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Federal Appeals Court Rules Bankruptcy Judges May Certify Classes of Debtors

June 25, 2010

In a case with extremely interesting implications for San Bernardino County bankruptcy attorneys like us, a federal appeals court has ruled that bankruptcies may be pursued as class actions. Class actions are lawsuits that bring together a large number of people with the same complaint against the same defendant. They are frequently used in consumer rights lawsuits, such as when many people bought the same defective product, but courts disagree on whether they can be used in bankruptcy court. As the National Law Journal reported June 22, the Fifth U.S. Circuit Court of Appeals in New Orleans has ruled that they can, establishing that right for courts in that circuit. However, the Fifth found that the class in this particular case was improperly certified.

In In the matter of Wilborn et al., the U.S. Bankruptcy Court for the Southern District of Texas sought to certify a class of 1,236 individuals or married couples who had filed for Chapter 13 bankruptcy and had mortgages that were owned or serviced by Wells Fargo Bank. They had filed an adversary action against Wells Fargo, claiming that the bank had charged unreasonable fees and costs for services related to the bankruptcy, such as title searches, ranging from $1,200 to $4,000. Wells Fargo did not disclose those fees to the court, they said, and as a result, many had debts that were not covered by their repayment plans. The Fifth Circuit found that the bankruptcy judge may properly certify a class of debtors in an adversity proceeding. However, it added that this class was inappropriate because individual issues, especially varying fees, predominated over issues common to the class.

As Villa Park personal bankruptcy lawyers, we believe this has implications for our practice in loan modification and foreclosure prevention as well as in bankruptcy. If the description of the inflated fees sounds familiar, it could be because Bank of America settled very similar claims this month brought by homeowners who had mortgages through the now-defunct Countrywide Financial Corp. Like many of the Countrywide borrowers, the Wells Fargo borrowers were already in bankruptcy, making the inflated fees particularly exploitive, greedy and inappropriate. If this turns out to be an industry-wide practice, more lawsuits or adversary claims by people in bankruptcy may be on their way -- and the bankruptcy courts may have more opportunities to certify class actions. Finding common concerns across a very large group of debtors might be hard, but a class action would certainly be more effective if thousands of borrowers truly have been exploited in this way.

Howard Law PC represents Californians who are considering bankruptcy as a way to handle overwhelming debts, including but not limited to mortgage debt. Our Seal Beach individual bankruptcy attorneys encourage debtors to come to us as soon as they realize they don't have the resources to pay off their debts, rather than draining resources that might be protected in a bankruptcy. We start all bankruptcies by reviewing clients' financial health to ensure that bankruptcy is truly the right choice, then help clients choose between a Chapter 13 repayment plan bankruptcy and a Chapter 7 "liquidation" bankruptcy, depending on their individual financial situations and needs. We stand by our clients through every step in the process, including any legal actions necessary to protect them from overreaching creditors, as in this case, or debt collectors who illegally continue to call.

If you're tired of the stress and uncertainty of being deeply in debt, you should call Howard Law for a free consultation on a possible bankruptcy. To learn more, you can reach us at 1-800-872-5925 or send us an email today.