On July 28, 2010, the FTC adopted a rule that prohibits firms from collecting upfront fees from consumers in debt settlement cases. Unfortunately, the new rule does not take effect until October 27, 2010, leaving unwary consumers open to potential abuse by debt settlement companies in the meantime.

As we entered the event, volunteers wearing blue shirts guided people along. Mortgage lenders had individual tables set up. Fannie Mae and Freddie Mac also had tables. Participants went to their mortgage lender’s table and got a ticket. Their tickets had the mortgage lender’s name and a number on them. From there, the participants were led into another room, where they sat and listened to different speakers talking about loan modifications and FHA loans. Volunteers would come into the room and call out the names of mortgage lenders and a number, and then the homeowners with the corresponding tickets were brought into another room; a room full of tables. In that room, homeowners sat at a table, face-to-face, with someone from their mortgage bank.

Many homeowners who have been trying to obtain assistance under the Making Home Affordable plan have had difficulty reaching people at their banks over the phone. This event gave homeowners an opportunity to talk face-to-face with a real person from their bank. This was a great opportunity for many people. I hope that, after this event, the mortgage banks are able to help the people they met with so that their homes can be saved.

I agree wholeheartedly with Mr. Levitin’s post. I’d also like to add that the current mess that we have found ourselves in is an anomaly. It wasn’t normal for housing prices to increase at such a high rate, and it’s not normal for housing prices to drop at the rates at which they have currently dropped. Exotic mortgages and zero-down loans, and the idea of starter homes and getting into the market before you were “priced out forever” all contributed to this mess. For the people who bought into those ideas and now find themselves in financial distress due to job loss or health problems or any other “life happens” reasons, I am thankful that some mortgages are non-recourse. When someone is worried about “hanging on” and just making it through one of the worst economic times our country has seen, I am glad that people who have non-recourse mortgages don’t have to worry about one more stress – the stress of a deficiency judgment.

It’s difficult to blame Fannie Mae for being nervous about people walking away from their mortgages when strategic default is being regularly reported on in the news:

Owners Stop Paying Mortgages, And Stop Fretting.

American Dream 2: Default, Then Rent

I think that it will be difficult for Fannie Mae to decide whether someone strategically defaulted. Many people have applied for the HAMP program, only to end up in foreclosure. Foreclosures are, unfortunately, rising. See More rural, suburban Minnesotans threatened with foreclosure. See also Foreclosures Are Rising.

Fannie Mae’s threats might scare a few people from walking away from their underwater mortgages, but its threats alone will not be enough to fix our nation’s housing mess. Fannie Mae’s energy could be better spent on making sure servicers are following the Making Home Affordable program guidelines in a timely manner.

Sometimes it helps them to know that they are not alone and that they will be able to piece their lives back together. Other times they are worried about what their religion says about bankruptcy; they wonder if they are being immoral.

Bankruptcy was contemplated by our Founding Fathers when they drafted the United States Constitution. Article I, Section 8 of the Constitution provides that Congress has the power to establish uniform laws on the subject of bankruptcies throughout the United States. Although bankruptcy filings have significantly increased during the recession, bankruptcy is not a new concept.

Chapter 7 Bankruptcy got its name from a passage in Deuteronomy:

At the end of every seven years thou shalt make a release. And this is the manner of the release: Every creditor that lendeth ought onto his neighbor shall release it; he shall not exact it of his neighbor or of his brother; because it is called the Lord’s release.

– Deuteronomy 15:1-2.

The seven year time period that is mentioned in the above passage is where the “7” in Chapter 7 bankruptcy comes from.

If filing bankruptcy has become inevitable, and you are struggling with feelings of guilt, I urge you to find someone who you can trust and confide in them. The bankruptcy process can often seem long and drawn out, and having someone to confide in during the process will be good for your emotional health.

Income and Property Protected from Creditors

Garnishment and Your Rights

In Minnesota, garnishment is governed by Minn. Stat. § 571.71 et seq Generally garnishment occurs after there has been a judgment, but garnishment is authorized without a judgment in certain circumstances. See Minn. Stat. § 571.71. See also Minn. Stat. § 571.93. Wages and bank accounts can be garnished.

Certain property is exempt from garnishment in Minnesota. See Minn. Stat. § 550.37. One particularly important exemption is that “…the earnings or salary of a person who is a recipient of government assistance based on need, shall be exempt from all claims of creditors.” See Minn. Stat. § 550.37, subd. 14.

It is common for people to be embarrassed about the possibility of their employer knowing about their financial difficulties (if their wages get garnished). I try to remind these people that if it happens, they probably are not the first employee to have their wages garnished, and they probably won’t be the last employee to have their wages garnished.

Another common fear is the debtor’s fear of losing their job when their employer receives notice that the debtor’s wages are being garnished. Minnesota law protects employees from being discharged or disciplined due to a wage garnishment. See Minn. Stat. § 571.927.

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