Resolving Consumer & Small Business Legal Issues

Serving clients on the Eastside, in Seattle & throughout King County

Bankruptcy News and Informational Alerts for Consumers

From time to time, events making news that may be helpful to consumer debtors will be published on this page.

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Debt Consolidation Scammers - they're everywhere these days * June 20, 2010

The other day, a prospective client sent me over a 'debt consolidation proposal' from a national law firm with offfices in Seattle.  This so-called proposal offered to settle 16 credit card debts totaling nearly $100,000.00 over 46 months at '40%' off of the original debt - all at 'very affordable' monthly payments.  Sounds great, right? 

Now here's the fine print.  The proposal didn't disclose to the consumer that he'd get socked by IRS 1099's for forgiveness of debt on each card whose balance was reduced - meaning taxable income.  It also didn't state whether or not the law firm would represent the consumer if one of the card issuers didn't accept the reduced amount and sued the debtor - nor did it guarantee the stated savings percentage. 

The proposal did, however, indicate that it would cost the client $17,000 in fees charged up front by the law firm to perform this service before any of the credit cards would receive a dime of the negotiated payments.  So the net savings result to the consumer?  About $20,000 after being assessed $12k in potential 'forgiveness of debt' taxes. 

While debt consolidation may  be a viable alternative to filing for the final option - bankruptcy - please do your homework and seek the assistance of a not for profit credit counseling agency if debt consolidation is something you're considering.

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Big banks are no longer safer, they're just uglier * April 21, 2010 * Updated July 10, 2010 

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If you have a savings or checking account and a credit relationship or credit card issued by that same bank, you should know that your credit card agreement ‘fine print’ may allow that bank to take funds owed on that credit card account directly from your deposit account without warning (known as a setoff).  While not to be construed as legal advice, I would strongly suggest that if you are having difficulty paying your credit card bills, move your deposit account(s) to a financial institution in which you do not also have a credit relationship in order to avoid the risk of having your deposit funds seized to offset credit card or loan debts.

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Additionally, based on numerous reports from fellow NACBA member attorneys across the U.S., Wells Fargo/Wachovia is engaging in the practice of ‘freezing’ access to debtors' deposit account funds immediately upon the filing of a bankruptcy petition, regardless of whether or not the debtor has a credit relationship with Wells Fargo/Wachovia.  The result is that the debtor, should their living expense money be deposited in a Wells Fargo or Wachovia account, will end up with no access to their bank account to pay living expenses or bills. 

These highly abusive anti-consumer actions, while being interpreted by some Bankruptcy Courts as lawful under 11 USC 541 & 542, are causing severe hardship to many debtors holding deposit accounts at Wells Fargo / Wachovia.  A recent 9th Circuit case sanctioned Wells Fargo for this very practice as violative under 11 USC 362 bankruptcy code 'stay ' provisions, but it remains to be seen how many additional cases, fines and penalties it will take before these 'money grabs' are stopped.

 

Getting frozen deposit funds released through the efforts of debtors' attorneys can take several weeks.  If the debtor's frozen funds have been exempted from creditors, trustees have little incentive to assist in getting those funds released to the debtor, and perhaps rightfully so, given the paltry fee that Chapter 7 Trustees are paid for their efforts admisnistering a case.

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The really tragic situation is where the affected client lives on social security income, which you'd think their bank would know is exempt from creditor attack.  Unfortunately, so many banking transactions are processed by direct deposit and interbank transfers that bank computers have no clue as to the source of the funds.

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I am not alone in recommending that any debtor contemplating filing for bankruptcy remove their deposit funds from Wells Fargo/Wachovia prior to filing for bankruptcy protection, depositing them in an independent local bank or credit union that does not engage in this type of predatory act.  Above all, consumers should be paying very close attention to rapidly changing creditor, banking and lender practices.

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If you have information that would be considered newsworthy to all consumer bankruptcy debotrs, email your information to  for consideration.

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