Congratulations are in order for Pamela Pepper, current Chief Judge of the U.S. Bankruptcy Court for the Eastern District of Wisconsin. She has just been confirmed by the U.S. Senate as a District Court judge (for the same district) this past Thursday.
Soon, her opinions will no longer be the persuasive authority they once were!
Although there are some basic rules that all creditors are supposed to follow when a bankruptcy case is filed, many banks and lenders have different procedures and interpretations of the rules. Sometimes, differing procedures have nothing to do with the bankruptcy itself, but the business practices of a particular bank often has similar impacts on people who file for bankruptcy.
Today, we’re going to cover a range of topics and practices, and the lenders who are notorious for them. Mind you that I am not referencing any empirical data or statistics here. These are based on my many many years of observation – dealing with the same quirks of the same banks over and over and over again. Also keep in mind that this is a somewhat local experience, as some of the creditors mentioned here do not have branches all across the country. Other creditors might be more notorious for certain things in Texas or California or New York.
I would like to point out that three of the creditors on this list are part of the Big Four (JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo). Chase isn’t on this list – not because they’re a good bank, but simply because they haven’t gotten on my radar in a bad way. Nevertheless, there are reasons why I refuse to do any personal business with any big banks, and you’re about to read some of them below.
- Notorious for drowning homes. Although they seem to have halted this practice in recent years, Associated Bank used to give a lot of junior mortgages on homes that were already worth less than the balance owed on the primary mortgage. This made Associated Bank a prime target for lien stripping in Chapter 13. In fact, I believe all but one or two of my lien strips (to date) have involved an Associated Bank mortgage.
Bank of America
- Notorious for being obnoxious, obstructionist, and incompetent when it comes to mortgage modifications. Frankly, a lot of mortgage lenders are guilty of this one, but Bank of America consistently stood out as the most irritating creditor to have to try to work with to get a modification. To their credit, some of the best modifications I’ve helped generate have come from Bank of America, but not without my wanting to commit several felonies along the way.
- Notorious for claiming that they have security interest in all goods purchased with their credit cards. Trouble is – their security agreements fail to meet the criteria necessary for a valid security interest in the state of Wisconsin.
- Notorious for drowning vehicles. Most financed vehicles are “under water” because they lose such a huge chunk of their value the moment they are driven off the lot. But Citi is famous for giving people massive loans along the order of $10,000 to $20,000, usually secured by a 20-30 year old vehicle that’s worth less than the paper the title is printed on. These loans are typically non-purchase money security loans (meaning the borrowers already owned the car before taking out the loan, and put up their vehicle as collateral). When these people file for bankruptcy, the decision to surrender these vehicles is almost unanimous, unless the vehicle qualifies for a cram-down in Chapter 13.
Credit Unions (generally)
- Notorious for cross-collateralization. I can’t pick out any specific credit union, as this practice seems to be common among all credit unions, and only credit unions. If someone has multiple debts with a credit union and one of those debts is secured, cross-collateralization makes all of the debts secured. Technically, this can make reaffirmation an all-or-nothing deal. In reality, this can often be avoided in Chapter 7 if the debtor is willing to call the credit union’s bluff. But it can create a real dilemma in non-910 claims in Chapter 13.
- Notorious for threatening actions under sec. 523(a)(2)(C). Although they’ve stepped back from this practice, it used to be that every time a client of mine filed bankruptcy with a Discover account, we got a letter threatening an adversary proceeding for fraudulent incursion of debt prior to filing for bankruptcy. We never caved. How many actions did they ultimately bring against my clients? Zero.
- Notorious for the walk away. In many instances, HSBC simply refuses to foreclose on homes. Why? Your guess is as good as mine. It’s a terrific deal for the homeowner, who gets to stay in their home indefinitely rent-free. Unless the homeowner, believing that they would soon be evicted, vacate the home prematurely and begin to mount up substantial liabilities for the home that they still legally own and are responsible for.
Payday Loan Stores (generally)
- Notorious for ridiculously high interest rates. I can’t pick out a specific creditor, as these predatory lending practices are common to virtually all such lenders. Interest rates on these loans frequently are 3-4 digits, with many currently approaching 1900%. Essentially, they’re loan sharks. Barely legal loan sharks.
- Notorious for illegal debt collection practices, including FDCPA violations, automatic stay and discharge violations, blatant lies about their rights of recovery, and criminal extortion.
- Notorious for requiring security deposits for any debtor in bankruptcy who has an outstanding debt. Any utility company can do this. Most in Wisconsin don’t, except in rare circumstances. WE Energies seems to have recently made it a standing policy.
- Notorious for freezing bank accounts after debtors file for bankruptcy.Wells Fargo insists that they are preserving the bankruptcy estate. Debtors assert that Wells Fargo is exercising control over the estate in violation of the automatic stay. Even if a judge rules in your favor, the inconvenience can be crippling. It’s best to use a different bank if you’re preparing to file for bankruptcy.
- Notorious for not allowing ride-throughs instead of a formal reaffirmation. I can’t say that this was a very common occurrence, but Wells Fargo was the only creditor I ever heard of who made the argument that failure to sign a reaffirmation agreement was a technical default under the loan and grounds for repossession or foreclosure.
Wisconsin Department of Revenue
- Notorious for being the last creditor to file a proof of claim. I hesitate to put them on the list because they’re not doing anything wrong. Government entities have later deadlines to file proofs of claim than ordinary creditors do. The Department of Revenue frequently does not file claims until after the bar date for ordinary creditors and nearly before their own deadline. This can be frustrating, because Chapter 13 plans are typically confirmed much sooner, and WIDOR claims are typically priority claims that have to be funded. The IRS, for all we make fun of them for running on antique computer software, is usually very prompt with their claims, making it easier to timely address any discrepancies. Fortunately, we are expecting changes in the federal rules of procedure that will shorten the deadlines to file claims – these rule changes are expected to accompany the national model plan at the end of 2016.
This is an older story that I simply never got around to writing (and was in no rush to write it since the legislation has been stalled for nearly a year). Since the legislation isn’t dead yet, and could very well be revived in the next Congressional term, I thought it might be appropriate to mention it.
A bill was introduced in the Senate late last year (S. 1861
) by Senator John Cornyn (R-TX) and cosponsored by Mike Crapo (R-ID) and Pat Toomey (R-PA) called the Taxpayer Protection and Responsible Resolution Act. This act would repeal portions of the Dodd-Frank Act
and create a new chapter (Chapter 14) of the U.S. Bankruptcy Code for “covered financial corporations” (essentially, banks, without getting too technical).
Implementation of the proposed National Model Chapter 13 Plan
has been pushed back another year – with an expected roll out date of December 2016 (2 years from now). As near as I can tell, the proposed rule change that would shorten the time period that creditors have to file proofs of claim in Chapter 13 Bankruptcy
has also been delayed.
Last year, we were introduced to “modernized” Schedules I & J. We got a sneak peak at the amended forms being rolled out this year (December 1, 2015). It isn’t the full set of schedules that we were told to expect last year. But we are getting a new Means Test (Form B22A in Chapter 7
and Form B22C in Chapter 13). The Means Test has actually now been split into two separate forms. If you’re below median, you don’t complete the second form. If you’re above median, you do complete it.
This is not entirely different from the old forms (below median debtors didn’t complete the second part of the form). The only real difference here is that the unnecessary second half of the Means Test would not be printed with these new forms. As benign as this change is, it’s actually nice because we’re expecting most of the modernized forms to cause the average bankruptcy petition to double in size (from about 60-80 pages to 100-120 pages). For below median debtors, the new Form B22’s will shorten the overall petition slightly.