Many bankruptcy debtors ("bankrupts") have valuable consumer claims against their creditors. Most bankruptcy attorneys, however, are failing to spot these consumer claims and as a result are discharging and releasing these valuable claims in bankruptcy in exchange for no value. This is because a bankrupt's legal claims are assets of the bankrupt's estate. If these contingent claims are not included as exempt assets or are not brought as adversary proceedings against creditors that file proof of claims, these consumer claims will disappear along with the discharged debts.
Litigating these consumer claims can be a windfall to a bankrupt's estate and in many instances can lead to an award of reasonable attorney fees paid by the creditor. The most typical consumer claims that a bankrupt will have against a creditor are for wrongful repossession and debt collection abuses. The purpose of this article is to give bankruptcy attorneys suggestions to spot these consumer claims during the intake of a bankrupt.
Many bankrupts have a vehicle or other personal property repossessed prior to filing bankruptcy. Maryland law approves non-judicial repossession of secured personal property. Because a secured creditor is entitled to strip personal property rights of debtors without the need for court intervention, the Maryland legislature set strict notice requirements in the Commercial Law Article that each secured creditor must follow in order to recover any deficiency after selling the secured property. The required notices, which in most instances must be sent by certified mail, include: pre-repossession; post-repossession/pre-sale; and deficiency/accounting.
These same notice requirements allow a debtor to affirmatively recover statutory damages that can include three times the amount of interest, costs, fees or other charges paid into the loan by the debtor. Accordingly, each bankrupt should be asked whether any debts in the bankruptcy include money owed on repossessed property and whether the bankrupt remembers receiving any notices regarding the right to redeem the property and information regarding the resale of the property. If no notices were provided or if the notices were imperfect, damages and attorney fees may be available to you and your bankrupt.
Debt Collection Abuses
Debt collectors and debt buyers use every trick in the book to try and collect money from debtors. Many times, these tricks cross the legal limits established by Federal and Maryland law to protect debtors from typical debt collection abuses. Every bankrupt has a potential debt collection abuse claim assuming that the reason they are filing bankruptcy is the need for relief from all the debts and collection activities by debt collectors.
The following prohibited acts can lead to $1,000 in statutory damages, unlimited recovery for emotional distress and reasonable attorney fees: threatening to file or file a law suit on a debt that is beyond the statute of limitations; repossessing property that is not in default, that has been paid off or that has no valid security interest; contacting at any time or place that is inconvenient; contacting when the debt collector knows an attorney represents the debtor regarding the debt; contacting at work if the debt collector knows that employer prohibits such communication; communicating further with the debtor after the debtor tells the debt collector that the debtor refuses to pay the debt or that the debtor wishes the debt collector to stop further collection efforts (except to write one more letter); threatening the use of violence or using violence against the debtor, debtor's reputation or property; using obscene or profane language; threatening to publicize debtor's name as a person who owes a debt; contacting via telephone excessively with the intent to annoy, abuse or harass; falsely implying that he or she is an attorney or that any communication is from an attorney; falsely threatening that non-payment will result in arrest, imprisonment or seizure, garnishment of wages or sale of any property; communicating with debtor by postcard; while trying to locate debtor, contacting someone else and telling that other person about debt; communicating with neighbors or family members about the debt.
If during the bankrupt's initial intake any of these repossession or debt collection abuses are uncovered, the attorney must decide whether to file a civil action prior to bankruptcy and list the lawsuit as an exempt asset of the bankrupt's estate or to file an adversary proceeding within the bankruptcy. If a lawsuit is filed prior to bankruptcy, the bankrupt must request that the trustee release the lawsuit and allow the attorney to continue the action outside of bankruptcy. If the bankrupt decides to pursue the claim within the bankruptcy, the bankrupt must wait for the creditor to file a proof of claim in the bankruptcy and then file an adversary proceeding against the creditor.
Spotting these common consumer claims can add to your practice and help you better serve your client.
Cory L. Zajdel is the managing member of Z LAW, LLC, a consumer protection law firm in Towson, Maryland, where he represents consumers individually in Maryland courts and in class actions around the country.