Credit Card Defense

Thursday, May 9, 2013

A House of Cards: Consumer Financial Protection Bureau Cracks Down on Debt Settlement Industry

CreditCardDominos_43_0As reported by USA Today ("N.Y. Mission Debt Settlement Firm Charged With Fraud"), the Consumer Financial Protection Bureau has charged the owner of Mission Settlement Agency and three of its employees with fraud and conspiracy.  The article explains:

"As alleged, Mission preyed upon the financial desperation of people around the country who — like so many ordinary Americans — were simply struggling to pay down their debts after the financial downturn," said Manhattan U.S. Attorney Preet Bharara.

"Most of Mission's customers failed to achieve the reduction in debt that the defendants had promised them, and some of them suffered further declines in their credit ratings, were sued by their creditors and/or fell into bankruptcy," the indictment alleges.

The CFPB alleges that the owner of the debt settlement company used its customers' fees to pay the expenses of his family's popular Brooklyn nightclub, luxury car leases, and somewhat ironically, credit card bills.  The article points out that this case,

represents the first criminal charges stemming from a referral by the Consumer Financial Protection Bureau, the federal watchdog agency created in response to the 2007 national financial crisis.

Sadly, there is nothing unique or shocking about this story.  In fact, the "business model" employed by Mission Settlement Agency is used throughout the country by countless so-called "debt settlement companies".  These debt settlement companies prey on often desperate consumers who are overwhelmed by their level of debt, who are being threatened and harassed by debt collectors, and who are unable to keep up with the minimum payments, late fees, and charges on their debt.  Consumers are typically told to stop making payments to creditors and to make immediate payments to the debt settlement company instead.  In most cases, the majority of payments made by a consumer go directly toward the debt settlement company's fees, and not to any creditor.  The simple fact is that, when a consumer fails to pay a creditor for a period of time, that creditor will file suit in court against the debtor.  At that point, the debt settlement agency is nowhere to be found and happy to point out that they are not attorneys.

A copy of the three-count criminal indictment can be viewed here.

Our office has recovered thousands of dollars on behalf of consumers who have fallen prey to these debt settlement schemes.  Typically, a client will have paid large sums of money to debt settlement companies, only to have to pay additional sums of money to retain bankruptcy counsel or consumer debt defense counsel to deal with creditors when the illusive promise of settlement fails.  The truth is that there is no quick fix in dealing with debt issues, and only a licensed attorney can advocate for a consumer in court when creditors or debt collection companies enforce debt obligations in court - which they all will.

Vaughn-Martel Law advocates for consumers both in and out of court.  Our consumer debt attorneys have assisted debtors throughout Massachusetts in resolving their debt obligations one debt at a time, with no tricks, gimmicks, or quick fixes.  We have saved our clients hundreds of thousands of dollars by employing pre-suit debt resolution strategies, and aggressively defending our clients when creditors  do file suit.

Wednesday, August 29, 2012

Until Debt Do Us Part: Who Inherits Credit Card Debt?

It is safe to say that America is experiencing a debt crisis.  Most of us have at least one credit card balance that just doesn't seem to be going down!  So what happens to our credit card balances when we die?

The good news is that, with some exceptions, surviving spouses and family members are not responsible for the leftover debt of their loved one.  The bad news is that our estate is responsible for our leftover debt.  That means that before anyone can inherit a single penny from the estate of a deceased person, all of his or her valid debts must first be paid.  Credit card companies are more than happy to collect money from the surviving family of a deceased credit card holder, and it is important to know as a general rule that you are not responsible for the debt of another - even your spouse.

As a recent article on points out, there are exceptions that could leave you on the hook for someone else's credit card balance after that person's death.

Joint Cardholders v. Authorized Users

If you're a joint cardholder, meaning you co-signed for the credit card, you're liable for the debt. Parents sometimes do this for children who are just starting out, or adult children will co-sign with their elderly parents, perhaps to help keep track of expenses.

If you're only an authorized user, you're not liable when the cardholder dies. If you co-signed as a joint cardholder, then you just got a new credit card debt.

"Sometimes, people can be on a credit card and not even know it," says Pennsylvania attorney Linda A. Kerns. "Maybe when they filled out the credit card applications, (the joint cardholder) didn't even tell them." These accounts could show up years later, at the time of a death or divorce.

"I tell people to check their credit card reports regularly. Resolve it before a death or divorce or traumatic event," says Kerns.

Checking your credit report annually is easy and free, and is the best way to quickly challenge inaccurate information and take address accounts that are either joint or have been misreported as joint.

Custody of Credit Card Debts in Divorce

It happens too often:  One spouse agrees to pay off a joint card as part of a divorce settlement.  But if the ex doesn't do it or dies before the debt is paid and your name is still on the card, the credit card company may come looking for you.

Furthermore, according to Texas attorney Glen Ayers, if you live in a community property state, you'd better hope you didn't receive community property in the divorce. "That divorce judgment does not bind the credit card company. It's going to chase you," he says.

The credit card companies don't care what your agreement with your ex is - they just know that you are legally responsible to them for the debt.  It is extremely important to address all credit card accounts in your separation or divorce agreement, and to place clear deadlines by which all joint credit card accounts must be paid off and closed.  Better still, the responsible spouse should be made to produce evidence of that to the other spouse, or face charges of contempt.

Using a Credit Card After the Death of the Cardholder

Continuing to use a credit card as an authorized user after the cardholder's death could put you in big trouble.  "That's got criminal implications," says Ayers. "If somebody wanted to make a case of that, is that any different than picking up a card on the street?"

The same goes for using the card as an authorized user when you know the debt won't be paid.  For example, says Kern, "You'd be committing fraud if you knew a parent was near death and the estate didn't have money and you used it knowing it wouldn't be paid off."

Given the Various Exceptions, Time Limits, and Complicated Rules on What Constitutes Estate Property, Talk to an Attorney Before Paying

Even if you are not held personally liable for the credit card debt of a deceased loved one, you'll feel the effects of it if you're a beneficiary of the estate.  Debts will be paid from the estate before beneficiaries receive any distributions.  But the estate is only legally obligated to pay debts out of "estate property".  Property that is titled "jointly", including real estate, or where beneficiaries are named, including life insurance, may pass outside of the estate, and should not be made available to pay credit card debt.

In addition, there is a specific time period for creditors to file a claim against the estate.  When an estate is probated, creditors are prioritized, but only if they file appropriate notices within the statutory period.  If they don't, they could be out of luck.

Credit card debt is unsecured, unlike a mortgage, which is secured by property, or a car that is secured by the vehicle.  So it's likely the credit card company will be at the back of the line when it comes to paying debts from the estate.

That doesn't mean the credit card company won't try to recoup the debt from family members, so don't fall for it if you know you're not liable.  Taking some pre-emptive action, such as notifying credit card companies that the cardholder has died, will help prevent them from contacting you.

Before any debts are paid out of an estate, including credit card debt, consult your attorney.  Even if credit card balances are owed, it is often possible to negotiate settlement of the balances for less than the full amount owed.  Vaughn-Martel Law represents and assists clients who have been named as the executor, administrator, or representative in managing the estate of a loved one.

Charles River Law Partners, LLC represents clients in Suffolk County, Middlesex County, Essex County, Norfolk County, Plymouth County, Bristol County, Worcester County, Hampden County, and Franklin County.
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