Usury and Subprime Home Loans

In the bankruptcy practice where I work, I increasingly see clients caught in financial binds caused by usurious home loans.  Oregon has an explicit exception to the Usury statutes limiting interest and fees charged on loans set forth in ORS 84.024 (4).  On the other hand, there are many state and federal statutes including RESPA and HOEPA which have provisions either restricting loan terms or requiring lenders to be explicit when disclosing the costs of a loan. When examining loan documents I sometimes find clear violations of existing laws, but far more often what surfaces is a contract which is legal, but unconscionable.

Usury, once associated with organized crime, has become institutionalized in credit-card lending, subprime home loans, and, increasingly, private student loans.  Home loans and easy credit have driven the economy for the last decade, generating obscene profits for banks and lending institutions.  Congress, meanwhile, adopted a laissez-faire attitude.  If it wasn’t obviously broken, no-one wanted to expend effort to fix it.

Bankruptcy is A Christian Idea

Bankruptcy in many ways is a Christian concept.  American bankruptcy laws have Biblical roots.  The seven-year waiting period between personal bankruptcies that was the law until 2005, for example, is based upon Deuteronomy 15:1-2

At the end of every seven-year period you shall have a relaxation of debts, which shall be observed as follows. Every creditor shall relax his claim on what he has loaned his neighbor; he must not press his neighbor, his kinsman, because a relaxation in honor of the LORD has been proclaimed“

and Leviticus 25, which describes the regulations both for a seventh year Sabbath and a fiftieth year of jubilee.

A Real Free Credit Report!

When is a free credit report not free?  A credit report is not really free, or at least you could easily be charged for it, if you use one of the commercially advertised websites.  The television commercial advertising this service is really a for profit venture trying to sell you a service for a fee.  You must first give them your credit card information (if you have an active credit card) and to avoid a charge you must cancel the service within a specified amount of time.

To paraphrase my friend Jay Fleischman who writes in the New York Consumer Litigation Center Blog.  The three primary national consumer credit reporting companies are required by a federal law, the Fair Credit Reporting Act (FCRA), to provide you with a free copy of your credit report, at least once every 12 months if you ask for it.

Earned Income Credit Fully Exempt in Oregon

As explained in a recent article arguing in favor of a federal exemption for the Earned Income Credit, the federal credit, created by 26 U.S.C. §32 (1994), is a refundable tax credit provided for low income workers who have dependent children and who maintain a household. A low income taxpayer can get the credit, in the form of a check or automatic deposit into a bank account, even if the amount of the refund is larger than the amount of tax paid that year.

In Oregon we have an exemption specifically protecting the Earned Income Credit and keeping it entirely exempt from exectution by a debt collector with a judgment.  This exemption also applies to the trustee in a bankruptcy case. 

Airline Miles Offered for Private Student Loans

I have an airline sponsored credit card I use to buy things.  Why not?  I earn airline miles and I don’t buy anything more than I would have with cash, debit card or check.  I pay the balance in full on the credit card each month and never pay any interest.

However, not everyone is as careful in the way they use credit cards as I am.  After nearly 30 years as a bankruptcy lawyer, I have a healthy respect for credit and use it carefully.  This wasn’t always the case.  Back in my student days, when money was tight, I would occasionally use my credit card less carefully and without paying attention to the cost of the credit. 

Bankruptcy Modification of Home Loans

Bankruptcy allows change of loan terms for loans on many types of real estate.  The reason this power is given to the bankruptcy courts, is that a bank or other lender would only recover the value of the property if it went into foreclosure.  By changing the loan terms to give the lender the same amount of money it would get if it foreclosed, the borrower would get to keep using the property without any loss to the lender.  The technical term for this process is called, believe it or not, “cramdown”.

Congress allows cramdown of the loan balance to the property value in three types of bankruptcy cases.  A cramdown can be ordered in cases under chapters 11, 12 and 13.

Highway Use Tax

Are Oregon highway use taxes dischargeable in bankruptcy?  Yes, if certain conditions are met, a debtor in bankruptcy can discharge taxes incurred in Oregon for use of the highways.  Claims for state and federal highway use taxes levied against truckers based on the weights of vehicles turn up frequently in Oregon bankruptcy cases.  The state is aggressive in enforcing the tax required by ORS Chapter 825.

I recently had a new client bring in collection notices for nearly $250,000 in tax assessed by the Oregon Department of Transportation as the result of a an audit of the company books.  The client had failed to properly respond to the audit notices and to pursue all of his administrative remedies.  He later spent over $25,000 in attorney fees to no avail when he tried to get a new hearing.  It is unable to continue operating trucks and has had to close his business.