Predatory Student Loans, CFPB v ITT

Catching up on a few more stories that took a back burner during the past year.  The Consumer Financial Protection Bureau, last spring, filed a lawsuit against ITT for predatory lending practices.
CFPB alleges that the technical school chain charged tuition substantially higher than that of community colleges and even some universities, forcing many students to accept private student aid from ITT at high interest rates.  Many ITT credits are non-transferrable to other education institutions, and ITT is alleged to have used the threat of expulsion and sunk costs to force students to take private loans.

Bellingham Insurance

This story is long overdue.  The U.S. Supreme Court issued a ruling earlier this year as a follow-up to 2011’s Stern v. Marshall, which held that bankruptcy courts, being Article I courts instead of Article III courts, lacked the authority to decide issues that were not the core of a bankruptcy proceeding, even if Congress expressly directs the bankruptcy court to do so.

Executive Benefits Insurance Agency v. Arkison
Questions: May a bankruptcy judge submit a recommendation on a non-core bankruptcy proceeding to the district court for review?  May a party consent to entry of final judgment on a non-core bankruptcy proceeding from a non-Article III judge, and does lack of objection imply consent?
Holding: Bankruptcy courts may enter final judgment on core bankruptcy proceedings (subject to appeal) and may issue proposed findings of fact and conclusions of law for de novo review by the district courts.  If all parties consent, a bankruptcy court can issue a final judgment on a non-core proceeding.  The question of a lack of objection implying consent was not answered.

Scam Alert – Posing as IRS Agents

This an extension of my earlier post on debt collection scare tactics.  There has been increased activity recently of groups of scammers posing as IRS agents.

of anyone who threatens to have you arrested unless you make an immediate payment

This is an excerpt from the IRS alert

People have reported a particularly aggressive phone scam in the last several months. Immigrants are frequently targeted. Potential victims are threatened with deportation, arrest, having their utilities shut off, or having their driver’s licenses revoked. Callers are frequently insulting or hostile – apparently to scare their potential victims.

Potential victims may be told they are entitled to big refunds, or that they owe money that must be paid immediately to the IRS. When unsuccessful the first time, sometimes phone scammers call back trying a new strategy.

Other characteristics of this scam include:

  • Scammers use fake names and IRS badge numbers. They generally use common names and surnames to identify themselves.
  • Scammers may be able to recite the last four digits of a victim’s Social Security number.
  • Scammers spoof the IRS toll-free number on caller ID to make it appear that it’s the IRS calling.
  • Scammers sometimes send bogus IRS emails to some victims to support their bogus calls.
  • Victims hear background noise of other calls being conducted to mimic a call site.
  • After threatening victims with jail time or driver’s license revocation, scammers hang up and others soon call back pretending to be from the local police or DMV, and the caller ID supports their claim.

Minor Medical Debt

Scenario: John’s daughter, Sally, is 12 years old.  She gets very sick and is hospitalized.  Fortunately, Sally recovers from her illness, but not before racking up tens of thousands of dollars in medical bills.  John files for bankruptcy.  The hospital sends a bill and attempts to collect from Sally.  Is Sally liable?

The answer is almost always NO.  (The exceptions are so rare as to hardly be worth mentioning.)
Minors lack the legal capacity to enter into contracts, and therefore, cannot be held liable for debts incurred in their name.
What if Sally turns 18?  Can she then be collected against?  Becoming an adult doesn’t change the fact that Sally – at the time she incurred the medical debt – was a minor and lacked capacity to enter into a contract.  The only way she can be liable for the medical debt she incurred as a child is if she assumed the debt after she turned 18, which could happen if she signed such an agreement for continued care after she turned 18.

End-of-the Year Reminders

  • Debtors who have not yet filed for bankruptcy and own real estate – you should be receiving your 2014 property tax bills within the next couple of weeks.  If you have previously submitted your 2013 property tax bill to my office for review in preparation to file, be aware that you should update your file with the 2014 tax bill once received.  This will be mandatory on or after 1/1/2015.
  • Debtors who have not yet filed for bankruptcy but intend to file under Chapter 13 – if you hope to file in early 2015, be advised that Chapter 13 Plans cannot be confirmed without the current year’s tax returns on file.  Even though your 2014 taxes are not due to the taxing authorities until 4/15/2015, they will be required for confirmation of your Chapter 13 Plan if you file on or after 1/1/2015.
  • Debtors who have already filed Chapter 13 Bankruptcy – remember to submit your 2014 tax returns to my office so I can relay them to the Chapter 13 Trustee.  Those of you who are required to – remember to submit one-half of your income tax refunds.  If you’re not sure whether you have that requirement, call my office or consult the most recent version of your Chapter 13 Plan.
  • If you have defaulted on your energy bill during the more expensive winter months, remember that the winter moratorium ends on 4/15/2015, after which, your utilities can be disconnected.  If you need the bankruptcy stay to prevent a utility shut-off, please consult with me well before 4/15/2015.  Bankruptcy cases take time to prepare, and you’re probably not the only person who will be facing a shut-off.  Also remember that Chapter 128 is no longer a viable option to stay a disconnection of utilities.

Debt Collection Scams

This brochure is now available at my office.
Characteristics of Scams
  • Caller asks you for personal information, such as your address, phone number, social security number, bank account information, credit card numbers, birth dates, or your employer’s name. (If they’re a legitimate creditor, they already have this information.  Nor should they need to verify your identity; they called you and they’re asking you for confidential information, not the other way around.)
  • You ask the caller to contact your attorney, but the caller refuses to.
  • The caller claims to be collecting a debt you do not recognize.
  • The caller threatens you with arrest, criminal charges, license revocation, etc., but claims that they won’t take those actions if you make an immediate payment over the phone or online. (Such threats constitute
  • Be careful to not trust a debt collector too easily.  It is not difficult for them to obtain basic information about you, including the last 4 digits of your SSN. Others are able to spoof phone numbers and create false Caller IDs.

Legal Debt Collection Efforts
If you’ve filed for bankruptcy or are planning to file for bankruptcy, your protections depend on where you are in the process.  There are several laws that protect consumers.  Some of them are always in effect, others are triggered by certain events.  Here are some of the more common relevant laws…
  • Wisconsin Consumer Act
  • Fair Debt Collections & Practices Act
  • Automatic Stay & Discharge (Bankruptcy)
  • Criminal Extortion Statutes

Prior to filing for bankruptcy, creditors may attempt to collect debts (third party debt collection agencies are restricted in their efforts under the FDCPA) and file civil lawsuits.  Once your bankruptcy case is filed, civil litigation that hasn’t begun is prevented and civil litigation that is pending is terminated. Judgments arising from those lawsuits are dischargeable in bankruptcy.

(The intent elements necessary for the two actions listed below are extremely difficult to prove, which makes them extremely rare…)

Creditors who believe they can make a criminal case against you may press charges (as opposed to threatening to press charges).  Bankruptcy does not prevent that. If charges are filed, you should consult an attorney who specializes in criminal defense.
Creditors may claim that bankruptcy does not affect their debt. Only certain debts cannot be discharged (e.g. taxes, domestic support, student loans). Creditors must otherwise get a determination of fraud, misrepresentation,  embezzlement, or willful or malicious injury to have a debt declared non-dischargeable from the Bankruptcy Court.
How to Protect Yourself
Unfortunately, many of these scams go unprosecuted because
  • the perpetrators are difficult to identify and apprehend,
  • there are often questions of which agency has jurisdiction, and
  • prosecuting drug charges, rapes, and murders are more politically attractive.

The best way to defend yourself is to educate yourself on common tactics and motivations of con artists.

Films like The Sting (1973) and TV series like Leverage (2008-2012) are extremely informative.

If you wish to report a scam, contact any of the following:
  • Local Police
  • State Attorney General
  • Federal Trade Commission
  • Federal Bureau of Investigation
  • Consumer Financial Protection Bureau

This brochure discusses debt collection scams perpetrated by individuals with no legal claim against you – grifters attempting to con you into paying them money. These are criminal matters that fall within the purview of law enforcement.
However, you may also receive threatening calls from your actual, bona-fide creditors.  Some of these threats may be an attempt to intimidate you from filing bankruptcy (including criminal extortion and FDCPA violations) or attempts to collect debts despite the bankruptcy (violations of the automatic stay and/or discharge).  If you are being threatened by one of your actual creditors, please notify me.