New York Times: Fixing Credit Report Errors Online Gets Added Heft

By Ann Carrns

Disputing mistakes found on your credit report has become a bit easier because of expanding electronic options for challenging errors.

The three major credit bureaus have long provided online channels for challenging inaccuracies, but some consumer advocates advised against using that option because the systems didn’t allow for the inclusion of supporting documents.

That is changing, however, because the bureaus now offer consumers the ability to upload documents, like bills you have paid or letters you have written. (Equifax, for instance, said it added the document upload option in late 2013.)

“Now that you can upload documents, it allows for a more robust dispute online,” said Chi Chi Wu, a lawyer with the National Consumer Law Center. The center previously warned consumers against using the bureaus’ online dispute systems, but it now says that it can be a viable option for those who want to have errors removed quickly.

Errors in credit reports are a problem because they may lower your credit score, the three-digit number that serves as a summary of your credit history. That can possibly result in a higher interest rate on a loan or even denial of credit. A study by the Federal Trade Commission in 2012 found that about a quarter of consumers had errors in their credit reports. A smaller proportion — about 5 percent — had errors that could significantly lower their credit scores, but that still means millions of people are affected.

Consumer credit scores are calculated from data in credit reports, which are provided by the three big credit bureaus: Experian, TransUnion and Equifax. The reports are compiled using information supplied by lenders and credit card companies where you hold accounts.

In addition to the bureau systems, at least one online credit management site, Credit Karma, is now promoting a free tool that allows users to dispute some mistakes with a few clicks.

Users of the site can obtain a free credit report weekly and, if they spot an error, click a “dispute” button to start a challenge. The site has been testing the service for months, and it is now making it available to all users, said Kenneth Lin, the founder and chief executive of Credit Karma. In testing, he said, the site handled 600,000 disputes, and 87 percent resulted in a change to a member’s credit report.

There are some caveats. The service currently works only with TransUnion credit reports. That means you may not catch errors on reports prepared by Experian or Equifax.

Also, the site allows challenges only for inaccuracies that don’t typically require supporting documentation to correct. For errors that require documentation — like corrections to inaccurate personal information — users need to contact the bureau directly.

The site’s services, including the dispute tool, are offered free, but to use them you must register and provide personal information, including your Social Security number. The site has access to your credit report and uses it to make suggestions about managing your finances, like suggesting a loan with a lower interest rate. If you choose to apply for such a loan, the site earns a referral fee from the lender.

Here are some questions and answers about credit reports:

■ How can I check my credit report for errors?

By law, you are entitled to a free copy of your credit report once a year from the three main credit bureaus. To get the report, visit www.annualcreditreport.com.

■ What if I want to file a dispute on paper?

The credit bureau websites provide instructions if you want to go that route, which consumer advocates still recommend, if you think your dispute is complex and could potentially result in legal action. (If that is the case, Ms. Wu advises, use certified mail with a return receipt option.) The Federal Trade Commission offers sample letters on its website.

■ What if I am unhappy with the result of my dispute?

You can add a note to your credit file. You can also file a complaint with the Consumer Financial Protection Bureau on its website.

Copyright 2015 The New York Times Company.  All rights reserved.

Social Security Benefits, Student Loans and the IRS

Many of our debtor clients ask the question: if I owe the IRS taxes and I'm collecting Social Security benefits or going to collect Social Security benefits in the future, can the IRS levy my Social Security payments? Unfortunately for delinquent taxpayers, through the Federal Payment Levy Program (FPLP), 15% of a taxpayer's Social Security benefits may be levied to pay delinquent tax debt. However, certain other federal benefits, such as lump sum death benefits, Supplemental Security Income (SSI) and benefits paid to children are excluded from the FPLP levy.

What about student loans? If a debtor defaults in the payment of federally guaranteed student loans, then the IRS may levy on the debtor's tax refunds and apply those monies to the balance of the student loans. Additionally, if a debtor defaults on federally insured outstanding student loans, the government can take some federal benefit payments (including Social Security retirement and disability benefits, but not SSI) as reimbursement for student loans, but not the full amount (see below).

With respect to student loan defaults, the government cannot take any amount that would leave you with benefits less than $9,000 per year or $750 per month. And it cannot take more than 15% of your total benefits for either student loan defaults or delinquent taxes.

If you have questions about the federal government's powers to seize your benefits for the payment of delinquent taxes or publicly guaranteed student loans, please contact Jim Shenwick.

Treatment of Post-Petition Wages In Conversion for Chapter 13 to Chapter 7

Here at Shenwick & Associates, we specialize in bankruptcy and the unusual questions that arise in the course of bankruptcy cases. One of the great aspects of working in such a specialized area of the law is trying to figure out how courts will hold on an issue that isn't clear under current statutes and case law.

Sometimes, even the District Courts and Courts of Appeals disagree on a point of law. When Courts of Appeals disagree, there becomes a "circuit split" on an issue that only the Supreme Court can resolve.

A "circuit split" occurred regarding the question of what happens when a debtor (in good faith) converts a case to Chapter 7 after the confirmation of a Chapter 13 plan. Do the undistributed funds get distributed to creditors, or are they returned to the debtor?

The question turns upon how the courts interpret Section 348 of the Bankruptcy Code, which addresses the effect of conversion on cases. Subsection (f) provides that if the case is converted in good faith, "property of the estate in the converted case shall consist of property of the estate, as of the date of filing of the petition, that remains in the possession of or is under the control of the debtor on the date of conversion."

In the case the Supreme Court decided to review, Harris v. Viegelahn, the petitioner was indebted to multiple creditors and $3,700 behind on his monthly payments to Chase, who held the mortgage on his home. He filed for Chapter 13 bankruptcy, and his plan provided that he would resume making monthly mortgage payments to Chase and $530 per month would be withheld from his post-petition wages and remitted to Viegelahn, the Chapter 13 trustee. Viegelahn would make monthly payments to Chase to pay down Harris' mortgage arrears, and distribute remaining funds to Harris' other creditors.

However, Harris again feel behind on his monthly mortgage payments, and Chase foreclosed on his home. After the foreclosure, Viegelahn stopped making the payments earmarked for Chase and funds began to accumulate in his possession. About a year after the foreclosure, Harris converted his case to Chapter 7. Ten days after the conversion, Viegelahn distributed $5,519.22 in Harris' withheld wages to creditors.

Arguing that Viegelahn lacked authority to disburse his post-petition wages to creditors after conversion, Harris sought an order from the Bankruptcy Court directing refund of the accumulated wages Viegelahn paid to his creditors. The Bankruptcy Court granted Harris' motion, and the District Court affirmed. However, the Fifth Circuit reversed, concluding that a former Chapter 13 trustee must distribute a debtor's accumulated post-petition wages to his creditors. The Supreme Court disagreed, concurring with the Third Circuit in In re Michael that a debtor who converts to Chapter 7 is entitled to the return of any post-petition wages not yet distributed by the Chapter 13 trustee

For these and other questions that require our bankruptcy expertise, please contact Jim Shenwick

Student loan debt and bankruptcy update

Here at Shenwick & Associates, many of our bankruptcy clients (especially younger ones) have outstanding student loans. Although the Bankruptcy Code doesn't contain an express prohibition against discharging student loans in bankruptcy, the bar to doing so is very high. Most (but not all, as we'll discuss below) appellate courts, follow the standard laid out in Brunner v. New York State Higher Education Services Corp. The debtor must show that: (1) he or she cannot maintain, based on current income and expenses, a minimal standard of living for the debtor and dependents if forced to pay off the student loan; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loan; and (3) that he or she has made good faith efforts to repay the loans.

Unfortunately for debtors in New York, Connecticut and Vermont (whose federal courts are under the jurisdiction of the Second Circuit Court of Appeals), the Brunner test remains good law and will do so until either the Second Circuit or the Supreme Court overrules Brunner or Congress amends the Bankruptcy Code. However, in the 28 years since Brunner, the standard has increasingly come under attack. An article in The New York Times last month discussed some of the debtors who have fought to get their loans discharged in bankruptcy and the judges who have dissented from Brunner.

The article focused on two cases from 2013, Krieger v. Educational Credit Management Corp. (In re Krieger) (7th Cir.) and Roth v. Educational Credit Management Corp.(In re Roth) (B.A.P. 9th Cir.). In In re Krieger, the debtor lived in a rural area of Illinois and cared for her elderly mother while unsuccessfully searching for paralegal work for a decade. Despite the slim likelihood the debtor would be able to repay any of her $25,000 student debt, the loan holder argued that she should enroll in an income-based repayment program. In an opinion written by the influential Judge Frank Easterbrook (who was Chief Judge at the time) discharging the debtor's student loan debts, Judge Easterbrook claimed that the Brunner standard was threatening to supersede the "undue hardship" provision of Bankruptcy Code § 523(a)(8) and convert it into a "certainty of hopelessness."

That same month, a similar decision was issued in In re Roth. In this case, the 64 year old debtor had acquired $33,000 of student loan debt (which ballooned to $95,000 in default) acquired years earlier, citing a variety of physical and mental ailments. She successfully discharged her medical debt in bankruptcy, but had to commence an adversary proceeding to prove "undue hardship," copying statutes at a local law library and watching episodes of "Law and Order." The Bankruptcy Appellate Panel held that "failure to negotiate or accept an alternate payment plan is not dispositive" of a finding of good faith. And in a concurring opinion, Judge Pappas pointed out that both § 523(a)(8) and student loan borrowing have changed since 1987, calling Brunner "a relic of times long gone."

Until Brunner is legislatively or judicially overruled, consider some of these student loan debt strategies, and contact Jim Shenwick for an analysis of your student loan and other debts.