The purpose of bankruptcy is to obtain a fresh financial start, free of debt that weighs you down. It is a chance to start over and move ahead in life. However, for some, that freedom does not come easily, as evidenced in a case decided on May 17, 2017 by the United States Bankruptcy Court for the District of New Hampshire.
In the recent case, a couple fell into debt primarily due to medical bills as each faced health conditions requiring treatment. The couple filed a Chapter 7 bankruptcy petition in 2011 and received a discharge in 2012. They chose not to reaffirm their mortgage debt. They valued their home at $250,000 and owed $338,000 meaning they were “underwater.” In other words, they owed more on their home than it was worth. The debtor couple chose to allow the bank to foreclose their home, but faced a series of aggravating communications with their mortgage servicing companies. As a result, they brought forth a lawsuit against the companies and the banking originating the mortgage in an attempt to recover money for emotional distress, attorney’s fees and punitive damages (a fine).
The debtor couple did not owe money on their mortgage as a result of the bankruptcy discharge, but they continued received monthly statements from their mortgaging services companies. The statements offered a “boilerplate” explanation that, “If you or your account are subject to a pending bankruptcy or the obligation referenced in this statement has been discharged in bankruptcy, this statement is for informational purposes only and is not an attempt to collect a debt.” The court, however, found this to be inconsistent as the statements, which were mailed on a regular basis, demanded payment and included a payment slip. Additionally, one of the mortgaging services companies recognized that the bankruptcy discharged the mortgage debt over the phone. The Bankruptcy Code prevents lenders from collecting on debts that have been discharged in bankruptcy. The persistent periodic statements created serious emotional stress on the debtors that impacted their productivity in the workplace. The home was eventually sold at foreclosure after several failures to foreclose, yet the couple still received statements, including a statement notifying the couple that they were required to buy insurance for the home and an escrow account summary statement. The couple argued this was illogical as they did not own the property. The court decided to award the debtors $13,000 in compensation for emotional distress. The judge calculated this amount by multiplying the number of interactions between the financial services companies, measured in letters and statements sent, by $500.
A bankruptcy discharge effectively wipes out most debts. Student loans, parking violations and taxes are not wiped out, for example. Credit reporting agencies (the three major agencies being Experian, TransUnion and Equifax), are required to list $0 balances for all eliminated debts. The wife’s credit report was correct in reference to the mortgage debt. The husband received a report from a financial institution that still listed a mortgage balance, however. The couple asked for punitive damages as incorrect information can create a negative impact on one’s credit worthiness. However, the judge rejected this request as he determined that the mortgage servicing companies did not create this issue and that the false information was not fabricated to push the couple to make payments, which is otherwise illegal.
The court awarded attorney’s fees for the debtors. The court did not, however, subject the financial services companies to punitive damages noting that the couple did not pay real estate taxes, rent, pay for home insurance (such as hazard insurance) or pay real estate taxes for several years. The judge decided that as these items were left unpaid by the debtors, they would not receive punitive damages from neither their mortgage servicing companies nor their bank.
If you are considering filing for personal bankruptcy to receive a fresh start, then contact the law offices of Jayson Lutzky. Mr. Lutzky is a Bronx, New York attorney with over 34 years of experience as a lawyer. If you have already received a bankruptcy discharge and a creditor or lender is still contacting you regarding paying back the debt, then you may be entitled to sue to the creditor or lender under the Fair Debt Collection Practices Act (FDCPA) or the Fair Credit Reporting Act (FCRA). Call 718-514-6619 or visit www.MyNewYorkCityLawyer.com to set up a free in-person initial consultation with Mr. Lutzky.