Debt Collection, Repossession, Foreclosures, and Bankruptcy

Debt Collection, Repossession, Foreclosures, and Bankruptcy

Debt Collection

Although the vast majority of consumers intend to pay their bills in a timely fashion, there comes a time for many individuals when circumstances beyond their control leads to the debt collection process. Collections can either be performed directly by the creditor, or through a third-party debt collection agency (a separate company trained and licensed in the business of collecting debts). Varying rules apply to creditors and debt collectors. The Maine Bureau of Consumer Credit Protection administers the Maine and federal Fair Debt Collection Practices Act (FDCPA), which creates guidelines under which debt collectors may conduct business. This Act helps ensure that Maine consumers are treated fairly, and provides consumers with an avenue for disputing inaccurate debt information.  Our agency also licenses debt collectors.

A debt collector is prohibited from:

•    Calling at unusual hours (before 8:00 a.m. or after 9:00 p.m.), although collectors can call 7 days a week
•    Continuing to call a place of employment after receiving written notification from the debtor that their employer does not permit such contact
•    Making empty threats of legal action (under normal circumstances, a collection agency cannot initiate legal action against a debtor. The most they can do is recommend such action to the creditor).
•    Calling neighbors to discuss the debt (although collectors are allowed to initially contact a neighbor to inquire about a debtor’s whereabouts)
•    Continuing telephone contact after receipt of written notification from the consumer requesting that future telephonic calls cease

What should I do if a collector calls me?

First, determine if you really owe the debt. Within 5 days of the initial contact, the debt collector must send you a letter offering to verify the debt. If you wish to dispute the validity of the debt, write to the collection agency within 30 days, and keep a dated copy of the letter for your records. The collection agency must then halt collection activity until verification is sent to you. If verification is provided, they can resume collection efforts. If the debt is not verified, the collection agency must cease activity. During the time you are disputing the debt, the collector may not disclose any information about the debt to credit reporting agencies without also stating that the debt is disputed.  

How to Deal with Delinquent Payments
   
It is wise for consumers to approach any delinquencies in a positive and upfront manner. Creditors appreciate pro-active consumers who alert them when to expect a late payment. The creditor and the consumer are more likely to engage in constructive dialogue when the consumer honestly and fully explains their difficulties. A possible solution may include a proposal to pay off the debt in full/or in part through a payment plan (settlement agreement). A creditor may be able to offer helpful suggestions concerning repayment. Strive to keep constructive lines of communication open!

Prioritizing Payments
   
Consumers experiencing financial difficulties should allocate their limited resources in the most productive manner. Payments for housing, food, transportation, and medication should take priority over non-essential items (e.g., cable television, eating out, and personal entertainment). Credit card lenders may insist that you make their overdue payments first. However, no consumer should risk losing a home to foreclosure or a car to repossession because payments on unsecured debt are taking priority over housing, transportation and basic living needs.

Repossession

When you finance or lease a vehicle or other item, your creditor (or, in the case of a lease, the lessor), holds certain rights on the item until the last payment is made on the contract. Until that point, creditors have a right of ownership which can trump consumers’ rights of possession, and allows creditors to take back the property in question. The signed contract legally grants creditors the right to use “self-help” to repossess an item when a consumer becomes late (generally more than 60 days late on an installment payment), or defaults on the contract through the cancellation of automobile insurance.

The Rules of Repossession

   
•    Before a repossession company or the creditor can take your car, you must have first defaulted on the loan. This could include falling behind on payments or defaulting under some other provision of the contract [for example, failing to keep the vehicle (collateral) insured].
•    If your default is for missing a payment, repossession should not occur until after the creditor has mailed a Notice of Right to Cure Default. A Right to Cure Notice is effective for 12 months, so if you become delinquent (10 days or more past due) again in the next 12 months, repossession can occur without a new Right to Cure Default notice being sent.
•    This Notice of Right to Cure Notice grants the consumer 14 days to catch up on back payments. The creditor must only prove that this notice was sent, not that it was actually received; thus, if you, the consumer, refuse to sign for any certified or registered mail or don’t keep the creditor updated on your current mailing address, you may never receive the notice. If you receive a “Notice of Right to Cure Default,” don’t ignore it, because this is the only required notice prior to repossession!
•    The repossession agent cannot enter into a dwelling, nor can they “breach the peace” when repossessing your car. If you confront repossession personnel prior to the removal of the collateral, they are supposed to leave your property if you verbally demand they do so. The consumer should make their statement in a tactful, non-threatening manner. If the repossession agent does not respect your requests, then do not provoke a confrontation. Rather, contact our office right away, and we will take steps to investigate and potentially discipline the state-licensed repossession agent.
















One memorable call received at the Bureau of Consumer Credit Protection came from a woman who had her car repossessed, and to her dismay, realized that her wedding ring was left in the vehicle! This distressed consumer was relieved to learn from our agency that she would be able to retrieve her prized possession. However, consumers should be aware that items attached to the vehicle, including stereos, speakers, rims, and roof racks, can be legally retained. However, items such as fuzzy dice . . . and wedding rings . . . which can be removed without making any holes in the vehicle, must be inventoried and then made available to the consumer for pick-up.




Free Booklet
The Maine Bureau of Consumer Credit Protection offers a free booklet entitled, Downeaster Guide to Debt Collection and Repossession.  This guide provides helpful hints and a listing of specific rights you have in a variety of debt collection situations.  To request your free copy, please call our agency at 1-800-332-8529.


Foreclosures

Foreclosures on real estate occur for a whole host of reasons. Foreclosure can be the unpredictable consequence of a loss of employment, a divorce, a job transfer, an inability to work and make payments due to medical circumstances, or the result of excessive spending, and seemingly insurmountable debt. A foreclosure is a legal proceeding in which a secured creditor repossesses a house and land due to the owner’s failure to make timely loan payments. The process of foreclosure allows the lender to recover the amount owed on a defaulted loan by selling or repossessing the property securing the loan. In a foreclosure, borrowers usually lose title of their property and are evicted from their homes.

There are several ways that homeowners can retain title to their properties. Prior to the filing of the foreclosure action, borrowers could reinstate their loan by taking advantage of the right-to-cure period granted by state law, and pay off the defaulted amount. Additionally, a borrower could sell their property to a third party, pay off the loan, and avoid having a foreclosure on their credit history, or a third party could buy the property at the end of the pre-foreclosure period.

If foreclosure is inevitable, a homeowner may decide to permit the lender to take possession of the property through a written agreement (deed in lieu of foreclosure) with that lender.

Our agency cannot represent consumers in court proceedings.  Therefore, since foreclosure is a legal matter, our agency recommends that you obtain an attorney immediately to protect your legal interests.

What Happens in a Maine Foreclosure

Before a foreclosure can begin, a borrower must receive a default notice. The borrower then has 30 days in which to pay the full amount in default, plus fees and interest, before the lender may begin foreclosure proceedings. If this amount is not paid within the allotted time, the lender may begin the foreclosure process by filing the appropriate court documents and serving them on the borrower. If the borrower has a legal defense to the court action, the case can go to trial. If the court rules for the lender, the borrower has ninety days to stop foreclosure proceedings by paying the entire unpaid balance on the loan. The pre-foreclosure period can last six or seven months, and the entire foreclosure process can take up to nine months.

What to Do When Facing Foreclosure

Generally, the only action that will end foreclosure proceedings is a repayment of the debt. If you fall behind in mortgage payments and are facing foreclosure, don’t let yourself feel hopeless, and DON’T ignore the lender's letters or phone calls. Ignoring the problem won't make it go away. Contact your lender as soon as you realize your payments are going to be late, and tell them about your circumstances. A consumer may also seek financial counseling or legal assistance. Financial problems rarely resolve themselves, so don’t delay in calling the lender to discuss payment options. Some mortgage lenders are willing to consider forbearance (delay in payments) or a restructuring of the loan, if the lender believes the consumer will be able to resume making timely payments in the near future.


Bankruptcy

Bankruptcy is the legal process through which individuals with an established inability or impairment to pay their creditors can pay off some or all of their debts under the protection of a bankruptcy court. Bankruptcy allows debtors to have many legal obligations discharged through the liquidation and reorganization of their debt. The primary purposes of bankruptcy are to both relieve the debtor of most debts and to repay creditors in an orderly manner by liquidating the consumer’s non-exempt assets, with the bankruptcy court or a trustee distributing the proceeds to creditors.

TYPES OF BANKRUPTCY

Chapter 7:     Basic Liquidation for Individuals and Businesses
Through Chapter 7 Bankruptcy, a debtor surrenders his or her non-exempt property, and the proceeds from this liquidation of property are distributed to creditors. In exchange, the debtor is legally discharged of most debt (excluding certain debts such as child and spousal support, some taxes, etc.) Chapter 7 relief is available only once in any eight-year period.

Chapter 11:  Rehabilitation or Reorganization
Chapter 11 Bankruptcy is a form of reorganization used primarily by business debtors, but sometimes used by individuals with substantial debts and assets. A Chapter 11 filing allows a company to stay in business while the bankruptcy court supervises the reorganization of the business’s contractual obligations. 

Chapter 13:  Rehabilitation with a Payment Plan for Individuals with a Regular Source of Income
In Chapter 13 Bankruptcy, the debtor retains possession of most assets, but devotes a portion of future income to repaying creditors. The debtor is generally allowed 3 to 5 years for repayment, and the amount of payment and period of repayment are unique to each consumer’s circumstances.




Bankruptcy is governed by the federal law found in Title 11 of the United States Code. The bankruptcy court is a federal court. The District of Maine has two court locations where you may file, depending on your county:
   
Portland                        Bangor
(207) 780-3482                     (207) 945-0348
USBC, District of Maine                USBC, District of Maine
537 Congress Street, 2nd Floor            202 Harlow Street, 3rd Floor
Portland, ME 04101                Bangor, ME 04401

* Since bankruptcy is a legal, rather than a regulatory matter, if at all possible, consumers should hire an attorney to represent their interests in the bankruptcy proceeding.