Thursday, July 20, 2017

Reason: Why Did the IRS Seize this Wedding Boutique and Sell Everything for Next to Nothing?

By Allie Howell

In 2015, IRS agents strode into a Dallas wedding boutique, shut it down, and sold the entire inventory in just four hours to recoup alleged unpaid taxes. Now, the former owners are seeking financial compensation. They have filed a $2 million lawsuit, alleging multiple IRS rule violations and acts of impropriety.

Tony and Somnuek Thangsongcharoen opened their store, Mii's Bridal Salon, in Dallas, Texas, in 1983. The elderly Thai immigrants sunk their life savings into designer wedding dresses and were left penniless when the IRS sold them all, according to the couple's attorney.

"They've really been destitute," Jason Freeman, their attorney, tells Reason. "This really completely wiped them out financially."

In the lawsuit, the couple claims that the IRS conducted the entire seizure illegally, broke multiple statutes, and ultimately conspired to shut Mii's down.

According to the legal filing, the IRS believed Mii's owed $31,422.46 (which the couple disputes) and internally documented their 1,600 dress inventory as being worth $615,000.

The legal filing claims that the agent on the case originally recognized that the entire inventory would not need to be sold to satisfy the debt. However, Freeman obtained internal IRS communications through a Freedom of Information Act Request and found that IRS higher-ups decided that the agency should "shut down this failing business."

The lawsuit contends that the IRS violated its own rules in the process.

On the day of reckoning, March 4, 2015, 20 armed agents and members of the Dallas Police arrived at Mii's and told the Thangsongcharoens that they had two hours to write a $10,000 check or forfeit the entire inventory.

It was "totally improper to come in and demand a check like that within a matter of hours," Freeman says.

The couple didn't fill out a check, so four hours later, the IRS had sold the entire inventory and additional items through auction for $17,000. In conducting the sale so quickly and from within the store, the plaintiffs believe the IRS failed to comply with notice of sale and public sale requirements.

The auction took place under the IRS perishable goods sale procedures. Invoking it allows the IRS to seize and sell goods immediately instead of waiting 10 days and posting public notice of a sale, as is typically required. According to Freeman, such a quick sale "really circumvents statutorily prescribed safe guards" and is only meant to be used for perishable goods, not wedding dresses.

But the procedures also allow the IRS to sell goods immediately if it claims it would cost more to store them than they would gain from waiting to sell them. And that's how the IRS justified the immediate auction.

Freeman's internal documents show that the IRS internally devalued Mii's inventory in order to justify the perishable goods sale. They arrived at a valuation of $6,000—about $4 for a designer wedding dress. The IRS then claimed that storing the dresses would cost the agency more than they could sell them for.

Freeman also argues that the IRS overstated the costs that would be necessary to store the dresses, making the entire scheme "a bad faith engineered valuation designed to get what they wanted".

The IRS had decided that a perishable goods sale would be the "resolution where the government will benefit the most," as stated in internal communications.

Mii's was never able to reopen after the seizure. Tony Thangsongcharoen claims the stress of the ordeal caused him to have a heart attack and undergo quadruple bypass surgery.

The $1.8 million lawsuit was filed in the United States District Court for the Northern District of Texas Dallas Division earlier this year. It is meant to cover "damages resulting from the reckless, intentional, and/or negligent disregard of the Internal Revenue Code (I.R.C.) and governing Regulations by officers, agents and/or employees of the Internal Revenue Service ('IRS')".

Freeman says he hopes this lawsuit will help prevent future IRS misconduct.

"I don't think this is how citizens and taxpayers should be treated, ever … ," Freeman says. "While most government acts are performed with unquestionable integrity and good faith there are unfortunately exceptions to the rule. … When it happens they need to be held accountable. That's the only way to prevent it from becoming the rule."

So far, the government has moved to keep this case from getting a jury, requested the amount requested in the lawsuit to be trimmed, and commented that the Thangsongcharoens lack legal standing. According to the government, only Mii's, the bridal shop itself, should remain as a plaintiff.

Copyright 2017 Reason Foundation.  All rights reserved.

Boston Globe: The collapse of the taxi-medallion shakedown

By Jeff Jacoby.
 It made headlines in 2011 when two New York City taxi medallions changed hands for $1 million apiece. At the time, it was the highest price ever recorded for one of the numbered metal tags that are required to lawfully operate a cab on the city’s streets. It was also a vivid demonstration of how a government-created monopoly can send prices rocketing to stratospheric heights — even the price of something with almost no intrinsic value, like a little aluminum medallion issued by the NYC Taxi & Limousine Commission.
A million bucks for a taxicab medallion? That may have come as a shock in 2011, but the price kept climbing. By 2014, medallions were going for $1.3 million apiece.
And all anyone got for forking over that astronomical sum was the government’s permission to operate a vehicle as a taxi for hire. They didn’t get a list of established customers. They didn’t get the right to ply a popular route. They didn’t even get a car.
The only reason anyone would pay a fortune for something so insubstantial is that the supply was capped by the government. New York allowed just 13,587 taxis on its streets, far below the actual demand for cab ownership. With the quantity of medallions sharply limited, their value soared. Would-be cabbies were forced to go deeply into debt to buy a medallion, or pay staggering rates to lease a cab from somebody who owned one.

No longer.
Since 2014, the cost of a New York City taxi medallion has plunged. As CNBC reported the other day, some medallions sold in 2017 have gone for prices in the $200,000s. Three credit unions that specialize in financing the purchase of medallions are facing bankruptcy; a growing number of medallion owners now owe more on their loans than the medallions are worth.
Thanks to Uber and Lyft, the government’s extortion racket — that’s what the medallion system amounts to — has been beaten. With the rise of ride-hailing apps, tens of thousands of additional vehicles in New York are now providing millions of rides annually. For every medallion-affixed yellow cab working the city’s neighborhoods, there are now four Uber and Lyft cars.
In November 2010, traditional cabs made an average of 464,000 trips each day. By November 2016, that was down to 337,000. It is doubtless even lower today. The results of innovation and competition have been what they usually are: better service, lower prices, happier consumers.
What happened in New York is happening in every other city that turned its taxi market into an oligopoly. In Boston, where the number of taxis was arbitrarily capped at 1,825, the pre-Uber price of a medallion climbed to more than $700,000. You can buy one today for one-tenth that amount. In Chicago, traditional taxis face so much competition that as of March, 40 percent of the taxi fleet was deemed “inactive” after not having picked up a fare in a month.
The medallion system was always an outrage. There was never a legitimate reason for government to limit the number of taxis. Regulators have no business determining how many cabbies belong on the road; just as they have no business determining how many appetizers should be offered on menus or how many homes real-estate agencies should list. Or, to allude to current headlines, how many benefits a health-insurance policy must cover.
When government tries to manage supply and demand, it inevitably generates shortages, poor service, and corruption. Even with good intentions, regulators cannot yield fairer and more flexible outcomes than a market made up of millions of autonomous buyers and sellers. The collapse of the medallion shakedown was a long time in coming. It should never have been allowed in the first place.
Copyright 2017 Boston Globe Media Partners LLC.  All rights reserved.

Wednesday, July 19, 2017

Your student loans may be dischargable in bankruptcy

Here at Shenwick & Associates, we pay close attention to new developments that may affect our bankruptcy practice. At the beginning of this year, we sent out an e-mail regarding student loans and bankruptcy.  Since then, we’ve been continuing to explore the topic, including reviewing this article on the “undue hardship” standard and the Brunner testJudges are criticizing the existing standards, and Congress continues to consider changing the Bankruptcy Code to make student loans easier to discharge. 

We’re excited to announce that we’ve partnered with an experienced litigator to analyze student loan debt and, based on our analysis, seek a partial or full discharge of the student loan debt (principally “non – qualified” private loans, but other loans may be partially or fully dischargeable depending on your circumstances).  If you’ve previously filed for bankruptcy and have student loan debt that wasn’t discharged, your case can be reopened (with no filing fee), even if it was filed by another attorney.  Please contact Jim Shenwick to discuss if you’re interested. 

Tuesday, July 18, 2017

New York Times: As Paperwork Goes Missing, Private Student Loan Debts May Be Wiped Away


Tens of thousands of people who took out private loans to pay for college but have
not been able to keep up payments may get their debts wiped away because critical
paperwork is missing.

The troubled loans, which total at least $5 billion, are at the center of a
protracted legal dispute between the student borrowers and a group of creditors who
have aggressively pursued them in court after they fell behind on payments.

Judges have already dismissed dozens of lawsuits against former students,
essentially wiping out their debt, because documents proving who owns the loans are
missing. A review of court records by The New York Times shows that many other
collection cases are deeply flawed, with incomplete ownership records and massproduced

Some of the problems playing out now in the $108 billion private student loan
market are reminiscent of those that arose from the subprime mortgage crisis a
decade ago, when billions of dollars in subprime mortgage loans were ruled
uncollectible by courts because of missing or fake documentation. And like those
troubled mortgages, private student loans — which come with higher interest rates
and fewer consumer protections than federal loans — are often targeted at the most
vulnerable borrowers, like those attending for-profit schools.

At the center of the storm is one of the nation’s largest owners of private student
loans, the National Collegiate Student Loan Trusts. It is struggling to prove in court
that it has the legal paperwork showing ownership of its loans, which were originally
made by banks and then sold to investors. National Collegiate’s lawyers warned in a
recent legal filing, “As news of the servicing issues and the trusts’ inability to produce
the documents needed to foreclose on loans spreads, the likelihood of more defaults

National Collegiate is an umbrella name for 15 trusts that hold 800,000 private
student loans, totaling $12 billion. More than $5 billion of that debt is in default,
according to court filings. The trusts aggressively pursue borrowers who fall behind
on their bills. Across the country, they have brought at least four new collection cases
each day, on average — more than 800 so far this year — and tens of thousands of
lawsuits in the past five years.

Last year, National Collegiate unleashed a fusillade of litigation against
Samantha Watson, a 33-year-old mother of three who graduated from Lehman
College in the Bronx in 2013 with a degree in psychology.

Ms. Watson, the first in her family to go to college, took out private loans to
finance her studies. But she said she had trouble following the fine print. “I didn’t
really understand about things like interest rates,” she said. “Everybody tells you to
go to college, get an education, and everything will be O.K. So that’s what I did.”

Ms. Watson made some payments on her loans but fell behind when her
daughter got sick and she had to quit her job as an executive assistant. She now
works as a nurse’s aide, with more flexible hours but a smaller paycheck that barely
covers her family’s expenses.

When National Collegiate sued her, the paperwork it submitted was a mess,
according to her lawyer, Kevin Thomas of the New York Legal Assistance Group. At
one point, National Collegiate presented documents saying that Ms. Watson had
enrolled at a school she never attended, Mr. Thomas said.

“I tried to be honest,” Ms. Watson said of her court appearance. “I said, ‘Some of
these loans I took out, and I’ll be responsible for them, but some I didn’t take.’”

In her defense, Ms. Watson’s lawyer seized upon what he saw as the flaws in
National Collegiate’s paperwork. Judge Eddie McShan of New York City’s Civil Court
in the Bronx agreed and dismissed four lawsuits against Ms. Watson. The trusts
“failed to establish the chain of title” on Ms. Watson’s loans, he wrote in one ruling.

When the judge’s rulings wiped out $31,000 in debt, “it was such a relief,” Ms.
Watson said. “You just feel this whole weight lifted. My mom started to cry.”

Joel Leiderman, a lawyer at Forster and Garbus, the law firm that represented
National Collegiate in its litigation against Ms. Watson, declined to comment on the

Lawsuits Tossed Out

Judges throughout the country, including recently in cases in New Hampshire,
Ohio and Texas, have tossed out lawsuits by National Collegiate, ruling that it did
not prove it owned the debt on which it was trying to collect.

The trusts win many of the lawsuits they file automatically, because borrowers
often do not show up to fight. Those court victories, which can be used to garnish
paychecks and federal benefits like Social Security, can haunt borrowers for decades.

The loans that National Collegiate holds were made to college students more
than a decade ago by dozens of different banks, then bundled together by a financing
company and sold to investors through a process known as securitization. These
private loans were not guaranteed by the federal government, which is the nation’s
largest student loan lender.

But as the debt passed through many hands before landing in National
Collegiate’s trusts, critical paperwork documenting the loans’ ownership
disappeared, according to documents that have surfaced in a little-noticed legal
battle involving the trusts in state and federal courts in Delaware and Pennsylvania.
National Collegiate’s legal problems have hinged on its inability to prove it owns
the student loans, not on any falsification of documents.

Robyn Smith, a lawyer with the National Consumer Law Center, a nonprofit
advocacy group, has seen shoddy and inaccurate paperwork in dozens of cases
involving private student loans from a variety of lenders and debt buyers, which she
detailed in a 2014 report.

But National Collegiate’s problems are especially acute, she said. Over and over,
she said, the company drops lawsuits — often on the eve of a trial or deposition —
when borrowers contest them. “I question whether they actually possess the
documents necessary to show that they own loans,” Ms. Smith said.

In an unusual situation, one of the financiers behind National Collegiate’s trusts
agrees with some of the criticism. He is Donald Uderitz, the founder of Vantage
Capital Group, a private equity firm in Delray Beach, Fla., that is the beneficial
owner of National Collegiate’s trusts. (Mr. Uderitz’s company keeps whatever money
is left after the trusts’ noteholders are paid off.)

He said he was appalled by National Collegiate’s collection lawsuits and wanted
them to stop, but an internal struggle between Vantage Capital and others involved
in operating the trusts has prevented him from ordering a halt, he said.

“We don’t like what’s going on,” Mr. Uderitz said in a recent interview.

“We don’t want National Collegiate to be the poster boy of bad practices in
student loan collections, but we have no ability to affect it except through this
litigation,” he said, referring to a lawsuit that he initiated last year against the trusts’
loan servicer in Delaware’s Chancery Court, a popular battleground for corporate
legal fights.

Ballooning Balances

Like those who took on subprime mortgages, many people with private student
loans end up shouldering debt that they never earn enough to repay. Borrowing to
finance higher education is an economic decision that often pays off, but federal
student loans — a much larger market, totaling $1.3 trillion — are directly funded by
the government and come with consumer protections like income-based repayment

Private loans lack that flexibility, and they often carry interest rates that can
reach double digits. Because of those steep rates, the size of the loans can quickly
balloon, leaving borrowers to pay hundreds and, in some cases, thousands of dollars
each month.

Others are left with debt for degrees they never completed, because the forprofit
colleges they enrolled in closed amid allegations of fraud. Federal student
borrowers can apply for a discharge in those circumstances, but private borrowers

Other large student lenders, like Sallie Mae, also pursue delinquent borrowers in
court, but National Collegiate stands apart for its size and aggressiveness, borrowers’
lawyers say.

Lawsuits against borrowers who have fallen behind on their consumer loans are
typically filed in state or local courts, where records are often hard to search. This
means that there is no national tally of just how often National Collegiate’s trusts
have gone to court.

Very few cases ever make it to trial, according to court records and borrowers’
lawyers. Once borrowers are sued, most either choose to settle or ignore the
summons, which allows the trusts to obtain a default judgment.

“It’s a numbers game,” said Richard D. Gaudreau, a lawyer in New Hampshire
who has defended against several National Collegiate lawsuits. “My experience is
they try to bully you at first, and then if you’re not susceptible to that, they back off,
because they don’t really want to litigate these cases.”

Transworld Systems, a debt collector, brings most of the lawsuits for National
Collegiate against delinquent borrowers. And in legal filings, it is usually a
Transworld representative who swears to the accuracy of the records backing up the
loan. Transworld did not respond to a request for comment.

Hundreds of cases have been dismissed when borrowers challenge them,
according to lawyers, often because the trusts do not produce the paperwork needed
to proceed.

‘We Need Answers’

Jason Mason, 35, was sued over $11,243 in student loans he took out to finance
his freshman year at California State University, Dominguez Hills. His lawyer, Joe
VillaseƱor of the Legal Aid Society of San Diego, got the case dismissed in 2013, after
the trust’s representative did not show up for a court-ordered deposition. It is
unclear if the trusts had the paperwork they would have needed to prove their case,
Mr. VillaseƱor said.

“It was a scary time,” Mr. Mason said of being taken to court. “I didn’t know
how they would come after me, or seize whatever I had, to get the money.”

Nancy Thompson, a lawyer in Des Moines, represented students in at least 30
cases brought by National Collegiate in the past few years. All were dismissed before
trial except three. Of those, Ms. Thompson won two and lost one, according to her
records. In every case, the paperwork Transworld submitted to the court had critical
omissions or flaws, she said.

National Collegiate’s beneficial owner, Mr. Uderitz, hired a contractor in 2015 to
audit the servicing company that bills National Collegiate’s borrowers each month
and is supposed to maintain custody of many loan documents critical for collection

A random sample of nearly 400 National Collegiate loans found not a single one
had assignment paperwork documenting the chain of ownership, according to a
report they had prepared.

While Mr. Uderitz wants to collect money from students behind on their bills,
he says he wants the lawsuits against borrowers to stop, at least until he can get
more information about the documentation that underpins the loans.

“It’s fraud to try to collect on loans that you don’t own,” Mr. Uderitz said. “We
want no part of that. If it’s a loan we’re owed fairly, we want to collect. We need
answers on this.”

Keith New, a spokesman for the servicer, the Pennsylvania Higher Education
Assistance Agency (known to borrowers as American Education Services), said, “We
believe that the auditors were misinformed about the scope of P.H.E.A.A.’s
contractual obligations. We are confident that the litigation will reveal that the
agency has acted properly and in accordance with its agreements.”

The legal wrangling — now playing out in three separate court cases in
Pennsylvania and Delaware — has dragged on for more than a year, with no
imminent resolution in sight. Borrowers are caught in the turmoil. Thousands of
them are unable to get answers about critical aspects of their loans because none of
the parties involved can agree on who has the authority to make decisions. Some
2,000 borrower requests for forbearance and other help have gone unanswered,
according to a court filing late last year.

Susan C. Beachy contributed research.

Copyright 2017 The New York Times Company.  All rights reserved.

Wednesday, June 28, 2017

Three Strikes and Your (Stay's) Out: The Consequences of Serial Bankruptcy Filings

Many clients have contacted us regarding serial bankruptcy filers-people who filed for bankruptcy two or more times. Since 1984, Congress has been attempting to deal with debtors who took advantage of the automatic stay while making few or no payments to their creditors. This month, we’ll look at how the Bankruptcy Abuse and Creditor Protection Act of 2005 (BAPCPA) enhanced penalties for serial filers.

Penalties Affecting the Automatic Stay

  1. Under Section 362(c)(3) of the Bankruptcy Code, if you filed bankruptcy under chapter 7, 11 or 13 and then file another bankruptcy under any chapter of the Code within one year of the dismissal of the first case, there is a presumption that you filed the second case in bad faith, and the automatic stay will expire after only 30 days.

  2. Under § 362(c)(4)(A)(i) of the Bankruptcy Code, if you filed two or more bankruptcies in the previous year, and then file a third bankruptcy, the same presumption of bad faith exists, and the automatic stay will not take effect at all upon the third filing (the “Three Strikes and You’re Out” rule). This limitation does not apply to a chapter 11 or chapter 13 case filed after the dismissal of a chapter 7 case for abuse under 11 U.S.C. § 707(b). You may file a motion with the court and ask for the automatic stay to be imposed, but you must present clear and convincing evidence that you filed the most recent bankruptcy in good faith.

  3. Under § 362(c)(4)(D)(ii) of the Bankruptcy Code, if a creditor filed a motion for relief from stay in the prior case that was pending or had been resolved by terminating or limiting the stay, the new case is presumptively not in good faith as to that creditor. Under Section 9011 of the Federal Rules of Bankruptcy Procedure, the Court may impose sanctions against the debtor or the debtor’s attorney for bad faith filings.

  4. Under § 362(d)(4) of the Bankruptcy Code, on request of a party in interest and after notice and a hearing, the Court shall grant relief from the stay by terminating, annulling, modifying, or conditioning the stay with respect to a stay of an act against real property by a creditor whose claim is secured by an interest in the real property, if the Court finds that the filing of the petition was part of a scheme to delay, hinder, and defraud creditors that involved multiple bankruptcy filings affecting the real property.

  5. Penalties Affecting Discharge

    Although the Bankruptcy Code does not per se prohibit serial filings, it does condition the ability to obtain a discharge based on a subsequent filing within certain time limits, as discussed below.

    Successive chapter 7 cases: Under § 727(a)(8) of the Bankruptcy Code, if you received your first discharge under a chapter 7, you cannot receive a second discharge in any chapter 7 case that is filed within eight years from the date that the first case was filed.

    A chapter 13 case and a subsequent chapter 7 case: Under § 727(a)(9) of the Bankruptcy Code, if your first discharge was granted under chapter 13, you cannot receive a discharge under any chapter 7 case that is filed within six years from the date that the chapter 13 was filed, unless payments under the plan in such case totaled at least 100 percent of the allowed unsecured claims in such case; or 70 percent of such claims; and the plan was proposed by the debtor in good faith, and was the debtor’s best effort.

    A chapter 7 case and a subsequent chapter 11 or chapter 13 case: Under § 1328(f)(1) of the Bankruptcy Code, if your first discharge was granted under chapter 7, you cannot receive a discharge under any chapter 11 or chapter 13 case that is filed within four years from the date that the chapter 7 was filed.

    Successive chapter 13 cases: Under § 1328(f)(2) of the Bankruptcy Code, if you received your first discharge under chapter 13, you cannot receive a second discharge in any chapter 13 case that is filed within two years from the date that the first case was filed.

    If you’ve previously filed for bankruptcy and are contemplating filing again, or if you’re a creditor with a claim against a serial filer, please contact Jim Shenwick.

Monday, June 26, 2017

New York Times: Outside Collectors for I.R.S. Are Accused of Illegal Practices


Raid your 401(k). Ask your boss for a loan, load up on your credit cards, or put up
your house as collateral by taking out a second mortgage.

Those are some of the financially risky strategies that Pioneer Credit Recovery
suggested to people struggling to pay overdue federal tax debt. The company is one
of four debt collection agencies hired by the Internal Revenue Service to chase down
late payments on 140,000 accounts with balances of up to $50,000.

The call scripts those agencies are using — obtained by a group of Democratic
senators and reviewed by The New York Times — shed light on how the tax agency’s
new fleet of private debt collectors extract payments from debtors. On Friday, those
senators sent a letter to Pioneer, the I.R.S. and the Treasury Department accusing
Pioneer of acting in “clear violation” of the tax code.

In the letter, a copy of which was provided to The New York Times, the four
senators, led by Elizabeth Warren of Massachusetts, say that the I.R.S.’s contractors
are using illegal and abusive collection tactics.

In particular, they object to Pioneer’s “extraordinarily dangerous” suggestion that
debtors use 401(k) funds, home loans and credit cards to pay off their overdue taxes.

“Pioneer is unique among I.R.S. contractors in pressuring taxpayers to use
financial products that could dramatically increase expenses, or cause them to lose
their homes or give up their retirement security,” the senators wrote. “No other debt
collector makes these demands.”

On Thursday, in advance of receiving the letter, the I.R.S. said it was
comfortable with the approach its outside collectors were taking. The agency “is
committed to running a balanced program that respects taxpayer rights while
collecting the tax debts as intended under the law,” said Cecilia Barreda, an I.R.S.

The debt collectors are paid on commission, keeping up to 25 percent of what
they collect.

Pioneer instructs its employees to “suggest that liquidating assets or borrowing
money may be advantageous” and to “give the taxpayer ideas on where/how to
borrow,” according to the scripts it submitted to the I.R.S. for approval. If that route
does not work, the scripts show, Pioneer’s collection agents encourage taxpayers to
ask their family, friends and employers for money.

All four of the collection companies hired by the I.R.S. — CBE Group, ConServe,
Performant Recovery and Pioneer — tell debtors that they can set up an installment
plan lasting as long as seven years, two years longer than the span that private
collectors are legally allowed to offer. The code that authorizes the I.R.S. to hire
outside collectors says that they may offer taxpayers installment agreements that
cover “a period not to exceed five years.”

The I.R.S. said that payment plans lasting longer than five years were legal as
long as they were approved by the agency.

“If the taxpayer agrees, and after the I.R.S. approves, the private firm will
monitor payment arrangements between five and seven years,” Ms. Barreda said.

“This process is in accordance with the law and ensures that taxpayers assigned to
the private firms will have the same payment options as taxpayers dealing with the

Others disagree with the agency’s interpretation. Nina E. Olson, the national
taxpayer advocate at the I.R.S., said that the agency was engaging “in legalistic
gymnastics to justify something the law doesn’t allow.”

The I.R.S. is owed about $138 billion, a sum that lawmakers are eager to reduce.

To supplement the agency’s collection efforts, Congress ordered it to hire outside
firms — an approach that was tried twice before, in 1996 and in 2006, and then
abandoned because of cost overruns and concerns about abuses. Lawmakers hope
the new program, which began this year, will yield better results; the congressional
Joint Committee on Taxation estimated that it could net $2.4 billion over the next 10

But consumer advocates, including Ms. Olson, view the project with alarm,
fearing that aggressive collectors will push troubled people to the financial brink and
hound them for payments they cannot afford.

To consumer advocates, the call scripts seem to realize their fears. All of the
collection companies encourage taxpayers who may not be able to fully pay off their
tax bill, even through installments, to make a one-time voluntary payment. Three of
the agencies instruct debtors that “extra payments or higher payments can be
accepted at any time.”

That kind of “give us anything you can” approach is common among consumer
debt collectors, but the government has typically been more measured, weighing
what is owed against what the taxpayer can reasonably afford. When taxpayers
cannot pay their entire bill at once, the I.R.S.’s internal collectors are generally only
permitted to place them into installment plans that will fully resolve their debt.

The idea is that pushing taxpayers to the limit, while temporarily good for the
I.R.S., causes long-term strain on the government over all. No one wins, the theory
goes, when taxpayers wind up on public assistance from settling overdue tax bills.

The I.R.S. does not try to collect from people who make only enough to afford basic
living expenses like food, housing and transportation. (Only one collector,
Performant, had lines in its scripts about how to handle hardship cases. Those
accounts should be marked and returned to the I.R.S., Performant instructed its

Low-income taxpayers make up most of the cases farmed out to the private
collectors, according to an analysis by Ms. Olson. After reviewing the first batch of
files the I.R.S. sent to outside collectors, her office found that nearly a quarter of the
accounts involved taxpayers with below-poverty level wages, and more than half
were taxpayers with incomes of less than 250 percent of the poverty level.

Ms. Olson said she was “deeply concerned” by collectors suggesting that
taxpayers borrow against their retirement savings, take out home loans or increase
their other debts to pay their taxes.

“The I.R.S. may suggest those things, but the I.R.S. is authorized to perform a
financial analysis of a taxpayer’s ability to pay, and it does not collect from taxpayers
where its financial analysis shows doing so would impose a financial hardship,” she
said by email.

Pioneer, a subsidiary of Navient, was effectively fired two years ago by the
Education Department from its contract to collect overdue student loan debt after
the agency determined that it gave borrowers inaccurate information about their
loans at “unacceptably high rates.” Pioneer was sued this year by the Consumer
Financial Protection Bureau, which said it “systematically misled” borrowers.

Navient is fighting the consumer bureau’s lawsuit and has denied any
wrongdoing. It declined to comment on its tax debt collection efforts, referring
questions to the I.R.S. The other three collectors did not respond to questions about
their call scripts.

For its part, the I.R.S. said that it supported its private collectors’ tactics.
The agency “encourages people to look into options for paying their tax debt,
including things such as installment agreements,” Ms. Barreda said in a written
response to questions about the call scripts. “How they pay is a personal choice.
Giving taxpayers ideas of possible borrowing sources to pay their tax liability is
consistent with fair debt collection practices as well as I.R.S. practice.”

But Ms. Warren and the three other Democratic senators who sent the letter on
Friday — Sherrod Brown of Ohio, Benjamin L. Cardin of Maryland and Jeff Merkley
of Oregon — took exception to these collections practices. They particularly criticized
the extended payment offers and the encouragement for debtors to send in “extra
payments,” both of which they said violated the I.R.S. code.

The law “allows collectors to ask only for a payment in full, or an installment
agreement providing for full payment over a maximum period of five years,” the
senators wrote. “When Congress required the I.R.S. to hire private debt collectors to
collect certain tax debts, it did so under strict provisions to ensure that taxpayers
were not put at risk during the collection process, but it appears that Pioneer is not
adhering to these protections.”

The I.R.S.’s last effort to outsource debt collection was deemed a failure by the
agency, which eliminated the program in 2009 and said that its internal staff could
handle the work more efficiently. The program wound up costing the federal
government millions more than it actually recouped from taxpayers.

The latest attempt stems from a 2015 provision, buried in a $305 billion
highway funding bill, that required the agency to outsource some of its collection.
President Trump’s Treasury secretary, Steven T. Mnuchin, said his department
would monitor the effort.

“In general, I am supportive of using outside firms on a contingency basis after
all other means have been used,” he said at a congressional hearing last week. “I
think it’s a balance between making sure the government collects money efficiently
and appropriately with making sure we don’t jeopardize taxpayers.”

© 2017 The New York Times Company.  All rights reserved.

New York Times: Your Credit Score May Soon Look Better


About 12 million people will get a lift in their credit scores next month as the
national credit reporting agencies wipe from their records two major sources of
negative information about borrowers: tax liens and civil judgments.

The change stems from a lengthy crusade by consumer advocates and
government officials to force the credit bureaus to improve the accuracy of their
reports, which are often speckled with errors and outdated information. Those
mistakes can limit borrowers’ access to credit cards, auto loans and mortgages, or
saddle them with higher borrowing costs.

Starting July 1, the three major credit reporting companies — Equifax, Experian
and TransUnion — will enforce stricter rules on the public records they collect,
requiring each citation to include the subject’s name, address and either their Social
Security number or date of birth. Nearly all civil judgments and at least half of the
nation’s tax lien records do not meet the new standards, and will be eliminated from
consumer credit reports.

The change will benefit borrowers with negative public records, but it will also
help thousands of people who have battled, often in vain, to have incorrect
information removed from their files.

“We’ve filed hundreds of lawsuits over this,” said Leonard Bennett, a consumer
lawyer in Alexandria, Va. “Comprehensively fixing it hasn’t been something the
industry has prioritized.”

That began to change two years ago, when a coalition of 31 state attorneys
general cracked down on the credit bureaus and negotiated a deal that required
sweeping changes to their practices. (New York’s attorney general had previously
reached a separate settlement with similar terms.) The credit bureaus have already
made some adjustments, like removing traffic tickets and court fines from their files,
but next month’s changes will have the broadest effects yet.

Around 7 percent of the 220 million people in the United States with credit
reports will have a judgment or lien stripped from their file, according to an analysis
by Fair Isaac, the company that supplies the formula that generates the credit scores
known as FICO.

Those people will see their scores rise, modestly. The typical increase will be 20
points or less, according to Fair Isaac’s analysis. (FICO scores range from 300 to
850. Higher is better; lenders generally prefer people with scores of 640 and above.)

The biggest beneficiaries, consumer advocates say, will be those who are spared
the frustration of trying to fix errors. False matches have been a common problem.

Without the kind of additional identifying information that will now be required, a
court record showing a judgment against Joe Smith can easily wind up on the wrong
Joe Smith’s credit report. (Last week, a California jury awarded $60 million to a
group of consumers who said TransUnion falsely flagged some of them as terrorists
and drug traffickers because it had mistaken them for others with similar names.)

Starting next month, the credit bureaus will also be required to update their
public records information at least once every 90 days.

That change pleases Brenda Walker, a Virginia resident with a pending lawsuit
against TransUnion over the company’s monthslong delay in amending her report to
show that a tax lien had been satisfied.

Ms. Walker said she had been turned down for credit cards, a car loan and a
student loan she tried to take out for her daughter’s education. “It wreaked havoc,”
she said. “My credit score was so damaged from something that had already been
paid and released.”

The flip side of the change, lenders warn, is that some borrowers may now
appear more creditworthy than they actually are.

“This removes information from the picture that our customers get about what a
borrower has done in the past,” said Francis Creighton, the chief executive of the
Consumer Data Industry Association, which represents credit reporting companies.
“If someone has a big bill that they owe, that’s something that should be part of the

But when the two largest credit scoring companies, Fair Isaac and
VantageScore, tested what happens when tax liens and civil judgments are removed,
both found that it did not meaningfully change the snapshot provided to lenders on
most borrowers.

More than 90 percent of people with a negative public record have other
negative information on their credit file, like late payments, according to FICO’s
analysis. VantageScore experimentally tweaked its model to focus on other data
points, like the number of credit cards a borrower has with high balances, and found
that the predictive value was almost identical.

“Not surprisingly, those with civil judgments and tax liens are likely to have lots
of other credit blemishes,” said Ethan Dornhelm, Fair Isaac’s principal scientist.
“These changes aren’t going to bring those people into the tiers where they’re going
to qualify for prime credit.”

As public records disappear from the big bureaus’ reports, other data providers
are eager to step in and fill the gap. LexisNexis Risk Solutions has for years gathered
public records information from about 3,000 jurisdictions around the country and
sold it to the credit bureaus. Now, with that business drying up, the company is
marketing its own Liens and Judgments Report to lenders.

Because LexisNexis is not a party to the credit bureaus’ settlement, it is still free
to sell that information, said Ankush Tewari, a senior director with LexisNexis Risk
Solutions. The company can accurately link people to their public records, even
without identifying information like a Social Security number, with an error rate of
around 1 percent, he said.

As the credit bureaus continue to work through the settlement terms, further
changes are coming. Starting in September, their reports will eliminate medical debt
collection accounts that are less than six months old, a change intended to reflect the
sometimes-lengthy process of sorting out health insurance reimbursements.

Also that month, all data furnishers — the companies that provide information
about consumers to the credit bureaus — will be required to include each individual’s
full name, address, birth date and Social Security number in their reports.

© 2017 The New York Times Company.  All rights reserved.