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Aggressive Debt Collection -- Who's In Your Wallet?

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Given the bailout the banks enjoyed at taxpayer expense, it's ironic how difficult it has become for the 'little guy' to take advantage of the only bailout he's ever going to see -- the fresh start promised by filing a bankruptcy. Bank of America received $15 billion in bailout money from the federal government. James and Shannon Humphrey filed bankruptcy on October 4, 2010 listing Bank of America as a creditor. When a bankruptcy is filed, the bankruptcy court warns creditors to stop all debt collection or face a penalty of damages and attorney's fees. One of the fundamental protections of U.S. bankruptcy law -- the "automatic stay' -- is intended to provide some 'breathing space' from creditors hounding consumers for debts they can no longer afford to pay. The discharge issued at the end of a bankruptcy case makes this billing prohibition permanent for most debts. In a perfect world, Bank of America would have heeded this warning, and designed a software system to automatically 'red flag' bills intended for customers in bankruptcy. In the real world though, debt collectors employ an assembly line approach using automatic phone dialers and computer systems not geared to weeding out bankruptcy debt. Bank of America illegally contacted the Humphreys on 38 separate occasions after the bankruptcy was filed. Bank of America ignored protests from the Humphreys and their lawyer, telling them they didn't care about the bankruptcy and that phone calls would continue until the Humphreys contacted the bankruptcy department so Bank of America could update its computer system. The Court only penalized Bank of America $10,000 plus attorney's fees for these violations.

Bank of America chalked up the $10,000 payment to the Humphreys as a cost of the way it does business. The larger question of course is whether such a penalty sufficiently deterred Bank of America by outweighing the benefit of following an 'assembly line' approach to debt collection. One collection company, Portfolio Recovery, purchased $1.52 billion of bankruptcy debt in 2011 for 9 cents on the dollar. In the first quarter of 2012 alone, Portfolio Recovery reports earning $79,994,000 in fees collecting on bankruptcy debt. This kind of profit dwarfs the sort of penalties exacted in the Humpreys case. With bulk transfers of debt, the individual consumer has become just a number, and the hope of compliance with the bankruptcy law is far from a given. In 2011, Capital One had to refund $2.35 million for illegally collecting on 15,500 claims already discharged in bankruptcy. Capital One received $3.55 billion in bailout money from the federal government in 2008. EMC Mortgage -- a company purchased by JP Morgan Chase from Bear Stearns -- has illegally billed debtors in bankruptcy so often that bankruptcy judges have assessed punitive damages against it in four different court cases. Gagliardi v. EMC Mortgage, 290 B.R. 808 (Bankr.D.Colo. 2003); Curtis v. EMC Mortgage, 322 B.R. 470 (Bankr.D.Mass.2005); Castro v. EMC Mortgage, 08-01135 (Bankr.D.N.C. 2008); Harlan v. EMC Mortgage, 402 B.R. 703 (Bankr.W.D.Va.2009). JP Morgan Chase obtained a bailout of $25 billion. Despite reliance on the public dole to cure their own financial problems, banks have become more voracious in collecting consumer debt.

Bankruptcy is not on anyone's list of fun things to do. People file bankruptcy due to medical issues, loss of income, or divorce. Even then, many wait until the alternative has become worse and they're facing a foreclosure, lawsuits and never-ending phone calls. Many people only file bankruptcy after liquidating pensions, bank accounts and other assets and are at their wits' end. The promise of relief that comes from stemming this negative tide is the deciding factor for most people. If you've filed bankruptcy, and are still being bothered by your creditors, there are some things you can do:

1. Stay or discharge violations must be "willful" for a bankruptcy court to award damages and attorney's fees. Some creditor attorneys think the disorganization caused by their client's 'assembly line' approach to debt collection provides a defense. It does not. A willful violation does not require a specific intent to violate the automatic stay. A violation is willful if the creditor billed you after it knew you had filed bankruptcy.

2. I usually give creditors about a month to stop billing my clients. After that, you should let your bankruptcy attorney know if any creditor is still bothering you and discuss the possibility of a lawsuit.

3. Keep a phone log of the date, time and substance of any phone calls and save all voicemails and bills. Use cell phone records and pictures of caller ID to prove the harassment. Do NOT let them intimidate you into making a payment on debt listed in a bankruptcy.

4. It is a good idea to check your credit report 60 days after you receive a bankruptcy discharge to make sure all your creditors show you no longer owe the debt. File a dispute of any claim that is incorrect under the Fair Credit Reporting Act if that is not the case.

The above is not intended as legal advice for your particular situation. Questions should be addressed to attorneys admitted to practice within your state. Richard Gaudreau is a consumer bankruptcy attorney admitted to practice in New Hampshire (NH) and Massachusetts (Ma) and may be reached through his website at attorneygaudreau.com, by email at Richard@attorneygaudreau.com, or by calling 603-893-4300.