Source: https://www.ylfbankruptcy.com/blog/page/2
Timestamp: 2019-04-19 11:05:27+00:00

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The Consumer Financial Protection Bureau (CFPB) recently sanctioned two of the largest debt collectors for deceptive and abusive debt collection practices. The two entities are Portfolio Recovery Associates and Encore Capital Group, Inc. Encore’s subsidiaries are Midland Funding LLC, Midland Credit Management, and Asset Acceptance Capital Corp. These entities buy delinquent or charged-off debt from banks and other companies, usually for pennies on the dollar, and then try to collect the debt from the consumer.
The CFPB determined that these companies engaged in numerous illegal and deceptive practices, including: attempting to collect on unsubstantiated or inaccurate debt, suing or threatening to sue consumers after the statute of limitations had expired, pressuring consumers to make payments using misrepresentations, disregarding consumer disputes, making harassing collection calls, and relying on robo-signed documents to file tens of thousands of lawsuits against consumers, often without any intention or ability to prove the debt.
The CFPB imposed a number of sanctions. Encore was ordered to pay up to $42 million in refunds, a $10 million penalty, and to stop collection on $125 million of debt. Portfolio Recovery must pay $19 million in refunds, an $8 million penalty, and must stop collection on $3 million of debt. Among other penalties, the two companies were ordered to reform their debt collection practices, and are prohibited from reselling the debt they buy to other debt collectors. Read more on How to Avoid Debt Collection Scams in Arizona.
In a recent decision, the 9th Circuit Court of Appeals expanded the mortgage interest deduction, effectively doubling the deduction limits for unmarried co-owners. The decision has important implications for individuals with very high mortgage debt, and also for those who take out second mortgages on their homes. Read on to find out more.
The tax laws (known as the Internal Revenue Code) allow individuals to deduct the interest they pay on the mortgage on their home. This is commonly known as the mortgage interest deduction. What is not commonly known is that individuals can also deduct the mortgage interest on a second home. In addition, individuals can deduct interest paid on a home equity line of credit (HELOC), both on their primary home and a second home. If two or more unmarried individuals own a single home, they can apportion the interest deduction among themselves. There is, however, a limit on how much interest can be deducted. A deduction can be claimed only for interest on $1,000,000 of acquisition indebtedness (the amount borrowed to buy a home), and $100,000 of home equity indebtedness. So, for example, if you have a $200,000 HELOC, you can only deduct half of the interest you pay on it. These limitations apply to single individuals. These same limitations also apply to married couples.
But, what happens if a home is owned by two people, who both reside in it, and are not married? The IRS had taken the position that unmarried co-owners, together, are subject to the same limits as individuals. If the IRS’s position had prevailed, then two unmarried individuals who had a $200,000 HELOC could together only claim a deduction for half the interest paid. However, the court disagreed with the IRS, and ruled that the limits applied separately to each individual owner. This means that in our example with two owners and a $200,000 HELOC, each owner could deduct interest on $100,000 of the debt, and together they can deduct the full interest paid.
How significant is this decision for Arizonans? The decision will have the most benefit to those who have mortgages between one million and two million dollars. Because most mortgages in Arizona are less than $1,000,000, most Arizonans will not be able to take advantage of this “acquisition indebtedness” deduction. However, the expansion of the home equity indebtedness deduction will likely be more significant, because many people refinance their homes and take out large HELOC loans.
The case is Voss v. Commissioner of Internal Revenue, 796 F.3d 1051 (9th Cir. 2015).
The above information is provided for general purposes only and does not constitute legal advice or create an attorney-client relationship, If you need legal advice for your specific situation, you should contact a qualified attorney in your area.
. This may be the simplest step, but in practice turns out to be the most difficult to follow. It is also the most critical one. If you are going to have a reasonable chance of resolving your debt issues, you will want to be proactive. The reason is simple—the lower the debt, the easier it is to deal with it. Delay results in increases to your debt through interest, fees, and other charges, and can often lead to the doubling or tripling of the original debt. Delay can also have a snowball effect, causing you to incur more debt as you are trying to deal with the existing debt. So, to maximize your chances or getting out of debt, begin to address it as soon as possible by following the remaining three steps below.
. The second step is to evaluate your financial situation and determine the reasons that forced you to get into debt. For example, is the debt the result of a medical emergency that is not expected to recur? Or is the debt the result of loss of income? If there has been a loss of income, what is the likelihood of regaining that income? What is the expected timetable? In conducting this evaluation, it is important to be completely honest with yourself, and not engage in wishful thinking. If, for example, there has been a loss of income, but you have not been able to find any open positions at the same income level, then it would not be reasonable to assume that you will regain your income in three months. This of course does not mean that you will not in fact find a similarly-paying job in the next three months. But for purposes of planning a debt resolution strategy, it is best to be very conservative in your expectations.
The purpose of this step is two-fold: you need to know whether your debt is fixed, or whether you will continue to incur new debt; you also want to know how much you can afford to pay toward your debt when it comes time to settle it.
. What kind of debt do you have? Is it a mortgage on which you are behind? A car loan? Income taxes? Credit cards? Medical bills? There are different ways to deal with each kind of debt, and some debts must take priority over others. As a rule of thumb, you want to deal with the mortgages on your home first. Next on your list of priorities should be taxes. After that, other secured debt, like car loans (you can read about the differences between secured and unsecured debt by clicking here). And finally, unsecured debt like credit cards, medical bills, and personal loans. (Read our article on financial planning for more information).
. The final step is to resolve your debt. Resolution of a debt can take one of several different forms.
Mortgages—if you are behind on a mortgage and not able to catch up, you will most likely want to seek a mortgage modification. If you have a residential mortgage, there are several different programs and resources available to help you. You can find links to a few of such resources on our Resources Page under “Foreclosure Assistance.” In addition, there are several community counseling agencies that can assist people with applying for mortgage modifications (the list of many of these agencies is available through the HUD website). For other types of mortgages, a modification can be requested directly through the lender. Of course, since the lender has to agree to a modification, there is no guarantee that your request will be granted.
Taxes—there are several different programs for settling or negotiating tax debt, such as the IRS Offer in Compromise program. Because of the complexity of tax matters in general, it is best to consult a professional regarding your best options for settling tax debt.
Credit cards and other unsecured debt—when it comes to unsecured debt, there are two basic options: disputing/litigating the debt, and settling.
The dispute/litigation route is useful if you have a legal basis for contesting liability. For example, it is not uncommon for collection agencies to try to recover debt after the statute of limitations period has expired. In such cases, disputing liability based on the statute of limitations may be the best and most cost-effective option. Another fairly common occurrence is where a debt is purchased by a collection company, but the collection company lacks adequate documentation of the debt, and cannot prove the liability in court. In such cases, disputing the debt may also be the best option.
The settlement route can be utilized in all cases. In essence, settlement requires negotiation with the creditor, in an attempt to get the creditor to agree to accept less than what the creditor is owed. Several points should be kept in mind when negotiating a settlement. First, if you are current on your minimum payments on an unsecured debt, it is a lot less likely that a creditor will agree to reduce the amount owed—generally you’ll need to be a few months behind before the creditor will negotiate with you. Second, it is best to conduct the settlement discussions before the creditor retains an attorney or files a lawsuit—the less the creditor has to spend on attorney fees and court costs, the more likely it is that you can get a better settlement. Third, many creditors will require you to provide evidence of financial hardship by disclosing information on your assets and finances—if you in fact have assets sufficient to pay the debt, the creditor may reject any settlement proposal and go after the assets that you disclosed.
Ultimately, if you are dealing with debt and are trying to decide whether to pursue a non-bankruptcy option or to file for bankruptcy, ask yourself the following: which approach is most cost-effective? The “costs” include actual monetary costs, but also indirect costs (e.g. the length of time it will take to rebuild your credit history). If you decide that a non-bankruptcy resolution is the best option for you, know that it can be done. Just make sure to be proactive in your approach, prioritize your debts, and get professional assistance if you need it.
If you are contemplating bankruptcy, you may hear or see references to the U.S. Trustee or a bankruptcy trustee, and wonder what the difference may be. The short answer is that the U.S. Trustee is the bankruptcy trustee, although in some cases the U.S. Trustee may appoint private individuals to serve as the bankruptcy trustee in a particular case.
The United States Trustee Program is a component of the Department of Justice, tasked with overseeing the administration of bankruptcy cases and private trustees under 28 U.S.C. § 586 and 11 U.S.C. § 101, et seq. (the Bankruptcy Code). There are a total of 21 U.S. Trustee offices throughout the country (28 U.S.C. § 581), with a U.S. trustee appointed to oversee each office. Each U.S. Trustee, of course, employs staff, including attorneys, to help in carrying out the Trustee’s duties (28 U.S.C. § 589).
The U.S. Trustee’s involvement in the bankruptcy cases varies by the type of the case. In Chapter 7 bankruptcy cases, the U.S. Trustee appoints private individuals (usually attorneys) to oversee the cases (28 U.S.C. § 586(a)(1)), and performs primarily a supervisory role, making sure that the private Chapter 7 trustees properly perform their duties.
In Chapter 13 bankruptcy cases, the U.S. Trustee will usually appoint a standing Chapter 13 trustee to oversee the Chapter 13 cases (28 U.S.C. § 586(b)), and again performs a supervisory function.
The U.S. Trustee’s most direct involvement is in Chapter 11 cases, in which the Trustee or her staff directly perform the duties specified in § 586, which include conducting the meeting of creditors (also known as the §341 meeting), appointing creditors’ committees, reviewing applications for compensation of professionals, monitoring plans and disclosure statements, and collecting the quarterly fees prescribed by 28 U.S.C. § 1930(a)(6). In the rare Chapter 11 cases in which the debtor is not allowed to continue managing its own affairs, the U.S. Trustee may also appoint a private trustee to manage the debtor’s affairs.
One of the more significant duties of the U.S. Trustee is the duty to investigate abuses and violations of the bankruptcy process, and, where appropriate, to object to the debtor’s discharge or seek dismissal of the cases (see, e.g., 28 U.S.C. § 586, 11 U.S.C. §§ 727, 1112).
In sum, while the U.S. Trustee plays a very important role in the bankruptcy process, most debtors in Chapter 7 and Chapter 13 cases will not have any direct dealings with the U.S. Trustee. Those filing for Chapter 11 bankruptcy, however, can expect to have interactions with the U.S. Trustee’s office throughout the process.
I’ll give you a few examples. Say you have $20,000 in credit card debt. You can’t afford to pay this debt and pay your other bills, and the credit card company keeps calling you, and possibly even threatening to sue you. You know you have some equity in your home, so you decide to refinance your home, or take out a home equity line of credit, to pay off the credit cards. Your credit cards are now paid off, but your mortgage payments have gone up. If you weren’t able to make your credit card payments, you are likely to have difficulty making the increased mortgage payments as well. You start falling behind on your mortgage, and the mortgage company starts foreclosure proceedings. You are now in danger of losing your home.
Or, as often happens, you get so inundated with the credit card company’s collection calls and letters, that you are willing to pay them just to make it stop. So you skip a mortgage or car payment to pay the credit card company, hoping that you’ll catch up later. If you can’t catch up, or fall even further behind, you now stand to lose your house or car. And because of accruing interest, you probably still owe the credit card company as much as you did to begin with.
Yet another possibility is that you pull money out of your retirement account or 401(k) to pay off your credit cards. However, unless the situation that caused the debt in the first place has been remedied, the same type of scenario is likely to be repeated. Eventually, you deplete your retirement account, but still have debt to deal with.
So, what should you do? Well, when dealing with debt problems, there are a few simple rules that you can follow to make sure you do not make your situation any worse than it is. First, you must properly prioritize your obligations. Put simply, there are certain bills that you need to pay before paying other bills. The basic order is as follows: 1) pay your living expenses—being current on your mortgage or having a low credit card balance is not that helpful when you are going hungry or don’t have electricity, so make sure to take care first of the necessities; 2) after your living expenses are covered, pay your secured debts, like a mortgage or car payment—not paying a secured debt may result in the loss of the collateral (i.e. the house or the car), so secured debts should take priority over unsecured debts like credit cards; 3) pay unsecured debts, like credit cards or personal loans, only if you have money left over after paying your living expenses and secured debts.
Second, you want to protect your exempt assets. Exempt assets are those that your unsecured creditors cannot touch, regardless of how much you owe them. What assets are exempt varies from state to state. Arizona law provides many different exemptions, including an exemption for your car and an exemption for many items of your household goods and furniture. However, most people’s biggest exempt asset is a retirement or 401(k) account (although a house in which a person lives can also be claimed exempt, in most cases the house will be encumbered by a mortgage). If you are struggling with debt, there is a natural tendency to want to use your retirement account or other exempt assets to pay down the debt. Unfortunately, oftentimes this tactic will not resolve your debt problems but only prolong them. Ultimately, you may still end up having to seek debt relief through bankruptcy, but if you deplete your exempt assets before filing for bankruptcy, you will make your road to financial recovery that much more difficult.
Third, do not incur secured debt to pay off unsecured debt. Secured debt is debt that, if not paid, will result in the loss of the collateral that you pledged to secure the debt. On the other hand, unsecured debt, if not paid, does not automatically result in the loss of any property. More importantly, unsecured debt is dischargeable in bankruptcy. So, to use the example from earlier in this article, if you take out a home equity line of credit (“HELOC”) to pay off a credit card, you have converted what was an unsecured debt (credit card) into a secured debt (home equity loan). If you had difficulty paying the credit card, you will probably have difficulty paying the HELOC. But now that the debt is secured, if you are unable to pay it, you are likely to lose the property securing the debt, i.e. your home in our example. In addition, if you end up seeking debt relief through bankruptcy, you can, with some exceptions, eliminate unsecured debt. However, in most cases, you cannot eliminate secured debt unless you are willing to get rid of the property securing the debt.
To summarize, although financial problems are often a result of many different factors, proper planning and debt management will help you maintain control of your situation, and will give you greater flexibility in resolving your financial difficulties and getting your life back on track. Just remember to prioritize your obligations, protect your exempt assets, and not convert unsecured debt into secured debt. For more information on dealing with debt, you can read our article on ways to avoid bankruptcy in Arizona.
Does this mean that you should never co-sign for somebody else’s debt? Of course not. In some circumstances co-signing is quite understandable and may even be necessary (e.g. a parent co-signing for a child’s first credit card to allow the child to build up a credit history). But you should be aware of the risks involved and of the liability that you are incurring by co-signing. Put simply, when you co-sign for a debt, you are responsible for it. Are you comfortable being responsible for this debt? If you answer yes, then it may be appropriate for you to co-sign. But if you answer no, then steer clear of co-signing.
You may also be interested in the following articles: 4 Steps to Avoiding Bankruptcy in Arizona, Form 1099-C and Debt Forgiveness in Arizona.

References: v. 
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