Even when there is a valid defense, a credit card company will sometimes seek to bury the defendant with the enormity of its size. Take for example the recent Palm Beach County, Florida, case of Capital One Bank USA, NA v Pincus. Capital One sued Steven Pincus for a credit card debt of $803.95. Pincus offered to settle the debt for a few hundred dollars, and Capital One refused. Pincus then hired an attorney to defend. Capital One responded with a barrage of court filings that ran up Pincus’s legal expense tab to over $100,000.

Pincus moved for summary judgment and dismissal claiming the lawsuit was barred by the statute of limitations. Pincus asserted that the Capital One cardholder agreement states that Virginia law shall have control, and, since the contract was not signed by either party, whatever agreement existed between Pincus and Capital One must be an oral contract. Pincus further argued that since the statute of limitations for oral contracts in Virginia is three years and since Capital One’s lawsuit was filed three and a half years after the date of the last transaction, Capital One’s case is time barred. Capital One defended by arguing that Florida law and its five year statute of limitations should control because Florida was the state where the contract was made.

The Palm Beach County Court found that Virginia law controlled and the credit card agreement was an oral contract based on Virginia law. The opinion cited several similar Florida cases finding the choice of law provision in a cardholder agreement applies to a statute of limitations defense. In granting Pincus’s summary judgment motion and dismissing the case, the Florida court opinion said the credit card company is “‘master of its complaint’ and cannot disavow the choice of law provision contained in the document it attaches to its Complaint so it can take advantage of the longer statute of limitations.”

The Pincus case did not end there. Pincus and his attorney filed a Fair Debt Collection Practices Act lawsuit in federal court against Capital One’s attorneys to recover his attorney fees (Capital One, as an original creditor, is exempt from the FDCPA, but collection attorneys are not). The case was settled after contentious litigation for $120,000.

The moral of the story is “Don’t be bullied!” If you are sued for a credit card debt, seek legal advice from an experienced debt defense attorney. Many bankruptcy attorneys are experts in debt defense and can explain your legal options.

In an article posted to the BBB website, Stephen A. Cox, President and CEO of the Council of Better Business Bureaus said, “The debt settlement industry is flourishing and many families are being lured into believing that debt settlement is an easy fix and that their credit card debt will just disappear.”  Mr. Cox went on to say that “the truth is that the process doesn’t work for many consumers, it has potentially serious negative consequences, and should primarily be used as a last ditch effort[.]” 

Debt settlement companies typically offer to negotiate a settlement for a fee.  Unscrupulous companies mislead consumers with promises of large savings and quick resolution.  The truth is that it is difficult for a non-attorney to obtain a debt reduction of 50% or more.  Additionally, these types of settlements are only available with a one-time payment.  Most debt settlement companies require an up-front fee and ask the consumer to make payments into a savings account held by the debt settlement company for future settlement.  During the process of six months to a year that it takes to build up the account, the consumer is at risk of garnishments and lawsuits. 

In some cases fraudulent debt settlement companies have stolen from the consumer accounts, or refused to return funds.  In other cases the consumer is driven deeper into debt when the debt settlement company is unable to settle the debt. 

Unlike debt settlement, the bankruptcy process is a legal process supervised by a federal judge and the U.S. Department of Justice.  Your agent is a licensed attorney throughout the process.  There are no hidden fees and you pay only what you are able to afford.  At the end of the bankruptcy process your debts are discharged and you receive a financial fresh start ordered by the bankruptcy court. 

If you are struggling with debt and need financial relief, speak with an experienced attorney and discover how the federal bankruptcy laws can help you and your family.  Don’t be a victim of a debt relief scam.

A credit card company may claim that the debtor committed fraud in obtaining or using the credit card.  If the creditor can prove that the card was obtained under false pretenses (i.e. that the application was false), the credit card debt may be declared non-dischargeable because of the fraud. 

A credit card company may also claim that charges were placed on the credit card when the debtor had no intention to repay the debt.  Additionally, a presumption of fraud arises where luxury goods and services are purchased or cash advances are taken shortly before the filing of a bankruptcy case.  

Credit card companies are entitled to notice of a debtor’s bankruptcy case, and these companies monitor bankruptcy cases for signs of fraud.  Certain actions send up a red flag including:

• Filing bankruptcy on a new card;
• Taking a cash advance prior to filing;
• Charges for travel or vacation;
• A debt transfer from one card to another;
• Credit charges while unemployed; and
• Charges made after consulting a bankruptcy attorney.

 The more time between the credit card activity and the bankruptcy filing, the less likely the charge will cause a discharge dispute.  The best advice is: if you are considering bankruptcy, stop using your credit cards.  Consult with your bankruptcy attorney regarding the best way to discharge your credit card debt.

Debt limits for Chapter 13 will increase on April 1, 2010, from $336,900 to $360,475 of unsecured debt and from $1,010,650 to $1,081,400 of secured debt.  This change represents an increase of about 7% over the prior Chapter 13 debt limits. 

This could be good news for the increasing number of people who have second or third mortgages that are completely “underwater” (when the home is worth less than what is owed on the first mortgage) due to the decline in home values.  When a second or third underwater mortgage is deemed unsecured, it can increase the amount of unsecured debt by so much that a Debtor is no longer eligible for a Chapter 13.  Since the limit on unsecured debt has increased, more individuals will qualify for a Chapter 13 plan that allows them to get rid of a mortgage that holds no equity. 

It is generally not a good idea to incur any new debt before a bankruptcy filing.  The Bankruptcy Code has several provisions prohibiting the debtor from loading up on debt prior to filing bankruptcy.  One of the most commonly cited is a spending spree prohibition against purchasing “luxury goods or services” totaling more than $550.00 within 90 days prior to filing a bankruptcy case.  Another provision makes credit card cash advances presumptively non-dischargeable if taken within 70 days prior to the bankruptcy filing. 

Recently the United States Supreme Court in Milavetz, Gallop & Milavetz, P. A. v. United States reiterated that incurring new debt before bankruptcy with the intent to discharge the debt is not only prohibited, but may also amount to civil fraud or a criminal act.  The high court said that bankruptcy attorneys cannot instruct or encourage debtors to take on more dischargeable debt before bankruptcy, but attorneys “remain free to talk fully and candidly about the incurrence of debt in contemplation of filing a bankruptcy case.”  

There are many situations where taking on additional debt is beneficial and permissible.  The Supreme Court cited three of those situations in the Milavetz opinion: (1) refinancing a mortgage; (2) purchasing a reliable car; and (3) incurring “additional debt to buy groceries, pay medical bills, or make other purchases ‘reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor[.]’” 

The bankruptcy process can relieve you of many financial worries.  However, your path to financial recovery can be complicated without the sound advice from an experienced bankruptcy attorney.  Don’t make any significant financial decisions prior to filing bankruptcy without consulting your attorney.

The subject of bankruptcy is especially difficult for elderly people who may cling to preconceptions that are out-dated or otherwise incorrect. There have been many changes in the laws that protect an elderly person’s ability to meet basic monthly living expenses. Many retirement accounts and social security income are protected from creditor garnishment. Additionally, elder Americans are often judgment proof, meaning all income and assets are protected from creditors. Unfortunately, many older Americans fail to take advantage of these protections because they believe they can honor their obligations by paying minimum payments each month. The sad truth is that it often takes decades to pay off a credit card by making minimum payments. 

The stress and worry over repaying unsecured debt can cause health issues for young and old. A great deal of this stress and worry can be alleviated by choosing a feasible plan to either pay or discharge this unsecured debt. Bankruptcy is one tactic for managing unsecured debt and for reorganizing an elderly person’s finances. An experienced bankruptcy attorney can explain your options and provide solutions for living on a fixed income. Don’t let credit card debt turn “the golden years” to rust.

First, ignoring credit card obligations will cause a persistent series of harassing telephone calls and letters from credit card companies, collection agencies, and finally law firms. Phone calls are systematically made to the debtor’s home and work, and sometimes to third parties including neighbors, extended family, and your employer. The agencies that collect credit card debt are experts at telephone harassment – it is one of their most important weapons. 

Bankruptcy, on the other hand, stops all collection calls. 

Second, your credit score will be ruined on a continuing basis. For each month that a credit card goes unpaid, the creditor will report negatively to the credit reporting bureau. Additionally, collection agencies will often further harm your credit score by “resetting” the date of last activity when the account is transferred to a new collector. 

Bankruptcy stops all negative reporting. Discharged debts should be identified as “Discharged in Bankruptcy” with a zero balance. The debtor’s credit report and score can begin to recover from the date of the bankruptcy discharge. 

Third, you can (and will) be sued. The typical consumer will undoubtedly lose a lawsuit over a legitimate debt. The resulting judgment may include substantial penalties, interest, court fees, and attorney fees. A judgment creditor can collect from your wages, your property, and your bank account. While there are some people who are judgment proof, they are the exception and not the norm. Most people have assets that a judgment creditor can attack. 

Bankruptcy prevents all lawsuits and even stops collection actions from judgment creditors.

Many consumer advocates have likened credit card debt to an illness. Like any illness, the cure is not found in ignoring the problem, which will only make things worse. If you are sick from credit cards and are unable to pay your debts, consult with a bankruptcy attorney and find the cure!

The first is the “Do Nothing” option.  Debtors who engage in this option hope that by avoiding phone calls and collection letters the debt will somehow just disappear.  That is the same magic that makes a two year old become invisible when she closes her eyes.  Obviously if you won’t see it, the collection companies can’t see it. 

The “Do Nothing” option is the worst option of all because the debt does not disappear. In fact, the debt becomes bigger with increased fees and interest.  Additionally, the debt collection efforts become more aggressive and may result in harassing telephone calls to family, neighbors, or your employer.  Finally, you will likely be sued, your property seized or your income garnished. 

The second option is “Negotiation.”  Many debtors have had positive experience with this option which may include direct negotiation with the creditor for better terms, or help through a third party like a credit counselor or an attorney.  Unfortunately, many people do not realize the consequences of negotiation which may include a resulting tax debt, negative items on a credit report, increased debt through fees and default interest rates, and substantial third party fees. It is well documented by the media and state attorney generals that many debtors that attempt the Negotiation option (e.g. credit counseling, debt settlement, debt negotiation, etc.) end up in worse financial shape because they opted for debt negotiation. If you elect the Negotiation option, hire a qualified and experienced professional. 

The final option is “Bankruptcy.”  Many professionals describe Bankruptcy as the “final option,” but in truth it may be the best option when you cannot pay your bills. Bankruptcy can give an honest debtor breathing room to reorganize debt without the pressures from collection agencies.  Bankruptcy can also legally discharge debt without increased fees or tax consequences.  At the end of a bankruptcy case the debtor can go forward with a “fresh start” and new financial beginning. 

If your family is struggling with more month than money, it is time to examine your options. In the end, choose the option that is best for your family. Speaking with a qualified bankruptcy attorney can answer many of your debt questions.

Analysis of the law: When a debtor files bankruptcy, federal law governs the case.  State law can also be intertwined in federal bankruptcy cases.  With regard to the collectability of debts, if a creditor cannot pursue a collection action in state court, then the creditor is barred from pursuing collection in the bankruptcy court.  The creditor does not get a second bite at the apple if the debt cannot be pursued in state court in lieu of the debtor filing for bankruptcy.  The disallowance of the claim is not automatic; the debtor must raise the objection to the claim or it may otherwise be allowed and paid along with other unsecured creditors in a Chapter 13 case.

Outcome: XYZ’s claim was disallowed and the claim was withdrawn.  Here the debtor made the last payment on the account in 1991 and XYZ never filed a lawsuit for the debt owed.  The debtor filed 17 years later.  Kentucky law requires a creditor who is owed repayment on a debt incurred under a credit card arrangement by a debtor to bring legal action within 15 years.  KRS 413.090.