’Keefe wrote, you can’t borrow your way out of debt.

My clients, to a man (or woman), want to pay their debts. They are looking for any alternative to bankruptcy. But to call more borrowing a “way out of debt” is like consulting the Humpty Dumpty for financial advice. He, at least, was open that words ” mean just what I choose them to mean”.

The return receipt on my “do not contact” letter to ATT arrived at my office showing receipt on July 6th. Between July 7 and July 10, we got seven calls at home about the disputed account; on July 12th, we got a call from NCO who announce that the account has been turned over to them for collection.

As of yet, I have no contact information for NCO. When I get it, I will repeat my “do not contact” letter and invite them to call my lawyers, Moran Law Group, to discuss resolution of the dispute.

Check back for updates. The beginning of the tale.

Read the conclusion.