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Bankruptcy Judge Scolds Bank of America for Collections Policy

A federal bankruptcy judge has ordered banking giant Bank of America to pay $10,000 for every month it continues to hound a couple whose mortgage loan was discharged in bankruptcy.

Our Miami foreclosure lawyers know that bankruptcy law is quite clear on what it expects of creditors in the wake of a bankruptcy filing, and that includes immediate orders to cease and desist collections efforts.

The fact that Bank of America failed to do this, according to U.S. Bankruptcy Court Judge Robert Drain in New York, was not some “stupid mistake.” Rather, he said, it’s obvious that these collections actions were a matter of policy at the company – a policy that violates federal bankruptcy law.

Judge Drain conceded that $10,000 each month is not an especially large amount to a large financial institution like Bank of America. The firm has so much money it could reason that such expenses are simply the cost of doing business. However, Judge Drain said he hoped it would send a message to other plaintiff attorneys who might demand compensation for clients on similar grounds.

What this couple was made to endure – even after their Chapter 7 bankruptcy filing – is asinine. For those not familiar, a Chapter 7 bankruptcy absolves the filer of his or her obligation to pay most debts. (A few exceptions include student loans, certain taxes and family court-ordered payments, such as child support.) A mortgage loan can be lumped into the debts that may be discharged, and this was the course taken by the couple in New York.

The law states that when the Chapter 7 documents are filed – even before the discharge – creditors can no longer pursue debtors. If and when a debt is discharged, that is the end of it. Yes, it will mar your credit for a while, but you are no longer responsible for that debt under any circumstances, and creditors are forbidden from continuing to try to collect it at that point.

Bank of America employees, however, apparently felt those rules didn’t apply to them. Its collections services continued to call and send letters to the couple in this case, demanding payment after the debt had been discharged. Even calls from the family’s attorney reminding the bank of the discharge failed to result in a reprieve.

In fact, the bank even ignored correspondence from Judge Drain until nearly two weeks after he imposed sanctions on the firm.

The bank has since offered a boiler plate statement saying it intends to investigate what transpired in this case. Forget an apology or any concession of wrongdoing, even though the facts are obvious.

This case marks the latest in which judges are outright denouncing bank policy toward former homeowners.

Recently in Orlando, a U.S. Bankruptcy Court judge fined the company $220,000 for numerous violations with regard to a home loan modification agreement. Even having been reminded of the terms of the modification agreement by the court, the bank continued to issue numerous notices claiming that substantial additional payments were due. Those payment amounts included inflated interest rates, an incorrect loan type and improper payment amounts.

The couple had a $227,000 home loan with the bank, and the judge said that based on the bank’s improper actions, the judge ordered that it should be considered paid.

It was not that long ago that banks appeared to be practically invincible, with judges almost always extending them the benefit of the doubt.

That tide is shifting. Homeowners and debtors are fighting back. We’re here to help.

If you’re battling foreclosure in Miami or the surrounding areas contact Jacobs Legal for a confidential appointment to discuss your rights. Call (305) 358-7991. Also, don’t miss Miami Foreclosure Attorney Bruce Jacobs on 880AM/the Biz, every Wednesday from 5 p.m. to 6 p.m. on “Mortgage Wars,” discussing foreclosure topics that matter to YOU.

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