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May 24th, 2017

What does 1099-C mean to me? Homeowners May Face Large Tax Bills

Not many consumers know that the IRS treats forgiveness of debt as income. That means that a borrower whose lender “forgives” the debt – completely waives the debt or accepts less than the full amount, is taxed on the savings, and reported to the IRS on Form 1099-C. This occurs with mortgages as well as other debts, except that the amounts involved are larger. While commonly seen with credit cards for many years, in 2017 homeowners will now feel the sting.

The forgiveness of debt rule applies to mortgages as well. So, if a mortgage holder forgives part of the debt, either by principal reduction, short sale or foreclosure, the owner gets the 1099-C for the lender’s loss. An example, in foreclosure, a $400,000 mortgage sold at auction with a fair market credit of $250,000, leaves the homeowner with $150,000 in income to be taxed at his/her top rate for federal and NJ income tax, which is frequently over 33%, resulting in a $50,000 tax. And the homeowner has lost the home.

The Mortgage Debt Relief Act granted relief from 1099-C income for the home for the years up to 2016, but it expired on January 1, 2017, so folks will be expected to pay up the taxes on the lender’s losses.

The best protection against this is by having the forgiveness to occur through a Bankruptcy, which is exempt from taxation, both for the home and any other forgiveness (credit cards, etc). Anyone facing the situation where lender will either grant relief or foreclose are well advised to talk to a their tax advisor and a competent bankruptcy lawyer about their particular situation.

May 15th, 2017

Student Loan Traps for Parents and Grandparents Or, Why Co-Signing Student Loans May Be Hazardous

Who doesn’t want to see their children or grandchildren further their education? While this sentiment is laudable, new statistics by the federal Consumer Financial Protection Board (CFPB), set up in the Obama administration, point out the potential for catastrophic outcome.

 

Student loans were made virtually impossible to shed by revisions in the Bankruptcy Code in the early 2000’s. Increasingly, student loans entrap not only the young person but also the parents or grandparents.

 

The CFPB reports that between 2005 to 2015, the number of persons age 60 or older with student loan liabilities increased more than 400% from 700,000 to 2,800,000. During the same period, the average outstanding balance increased from $12,000 to $23,000.

 

Some 40 percent of the federal student loan borrowers over 65 are in default. If the loans are not paid, the lender can seize tax refunds, wage garnishment, and, in the case of federal loans, take a part of the recipient’s Social Security.

 

Improper loan servicing may contribute to the high default rate. Collectors may not tell the borrower of the right to “cure” the default by “rehabilitating” the loan, by making a series of on-time, income-driven payments to the collector. Once the loan is “cured”, the loan goes back to the loan servicer and may be eligible for income contingent repayment (ICR) that limits monthly payments to a fraction of disposable income and forgives the principal in the future.

 

Litigation is pending between the CFPB, State attorneys general against Navient, the largest student loan servicer with claims that it hid available affordable repayment options.

 

Certainly, parents and grandparents should seriously consider long and hard before co-signing for student loans.

October 24th, 2016

Did You Know? Bankruptcy Fact of the Week #6

Did you know that the last five digits of your drivers license number is your month and year of birth and eye color?

October 17th, 2016

Did You Know? Bankruptcy Fact of the Week #5

Did you know that most credit card issuers will cut you off if you open more than 5 cards in a 24 month period?

October 10th, 2016

Did You Know? Bankruptcy Fact of the Week #4

Did you know that applying for multiple cards lowers your credit score in the short term?

October 3rd, 2016

Did You Know? Bankruptcy Fact of the Week #3

Did you know that a credit card holder’s liability for unauthorized use is limited to $50.

September 26th, 2016

Did You Know? Bankruptcy Fact of the Week #2

DId you know that the first number of our credit card account identifies the type of institution that issued the card?

September 20th, 2016

Did You Know? Bankruptcy Fact of the Week #1

Did you know that the highest percentage of credit card companies’ income comes from the monthly interest by those that carry balances, more than fees, merchant charges, and data sales?

June 8th, 2016

In The News: Why you should worry about wrongly addressed mail

NJ.com – Bamboozled: Why you should worry about wrongly addressed mail

 

Identity theft continues to be an enormous problem for consumers.

About 17.6 million Americans — or 7 percent of the population — were victims of at least one incident of identity theft in 2014, according to the Bureau of Justice Statistics.

We fear that number will continue to grow.

Consumers must be vigilant.

So when a bank statement from Wells Fargo landed in Victoria Steele’s mailbox in February — with someone else’s name on it — she wanted to get to the bottom of things.

The statement was addressed to another woman — we’ll call her Jane Doe — but it used Steele’s West Caldwell address.

Jane Doe doesn’t live at Steele’s address.

Steele said she brought the statement to the West Caldwell branch, where an employee looked up the account and tried to call Jane Doe. The telephone number wasn’t working, Steele said.

The employee then offered to send a letter to Jane Doe, but Steele said that would be silly. It would end up at Steele’s address.

The rep then offered to put a “stop” on the statements to Steele’s address.

“I wasn’t entirely satisfied with that because it meant the person would still be using my address,” she said.

When March came, another statement for Jane Doe arrived at Steele’s home.

Steele said she returned to the branch and the manager looked up the account.

The manager, according to Steele, said the account was opened that past summer with a different address. He noted that Jane Doe uses a lot of ATM transactions, and said Jane Doe went online on Dec. 3 at 1:08 p.m. and changed her address to Steele’s.

Steele said the manager then called the number on the account but it still didn’t work, so next he tried a number Steele found by Googling Jane Doe’s name. (Jane Doe’s real name is a very uncommon one.) That number went to a country club, and the manager was told Jane Doe didn’t work there.

Steele said the manager told her the account can’t be closed, nor could her address be removed without the accountholder’s say so.

Steele was given a 24-hour customer service number.

“I was wasting a lot of time and getting nowhere. Why would no one remove my address from this person’s account?” Steele said. “I had to show them my driver’s license every time I talked to them, yet she had free rein to use my address with no proof of residency.”

Steele said her first call to the 24-hour number was disconnected. When she called back, she said she spoke to a supervisor named “Jennifer.”

“Jennifer told me she went into the account to suppress the statements,” Steele said. “I told her that was supposedly already done in West Caldwell but that isn’t good enough for me. I don’t want this stranger using my address.”

Steele said Jennifer told her that she’d request the account be “suspended,” but that no one would be updating Steele going forward because it would be with a different department. She wouldn’t tell Steele which department.

That call apparently did nothing, because at the end of March, another statement arrived for Jane Doe.

Steele said she returned to the branch and spoke to another manager, who offered to have the statements stopped, but Steele explained that wouldn’t fix her address being linked to someone else’s account.

The manager then said an “alert” was placed on the account so that if Jane Doe comes into any branch to do a transaction, branch employees would discuss it with her.

But, Steele said, the records showed Jane Doe only uses the ATM, so finding her at a teller window was unlikely.

By this point, Steele admits, she became “highly agitated” and she again demanded her address be removed from the account.

The manager, Steele said, told her he’d need a subpoena to do it.

“I became more and more enraged because I feel violated that this person I’ve never even heard of can just use my address without my permission and the bank is doing nothing to protect me from that but everything to protect this person,” Steele said, confessing she used some “choice language.”

Steele said she tried the post office next, but they, too, wanted a police report.

So she filed a police report, and, she said, the police called the branch.

“[The officer] came back out and told me that there was nothing they can do because simply using another person’s address is not illegal,” Steele said.

That surprised us, so we checked with Hackensack-based consumer law attorney Ronald LeVine. He said that indeed, it’s not illegal to use someone’s address unless it’s with the intent to use it for fraudulent purposes.

Another month passed, and, Steele said, another statement arrived in April.

Steele wrote on the envelope in capital letters: “Return to sender. This person is fraudulently using this address. Does not and never has lived here. Please remove this address from this account.”

But the next month, on May 2, she said she received yet another statement for Jane Doe. That’s when Steele called Bamboozled.

GETTING ANSWERS?

Bamboozled reviewed Jane Doe’s bank statements and Steele’s timeline of events.

We reached out to Wells Fargo, and while it investigated, we tried to find Jane Doe.

There were three phone numbers associated with either her name or her former address. We left a message at one, and the other two didn’t have answering machines.

This Jane Doe doesn’t have a criminal record, at least.

Then Steele reported she received two letters from Wells Fargo.

One said the bank was investigating. The second, dated a day later, said it had completed its research about the “misdirected mail.”

Wells said it updated Jane Doe’s address in its records, and that even though Steele’s personal information was never compromised, it would give her a free year of identity theft protection.

We contacted Wells again, and it said a review of its records showed Steele wasn’t a victim of identity theft.

“Wells Fargo has determined an isolated internal error resulted in the wrong address being inserted in the bank’s computer system,” a spokesman said. “Wells Fargo is identifying the reasons for the internal error and taking steps to insure such an error does not occur in the future for any customer.”

The spokesman said for privacy reasons, he couldn’t explain what action was or wasn’t taken with Jane Doe.

We then turned to West Caldwell Police Chief Gerard Paris.

He said his officers found Jane Doe and determined the wrong address was a mistake — not attempted fraud — but that Steele was right to be concerned.

“If someone was using my address and they were doing it on purpose, it could rise to the level of fraud,” Paris said. “There’s an identity theft concern.”

We asked the Essex County Prosecutor’s Office about this specific instance, and it said generally doesn’t comment on active investigations.

“Whenever you see some sort of banking irregularity, one of the first things you look for is identity theft,” said Deputy Chief Assistant Prosecutor Walter Dirkin.

Steele finally received confirmation that Wells changed the address on Jane Doe’s accounts on May 19 — in a letter addressed to Jane Doe.

On May 24, she received more junk mail for Jane Doe, but she hasn’t seen another bank statement.

Still, she hopes the change has been made on the accounts.

“I appreciate that Wells is offering a year of ID theft protection at no charge, however I am disappointed that I had to go to such great lengths to get the change made,” Steele said.

February 24th, 2016

In The News: Auto Loans Could be the Next Consumer Credit Bubble to Burst

Bloomberg Media: More Subprime Borrowers Are Falling Behind on Their Auto Loans 

More borrowers with spotty credit are failing to make monthly car payments on time, a troubling sign for investors who have snapped up billions of dollars of securities backed by risky auto debt.

Delinquencies on subprime auto loans packaged into bonds rose in January to 4.7 percent, a level not seen since 2010, according to data from Wells Fargo & Co.

Rising delinquencies come as a warning sign that more loans may end up in default down the road, said John McElravey, an analyst at the bank. What may be most troubling, however, is that the default rate is already climbing, up to 12.3 percent in January from 11.3 the prior month. That is the highest rate since 2010, the data show.

Securities backed by auto loans are structured to absorb a portion of anticipated defaults, but concerns have mounted over the last year that cumulative losses on auto loan securitizations may end up exceeding initial estimates, thanks to declining underwriting standards.

Loan performance may be worsening because of a number of factors, including a rise in initial jobless claims, said McElravey.

He identified an auto finance company in Texas, for example, that began experiencing a noticeable increase in net losses six months ago. The increase coincided with a rise in unemployment in Texas, where the oil industry has been hit hard by prolonged low prices, he said.

The data are worth watching closely, he added, “especially against the backdrop of sub-par economic growth.”