Bankruptcy Questions Answered

Debtor Collects from Creditor Harassment

Anyone who has ever been hounded by a debt collector has probably fantasized about giving the collector a taste of his or her own medicine. That fantasy may be much easier to realize than most people imagine, as the story of a Dallas debtor shows.

Background: Your Rights as a Consumer

Laws are in place at both the federal and the state level to protect all Americans from overly aggressive debt collection practices. In fact, between the Fair Debt Collection Practices Act, the Fair Credit Reporting Act and the Telephone Consumer Protection Act, a lot of behaviors typical of debt collectors are prohibited.

In addition to other things, debt collectors cannot:

• Lie about their ability to take legal action to collect on a debt
• Call you repeatedly with intent to annoy or harass
• Call you outside of 8 am and 9 pm local time
• Contact you directly when you have indicated that you have legal representation
• Contact you by any embarrassing media (like postcards)

Unfortunately, many consumers are not aware of their rights and so do not take legal action against collectors who break these laws.

A Man with a Plan

According to the Dallas Observer, a man named Craig Cunningham has taken it upon himself to stand up for his consumer rights.

The Observer reports that Cunningham made some poor investment choices when credit was easy and ended up with more than $100,000 worth of debt. But, when collectors began contacting him and asking him to pay up, he decided to fight back.

Essentially, here’s how Cunningham has managed to make the most out of a bad situation:

• He hired a lawyer to represent him and help him understand the intricacies of the consumer protection laws that were relevant to his case.
• He began recording calls from his creditors and saving all forms of contact he received.
• With the help of his attorney, he filed lawsuits whenever a debt collector violated a national or state consumer protection law.
• He began receiving court settlements from successful cases.

Most collection agencies, it seems, prefer out-of-court settlements (which often involve a statutory fine) to taking a case to trial, since settlements save them money. The Observer notes that Cunningham has thus far earned $20,000 from suits against law-breaking collectors.

If you think your rights have been violated by a debt collector, consider contacting an attorney to determine whether you could take steps to receive compensation for the violations.

Additional Resources

Fair Debt Collection Practices Act (PDF)

The Week in Finance From the FTC

The Federal Trade Commission announced this week two new measures to address lapses in consumer protection for U.S. citizens.

Mortgage Lender Required to Hire Consultant

According to a news release, the FTC has modified a settlement with Gateway Funding Diversified Mortgage Services, L.P., a mortgage lending company earlier cited for improper and discriminatory lending.

Gateway will now have to:

• Hire a third-party consultant approved by the FTC to verify that the company complies with fair lending regulations
• Introduce any remedial changes suggested by the consultant
• Submit to annual assessments and detailed analyses of lending information for five years

The new measures are intended to prevent the sort of mortgage lending abuses, such as reverse redlining and predatory lending, that occurred during the subprime boom and paved the way for the real estate bubble, its burst and bankruptcy filings across the country.

Support for Bill Expanding Consumer Funeral Rights

Following a funeral scandal last summer in which workers in the funeral industry stole money from grieving families and disposed of bodies in unsavory ways, the FTC has announced its support of a house bill (H.R. 3655) that would expand consumer rights in the funeral industry.

The incident reportedly involved four gravediggers in the Chicagoland area pocketing funeral money after performing funerals for families. After the ceremonies, the four allegedly dug up bodies and dumped them wherever they found space.

The bill, if it passes, would do the following:

• Give the FTC the authority to regulate cemeteries across the country
• Expand consumer protections under the FTC’s existing Funeral Rule by expanding its application from funeral homes to crematories and sellers of caskets, urns, monuments and markers
• Require those in the funeral industry to disclose and itemize prices upfront and identify any state laws that require certain purchases or expenses

The funeral industry has historically been one in which strict consumer protection is essential, since people are often forced to make financial decisions in a short amount of time and while under great emotional stress.

Understanding Credit Card Cancellations

Finding out your credit card has been canceled can be frustrating, embarrassing and worrisome.

Unfortunately, tough economic times may mean card cancellations become more common and more likely in the coming months.

Why Credit Cards Matter

Hopefully, you already know that your credit score is a number calculated through a formula developed by the Fair Isaac Corporation (FICO) and determines what kind of interest rates you’re likely to receive from lenders.

But what you may not have realized is that your credit card usage plays an important role in your credit score:

• Age of accounts: The longevity of various credit accounts, including loans and lines of credit, is a factor in your credit score. So maintaining a credit card for a number of years is better than opening up new ones and canceling old ones.
• Variety of account types: Another factor of your credit score is the diversity of your credit portfolio. Credit cards are one of the only tools that offer revolving credit, so they demonstrate how well a borrower handles this particular credit product.
• Credit utilization ratio: Finally, credit cards help by giving you more credit available. Part of your score comes from a comparison between how much credit you have available to how much you’re using (using less is better).

So having a card canceled on you may damage your score in three different ways, and there is no law that requires credit card issuers to notify consumers about cancellations.

Reasons for Credit Card Cancellation

Even if you’re a responsible credit card user - meaning you pay your bill on time every month - your credit card company may cancel your card. Common reasons include:

• Ratio shift: If your available-credit-to-debt ratio changes - that is, you start using significantly more credit - a card issuer may cancel your card due to "increased risk."
• Lack of profitability: Sadly, if you pay your bill in full every month, the issuer isn’t making much money from you, and may cancel your card.
• Lack of use: If you haven’t used your card in several months, it could get the shaft. Charge something small every month or so and pay it off immediately to prevent this.
• Bad economy: Market conditions, like unfavorable interest rates or housing prices, may cause card issuers to close accounts.
• Credit report information: Negative information in your credit report, whether true or not, can make an issuer pull the plug.

In some cases, you won’t be able to prevent cancellation, but you can stay on top of your finances by checking your credit report regularly and fixing any errors you notice. This will help you stay on top of any credit card problems before they arise.

Debtors Think Their Plan Will Protect Tax Refunds From Chapter 7 Trustee

Tax refunds due on the date you file for Chapter 7 bankruptcy are part of your bankruptcy estate, and consequently, the trustee will make you turn over your tax refund. Refunds due for current and past year’s tax returns are at risk. I had a telephone consultation with a couple from south Florida who think they found a loophole in the collection of tax refunds in bankruptcy court. Their plan may work, but I do not think the plan is proper or honest.

These prospective debtors had not filed their 2008 or 2007 tax returns. The knew they would owe penalties. The reason they said their returns were not yet filed is that they were gathering documentation of substantial additional tax losses for both years. With the losses included, they were confident they would receive a substantial tax refund for both years notwithstanding late filing penalties. If they filed returns now, without documentation or amount of eligible losses, they would owe the IRS taxes and interest on top of the late filing penalties.

Here’s the plan they came up with. They said they were going to file the tax returns now without the expected losses. The returns would show significant tax liability. They had no money to pay these taxes, but they figured it would take the IRS months to review the 2007 and 2008 returns and to ask for payment. Even if the IRS asked them for the tax money they felt they could work out a payment plan with the IRS. After filing these tax returns, they would proceed to file Chapter 7 bankruptcy and file with the trustee their 2007 and 2008 returns showing taxes owed.

At some point after filing bankruptcy they would finally gather information about their tax losses for the same year. They felt it may take several months before they could capture all losses. At that point, they would file amended tax returns which would change a tax debt to a significant tax refund and wipe out all interest. By then, the bankruptcy would be discharged and closed.

This plan may work in practice. Debtors must file tax returns, but there is never, or rarely, a request for amended tax returns. Trustees almost never check for future amended tax returns that show greater tax refunds. The problem is that if debtors expect a future tax refund, even if delayed until amendments are filed, they are required to disclose their expectancy on their bankruptcy schedules. And, if a trustee asks these debtors (as they often do) if they expect any tax refunds the debtors would have to lie in order to hide their planned amended tax returns.

Like many debtor bankruptcy schemes, it may work if creditors don’t find out you lied.

Obama’s Plans for Your Retirement Savings

In an age of disappearing pensions and rapidly shrinking Social Security funds, individual retirement accounts are more important than ever – but many Americans have no official retirement accounts, connected to their jobs or otherwise. The Associated Press reports that President Obama is launching a plan to change that.

The plan has at its center one serious statistic: almost half of American workers have no retirement savings option through their jobs. That’s frightening, considering that, as a nation, we don’t have a great track record of saving money.

Four Main Points for Retirement Savings

The retirement savings legislation, still in the drafting phase, at this point includes four main parts to improve Americans’ chances of living comfortably after they stop working. The four prongs are:

• Automatic IRAs at work: Employers who do not already offer Individual Retirement Accounts (IRAs) to their workers would be required to do so. All employees would be automatically enrolled in such programs, with a chance to opt out. Studies have shown that participation in retirement savings plans is much higher when it’s automatic. To ease the administrative costs associated with the program, employers would reportedly be offered tax breaks for introducing the IRA plans.
• “Saver’s credit” for contributions: Sources indicate that the Obama Administration wants to include a provision that would incentivize retirement savings for lower-wage workers by introducing tax breaks and potentially including government-sponsored matches for initial contributions. Some critics suggest that this measure will face too many obstacles because of the potentially high cost to the government.
• Lifetime income: One aspect of the retirement measures that has been proposed would introduce investment products into retirement accounts that work on annuities and guarantee income for an investor’s lifetime. This measure would be intended to eliminate the possibility of a person’s money running out before their life, but could face challenges since accounts that offer such returns are often laden with fees. This might even include stronger retirement account protections in bankruptcy.
• Heightened 401 (k) regulations: Lastly, the administration has mentioned introducing more transparency into the regulations governing 401(k) plans, so that investors would be better informed about the fees and costs of their accounts and avoid unnecessary expenses.

Remember: it’s never too early to start saving for your retirement, and with fewer guaranteed income sources for the elderly, it’s more important than ever to plan to support yourself financially after you stop working.

Court Refuses To Dismiss Chapter 7 Bankruptcy Because Debtor Found High-Paying Job After Filing Date

You’re unemployed. You’re poor. You are stressed-out by debts and debt collectors. So, you file Chapter 7 bankruptcy. Then, shortly after you file bankruptcy you find a job. Not just "a job" but a really good job that pays high salaries. All of sudden you have money. In fact, you make so much money that you could afford to pay back most of your debts if you were in a payment plan. What happens to your Chapter 7 bankruptcy? Can you continue to wipe out all your debts even though you were fortunate enough to find a new, high paying job.

The question was discussed in a recent Florida bankruptcy court decision. A United States Trustee argued that granting a Chapter 7 discharge would be an abuse of Chapter 7 where the debtor was unemployed on the petition date, but thereafter obtained employment that enabled him, post-petition, to deposit more than $1,000 cash flow in a 401k account. The U.S. Trustee argued that the debtor’s new job enabled him to pay at least $668 per month to creditors if his Chapter 7 were converted to Chapter 13. Is it an abuse to let this debtor keep all his new income and pay no debts because he filed Chapter 7 bankruptcy?

The bankruptcy court did not dismiss the case. The court said that the post-petition job and ability to pay creditors is relevant to an abuse analysis, but that the U.S. Trustee most show more than just the debtor’s mathematical ability to pay debt from his new job. The court noted, among other things, that this debtor did not improve his living standards after his employment and that he has a serious medical condition that will limit his working life. The bankruptcy was a result of an unexpected, sudden job joss. The court held that it must consider all circumstances and not just the "mere mathematical ability to fund a Chapter 13 plan." In re Lavin, Case No. 08-2708, Tampa Division.

Income Tax Season For Chapter 7 Bankruptcy Trustees

Its tax season once again. In bankruptcy, tax season means hunting season for Chapter 7 trustees. During the first four months of year the Chapter 7 trustees are especially diligent about going after IRS tax refunds owed to debtors. The general rule is that any money, including income tax refunds,  owed to you at the time you file bankruptcy is part of the bankruptcy estate and available to pay your creditors. There are certain exemptions such as joint refunds where only one spouse files bankruptcy and refunds from the earned income tax credit. Bankruptcy trustees will ask all debtors if they expect a tax refund based on their 2009 tax return, and in most cases will require the debtor to send a copy of the 2009 tax return whenever it is filed.

I read a good blog post from Ohio bankruptcy attorney Wayne Novik about how debtors can best protect tax refunds. One option, discussed in the post, is simply to delay filing bankruptcy until you have filed your tax return and received a refund. You can spend your tax return on necessary expenses such as past-due mortgage or car payments or your bankruptcy attorney fee. Of course, if you receive a large tax refund the trustee may ask you to account for the money. As a practical matter, if you expect a small tax refund the Chapter 7 trustee will decide its not worth pursuing and will let you keep the money.

Tags: Bankruptcy Alternatives, Bankruptcy Case, Household Income, Income Test, Liquidation Proceeding

Is Bankruptcy on the Cards?

Tags: Bankrupcy, Dilemma, Direction

FTC Hails Victory Over Abusive Debt Collection Practices

The Federal Trade Commission announced this month that it has settled charges with three debt collectors accused of various types of abusive debt collection. The settlement, which reportedly includes the largest civil penalty ever levied on a debt collection agency, comes in conjunction with future restrictions for the defendants.

Fair Debt Collection Practices Violated

According to the case, the defendants violated terms of the Fair Debt Collection Practices Act, which outlines acceptable behavior for agencies responsible for collecting on debts. These guidelines prohibit a variety of actions, including:

• Contacting a debtor before 8:00 am or after 9:00 pm local time
• Contacting a debtor after receiving a written request not to do so
• Contacting a debtor at her place of work after being told not to
• Calling the debtor with the intent to annoy, harass or abuse
• Contacting the debtor directly when he is known to have an attorney
• Misrepresenting a debt or using deceit to collect money
• Threatening arrest or legal action when neither is an option
• Seeking more than a person legally owes
• Publishing a person’s name on a “bad debt” list
• Reporting information incorrectly to a credit reporting bureau
• Contacting a third party about a consumer’s debt
• Contacting a debtor by embarrassing media (like a post card)

In this case, the men were charged with threatening arrest and legal action when none was warranted as well as using harassment and abusive contact to collect debts. The men in question were senior managers at debt collection agencies and as such either participated in the illegal actions or were responsible for such actions among their employees.

The Settlements

One of the three defendants, Keith Dickstein, owner of Academy Collection Service, Inc., apparently paid a $2.25 million settlement in 2008. The two defendants who settled early this year, Edward S. Bastian and Edward Hurt, were saddled with fines of $375,000 and $300,000 respectively for abusive collection practices.

The fines were suspended after each man paid $7,500, based on their ability to pay; payment of the remainder will depend upon their future compliance with debt collection laws.

Your Consumer Rights

Federal law outlines many protections for consumers. Make sure you have an idea of what consumer rights you have so you can take legal action, if necessary, should they be violated.

Additional Resources

Fair Debt Collection Practices Act (PDF)

Tuition May be Tax Deductible This Year

With tax season coming up, everyone is looking for new ways to save, either to get a larger refund or to afford paying taxes owed. Thanks to a new ruling, some graduate students may find extra breathing room come tax time.

The Wall Street Journal reports that, thanks to the persistence of Lori Singleton-Clarke, a Maryland woman, students pursuing a Masters in Business Administration degrees (MBAs) may now find their tuition is tax deductible.

Several aspects of the case could be important to MBA students and others looking to save money this tax season.

• Know the code. The Internal Revenue Service’s tax code is complex and detailed, so knowing where to look for potential deductions can help. Tax deductions for education can be found in IRS Publication 970 (see below).
• Ask for help. If you aren’t tax-savvy yourself, you may want to enlist the help of a professional tax-preparer or commit to learning how to work at-home tax software like TurboTax.
• Stay organized. The WSJ reports that Singleton-Clarke’s case was successful in part because she kept all her paperwork organized and was able to provide adequate documentation for her claim.
• Be persistent. Singleton-Clarke’s case was not always easy, sources note. But she stuck it out and ended up saving herself some serious money – and potentially paving the way for other graduate students to do the same.

Does Your Education Qualify?

Educational expenses eligible to be considered tax-deductible must meet certain specific criteria, including the following.

• Income limits for single and married individuals affect how much tuition can be deducted.
• Parents may deduct certain expenses for children whose education they fund, but only if the parents claim the children as dependents.
• Certain institutional fees (like health care and books) are not considered part of tuition and so are not eligible for the tax deduction.
• Even a single college- or graduate-level class could qualify you for the tax deduction.

A more detailed review of these regulations is available here, or you can browse this year’s version of Publication 970 (below, as a PDF).

Other Tax Concerns

Whether or not you pursued further education this year, stay alert during tax season. Certain predatory loans in disguise tend to crop around this time of year, including RALs (refund anticipation loans) and RACs (refund anticipation checks).

If you do wind up owing taxes that you can't afford to pay, you can file an extension and possibly work with the IRS to pay your taxes over time. Paying taxes owed is important since they typically cannot be discharged in bankruptcy.

Remember to keep your sensitive information (like bank account numbers and Social Security Number) private!

Additional Resources

IRS Publication 970 (2010)

Too Strange For Springer, Too Weird For Oprah: Debtors Try To Fix A Messed Up Transaction

Bankruptcy debtors do some strange things. A couple came to see me about a debt they forgot to put in their bankruptcy petition. The husband filed Chapter 7 bankruptcy in 2007 by himself without an attorney. The case is closed; discharge entered. Its in the archives. A year earlier, the husband had tried to sell his motor home to a third party. The husband could not deliver title to the motor home because there was a lien on the home. The agreed sales price was $40,000 but the lien was $60,000. The buyers must have wanted the motor home really badly because they gave the husband the $40,000 as long as he promised to pay off the lien as soon as he could.

The husband gave the entire $40,000 to the bank with the lien. He never could clear or pay off the lien with other money. In the meantime, the bank kept deducting the monthly lien payments from the $40,000 until, a few years later, there was no more money. The husband never spent any of the money on anything but the loan payments.

You can probably guess what happens next. When there was no more money left in the fund to make payments the bank repossessed the motor home from our surprised buyers. The buyers paid the agreed price and thought everything was taken care of. Now, the husband wants me to add the aggrieved buyers to his bankruptcy petition even though the case was closed. There are a couple interesting legal issues.

The first issue is whether the husband can add a creditor to his closed bankruptcy. The general rule is that debtors can reopen a case to add creditors so long as the creditor’s claim existed prior to the bankruptcy filing. There is an exception when the bankruptcy estate had non-exempt assets which were made distributed to the creditors of record because, in that event, there would be no way to reallocate the available assets. Fortunately, in this case, there were no assets in the estate available for distribution.

A second issue is whether the buyer had a claim, and whether the buyer was a creditor, when the husband filed bankruptcy. Or, did the buyer’s claim first accrue when the bank repossessed the motor home after the bankruptcy was filed and closed. The bankruptcy Code defines "claim" very broadly. When the buyers took possession of the motor home subject to the husbands promise to pay off the lien I think the husband incurred a debt and obligation to the buyers who in turn had a claim against future performance. I think there was a claim, broadly defined, when the petition was filed and that the husband can reopen the case. I expect that the buyer will contest the motion to reopen. It will be interesting to see what the court says.

Tags: Application Fee, Credit Crunch, Debt Recovery, Hook, Scotland

Elliss Bankruptcy a Riches to Rags Story

Financial lessons are often best learned in retrospect, which can make it difficult to tell when you're going down the wrong financial path. Luckily, we can always learn from the mistakes of others.

The Detroit News reports that former Detroit Lions lineman Luther Elliss was forced to file for bankruptcy thanks to a series of bad investments and debts.

While the story is frustrating to hear—Elliss reportedly earned more than $11 million in a five-year period—it is surprisingly common. So how do the once fantastically rich manage to end up in bankruptcy court? Often enough, simply by making some bad decisions.

Elliss, it seems, got sucked into the real estate bubble and ended up with two homes worth less than what he owed on them. Last summer, he and his wife reportedly filed for Chapter 7 bankruptcy to receive a discharge from their debts.

Taking the Long View on Your Finances

While most of us will never command the kind of salaries professional athletes can expect, we would do well to look at how quickly a fortune can disappear.

• Nothing is guaranteed. If the current employment situation has taught us anything, it’s that no job is permanent, but many of us act as if our life circumstances are not subject to change. When making major purchases (homes, cars, schools, etc.) remember that a stretch now could easily become a financial impossibility if your salary changes.
• Listen to the right people. In the Tribune article, Elliss notes that he didn’t listen to suggestions from his wife or adviser—and that it cost him in the long run. Unfortunately, nobody is guaranteed to have your best interests at heart except you, so be very wary when people ask for financial commitments and promise unrealistic returns. On the other hand, know who honestly cares about your well-being and take their advice to heart.
• It's a marathon, not a sprint. Remember that you're in this thing called life for the long haul. There will always be great investments around, so make sure you learn all you can about one—and feel totally comfortable committing to it—before sinking in your hard-earned cash. It's true that you can't win if you don't play, but you also cannot lose.

There's an old bit of financial wisdom that summarizes pretty much every other guideline for handling money: spend less than you make and save the rest. It's easy to get drawn into upgrades and status symbols and all the rest, but at the end of the day (or the lucrative career as a professional athlete), financial stability is often worth the sacrifices of getting there.

Hiring Has Not Picked Up: A Look at Unemployment Claims Stats

The number of newly laid-off workers seeking unemployment benefits unexpectedly rose last week, further evidence that the job market recovers at a very slow and bumpy pace. California, Texas, Florida, Pennsylvania, and even Georgia have experienced the highest recent increases in unemployment claims.

Wall Street economists had expected a small drop, but according to the Labor Department, initial claims for unemployment insurance actually rose by 36,000. An analyst from the Labor Department said that much of the increase is due to the administrative backlogs left over from the holiday season in the state agencies that process the claims.

Regardless of the ups and downs shown week to week, the economy is not consistently generating net increases in jobs. After adding only 4,000 jobs in November, which was the first increase in nearly two years, in December employers cut 85,000 jobs. Many economists say the four-week average of claims will need to fall to below 425,000 to signal that the economy is close to generating net job gains. Unfortunately, the four-week average rose for the first time since August to 448,250.

The number of people continuing to claim regular benefits dropped slightly to just under 4.6 million. However, this data does not include millions of people who have used up the regular 26 weeks of benefits customarily provided by states and are now receiving extended benefits for up to 73 additional weeks, which is paid for by the federal government. Over 5.9 million are receiving extended benefits in the week ended Jan. 2, which is an increase of more than 600,000 from the previous week.

These numbers demonstrate that even as layoffs are declining, hiring has not picked up, leaving people out of work for extended periods of time.

California has had the largest increase in claims, with 16,160. Texas, Florida, Pennsylvania and Georgia have the next largest increase. Oregon has had the biggest drop in claims, of 5,784, followed by Iowa, Kentucky, Michigan and Massachusetts.

There are positive forecasts out there as well. Because unemployment claims have been on a steady drop since last fall as companies cut fewer jobs, some economists hope that hiring will soon increase. Another report suggests that economic growth could pick up this spring.

Other economists, however, have been worrying that growth in the economy will stagnate this year as government support programs wind down and unemployment remains high.

Georgia Personal Bankruptcy Filings Continue to Increase

According to a recent article regarding Georgia bankruptcy published in the Atlanta Journal Constitution, it is nothing new that Georgia has one of the highest bankruptcy rates in the nation. What is new, suggests the AJC article, is who is filing: large numbers of people who have not previously had problems with financial instability.

With unemployment exceeding 10 percent, a real estate market in shambles, and many laws in place which support creditors, Georgia has had one of the highest bankruptcy rates for years. In 2009, and even here in early 2010, the numbers of people in Georgia filing personal bankruptcy continue to increase. These increasing numbers are partially the result of the large numbers of filers who are experiencing financial instability for the first time.

Richard Thomson, a partner at the Atlanta-based bankruptcy law firm Clark & Washington, said his firm is taking on an increasing number of higher-income professionals as clients. These higher-income filers simply can’t pay for all of their assets and possessions – boats, expensive cars, etc. As a result, they are filing bankruptcy as a means to start over, and their possessions are often given up as part of the process. According to Thomson, “They’re just saying ‘Take it. It’s not worth the effort anymore. I can’t keep up with it.”

Susan Blum and I are seeing the same trends here at Ginsberg Law Offices.   While our firm has regularly handled cases for formerly high earners and individuals with substantial assets, we are seeing more and more people who start our meetings by saying "I never in a million years thought I would ever end up talking to a bankruptcy lawyer…."   In many cases, clients who had previously enjoyed a comfortable lifestyle wait until disaster is about to strike before calling our office, perhaps in the expectation that their situations will improve.  And more and more of these clients are turning to a Chapter 7 liquidation rather than a Chapter 13 reorganization.

More Chapter 7 Cases Being Filed

According to the National Bankruptcy Research Center, over half of Georgians filing between January and November 2009 filed Chapter 7 Bankruptcy. In a Chapter 7, most debts are wiped out, but so are assets that aren’t protected by exemptions – second cars or vacation homes, for example. 47 percent filed Chapter 13 Bankruptcy, which allows consumers to hold on to a house and car but requires that they repay a portion of their debts generally over a five year period. A Chapter 13 is more or less a reorganization of debt.

These percentages are new for Georgia, which traditionally has been dominated by Chapter 13 filings, as debtors were most concerned about holding onto a house and accumulated equity. Currently, many homeowners have little equity or owe more than their houses are worth, which may be one reason for the spike in Chapter 7 filings.

According to Consumer Credit Counseling Service of Greater Atlanta, one in five consumers receiving recent pre-bankruptcy counseling said avoiding foreclosure was the primary reason for seeking bankruptcy protection. Georgia’s foreclosure process is the fastest in the nation, as it occurs without court or government supervision and takes only a week. A bankruptcy filing is the only realistic option for most Georgians seeking to delay a public auction of their homes.

I (Jonathan) have been representing individuals in Chapter 7 and Chapter 13 cases for over 20 years and I can only remember two or three times when the demand for our services was so high.  The Congressional Budget Office says that the recession is over but I am not seeing any indication that this is true.

Consumer Price Data Paints Bleary Picture of 2009

The U.S. Labor Department released its monthly Consumer Price Index data, and the numbers confirm what most Americans can already sense: the recession continues to exact its toll. Here's a look at the numbers for the whole of 2009.

Overall: Consumer Prices Up 2.7 Percent

During 2009, consumer prices rose a collective 2.7 percent, a jump that, according to the Labor Department, was led largely by increased energy prices. In other areas, prices actually fell over the last 12 months:

• Food: In 2009, food prices dropped by 0.5 percent, with food consumed at home dropping 2.4 percent and food away from home actually rising 1.9 percent.
• Energy: Here’s where the biggest jump occurs. Energy costs increased 18.2 percent, with a 53.5 percent increase in the cost of gasoline and a 6.5 increase in the price of fuel oil.
• Everything Else: The umbrella category that includes all consumer goods but the two above saw a 1.8 percent rise during 2009, with increases in everything from clothing to cars to medical services.

So how does the overall 2.7 percent increase in prices compare to recent years? Not too well, it seems. In 2008, prices rose a scant 0.1 percent – though both last year’s change and 2008’s were heavily influenced by fluctuating energy prices.

The core inflation rate, which adjusts price rises with changes in income levels, rose 1.8 percent in 2009, the same figure as that for 2008, and a relatively small number.

Weekly Wages Fall

In addition to prices inching up, Americans saw their weekly wages dip by 1.6 percent in 2009, meaning their buying power has shrunk considerably since a year ago. Last year’s drop was the largest since 1990.

While the picture overall is still pretty bleak, there’s a spot of light in all the clouds: commentators note that because inflation has remained modest, the Federal Reserve will likely keep key interest rates low to stimulate borrowing and help the economy pick up vigor.

The drop is purchasing power also points to the 1.44 million consumer bankruptcy cases filed in 2009.

Additional Resources

Department of Labor January 2010 Consumer Price Index Report (PDF)

Tags: Individual Voluntary Arrangement, Insolvency Service, Ltv, Metaphor, Statistic

Stricter Mortgage Lending Regulations Implemented

As many people now know, the current recession was touched off by the collapse of the real estate market, which ballooned out of control in the mid-2000s.

Now, according to CBS News, mortgage lenders have learned a tough lesson and are changing the way they do business. Here’s a look at some notable changes and why they’re cropping up.

Big-Time Losses

During the subprime lending boom, many lenders (including big players like Fannie Mae and Freddie Mac) offered high- or variable-interest loans, no-down-payment loans, and other types of loans that people were unlikely to pay off easily.

Now, many of those loans have gone bad, meaning that the borrowers were unable to make payments and the houses in question have gone into foreclosure. Lenders are thus writing off (that is, accepting as lost) billions of dollars in bad debts – and they have to do something about it.

• Credit score requirement: In the era of subprime lending, people with low credit scores were often specifically targeted for high-interest loans. Now, according to sources, Fannie Mae will not issue loans to anyone whose FICO credit score is below 620.
• Equity requirement: If you’re looking to refinance your current home loan, lenders now require you to have some equity (that is, some amount of the principal paid off) in your original loan.
• Down payment a must: In the olden days, buying a house without a down payment was unheard of; the subprime lending "innovations," though, introduced loans with no down payment required. Major lenders, it seems, are returning to the traditional wisdom that you must pay a significant amount of money up front.
• Debt-to-income ratio consideration: Fannie Mae has also reportedly announced that it will not lend to anyone whose debt-to-income ratio rises beyond 45 percent – that is, in order to get a loan, you must not pay more than 45 percent of your monthly income on all debt payments (including car, credit card, student loan, etc.) combined.

So what does this mean for people thinking about buying a home? Basically, it means you need to be at the top of your game financially. You should be checking your credit report regularly and making sure you’re an attractive candidate to home lenders – and if you aren’t right now, it’s time to take steps to become one.

Additional Resources

Home Buying Brochure

Tags: Bankruptcy Chapter 13, Debt Payments, First Meeting, Good Solution, Trus

Bankruptcy Debtor’s Plan To Convert Credit Card Debt To Cash

Most people who file bankruptcy do so reluctantly and as a last resort; most bankruptcy debtors are honest people who would pay back every penny if they could afford to do so. Most of my clients feel horrible and ashamed about bankruptcy. And then, there are people who use bankruptcy to make money and wring every dollar they can from their lines of credit and credit cards.

Here’s this week’s bankruptcy scam-plan. A client consulted me about a future bankruptcy filing. I told him he had to postpone bankruptcy because his recent repayment of a loan created a creditor preference issue. Since he had to delay bankruptcy anyway, he asked me about his plan to make the most of it. He would use his untapped credit cards to buy department store gift cards. He did not want to use the cards to shop at department stores. What he planned to do is to sell the gift cards for cash, at a discount, over a web-based gift card market. He would run up credit cards to their limit to buy the gift cards, sell the card for cash, and put the cash in his pocket. Then, he would wait several months until the credit charges "aged" before he would wipe out the credit cards in a bankruptcy. The cash, of course, would not be disclosed. Pretty slick.

Naturally, I told this person that I could not be the attorney who would file his bankruptcy knowing what I know. Nor, could I advise him about his plan because I can not help him steal money from banks. When it comes time he’ll find another attorney for the bankruptcy and disclose nothing about the gift card purchases or the cash, and the truth is he’ll probably get away with it.

There are creditors who abuse honest debtors, and then there are debtor who cheat the banks. There are bad actors on both sides. Its not bankruptcy, its not banks, its just people.

Research Suggests Ways to Spend Smarter

High unemployment rates and sluggish recovery in the job market mean that many Americans are still budgeting carefully and watching every penny that leaves their wallets. It’s times like these when studies like the one conducted by researchers at San Francisco State University can help us make important spending decisions.

Memories Last Longer than Stuff

The new budget study examined recent purchases made by adults enrolled at SFSU. Here's what the researchers discovered:

• Happiness from things fades. On average, researchers found, the thrill brought about by new objects faded in six weeks to three months. This means that, no matter how much you love that new computer, dress or TV, you will get used to it in a few months and the pleasure it brings you will dwindle.
• Happiness from memories lasts. On the other side of the coin, the pleasure induced by spending money on experiences (like sporting events, plays, hikes, etc.) endures, thanks to our ability to remember and relive these experiences.

So how can you use this information to make the most out of the money you have for leisure? Focus on participating in events rather than accumulating goods. And, suggests the study, recruiting friends and loved ones to join you is a particularly useful way to make sure you enjoy yourself and create enjoyable memories.

Here are some ideas to consider when thinking about an experience (rather than an object) to spend money on:

• Take a class. Many community colleges and organizations offer continuing education departments that offer fun classes like ballroom dancing, cooking, yoga or sculpture.
• See a play. Check local newspapers or schools for events put on by community and school theatre or music groups. Bonus: these are often low-cost outings.
• Plan a picnic. Even in bad weather, you can organize a picnic indoors to shake up the monotony of chilly days. Team up with friends and make everyone responsible for one part of the meal. Or have everyone agree to bring a dish they've never had before.
• Be a tourist at home. Spend a day visiting museums or landmarks close to home that you've never actually explored. See what you can learn about your hometown.
• Get lost. Team up with a friend and try to get lost. Then spend the day driving or walking around areas you’ve never seen before. Take pictures as souvenirs.

Giant Debt Collector Law Firm Mann, Bracken Out of Business

A number of stories have recently appeared in bankruptcy and consumer rights blogs suggesting that the Atlanta based collection firm Mann, Bracken, LLC has gone out of business.   On his Caveat Emptor blog, Minnesota bankruptcy attorney Sam Glover has written several posts about the Mann, Bracken firm including one on December 22, 2009 stating that the calls to the firm's phone number instructs callers to communicate directly with their creditors.   I called several numbers listed for Mann, Bracken but the calls were answered by a message that "all circuits are busy, try your call again later."

Although based in Atlanta, Mann, Bracken has a national practice and it has apparently been growing by merging with other law firms.   I found a web site called paymbw.com which purports to be a payment gateway for debtors to make electronic check or credit card payments on debts being handled by Mann, Bracken.  This site notes that Mann, Bracken is the successor by merger to Wolpoff & Abramson L.L.P., and Eskanos & Adler P.C., two collection law firms well known to debtor's lawyers.

The domain mbllc.com has a "coming soon" page and the registration information for that domain is private.   I looked up the contact information for the partners.  Douglas Mann's shows him as an inactive lawyer affiliated with Mann, Bracken.  Chris Bracken's registration shows a gmail.com email address, a business address at Mann, Bracken's location, but the space for the law firm information is blank.  Two other partners – Bill Layng and Steve Knezo – are now affiliated with other law firms.

Atlanta TV station WSB sent a crew to the Mann, Bracken offices and found deserted premises along with handwritten placards stating that the firm has closed down.  According to WSB, Mann, Bracken was associated with a large debt collector called Axiant, which is now in Chapter 7.

Based on all the information I can gather, the law firm of Mann, Bracken is no more.  However the demise of this firm does not mean that debts owed to clients of Mann, Bracken or Axiant are no longer collectible.   Apparently another large debt buyer/collector, NCO, has purchased or is about to purchase Axiant's accounts.

If you had a deal with Mann, Bracken to settle your debt, you may find that the underlying creditor or a subsequent collection agency may not honor your deal – so hold on to any paperwork you may have.  As attorney Glover notes on his blog, you should contact your creditor directly if you have previously been dealing with Mann, Bracken.

December Unemployment Unchanged at 10 Percent

The Bureau of Labor Statistics has released its most recent unemployment numbers (for December 2009), and they paint a gloomy picture of the U.S. job landscape.

While the actual unemployment rate and number of unemployed people in the country remain unchanged from the last recorded period (10.0 percent and 15.3 million, respectively), certain figures point to a dismal immediate future.

Unemployment by the Numbers

Here's a look at a breakdown of the current unemployment figures for the United States:

• Adult men: 10.2 percent
• Adult women: 8.2 percent
• Teenagers: 27.1 percent
• Whites: 9.0 percent
• Blacks: 16.2 percent
• Hispanics: 12.9 percent
• Asians: 8.4 percent

While these numbers represent little movement in either direction from the BLS's last report, they also don’t paint the whole picture. For example:

• Long-term unemployment continued its upward movement, reaching 6.1 million people who have been without work for 27 weeks or more, composing approximately 40 percent of the total number of unemployed people.
• The number of underemployed people remains at 9.2 million – though these people are working, they have fewer hours than they’d like because of economic restraints.
• A whopping 929,000 workers are considered "discouraged," meaning they’re out of work and they would like to work but have stopped looking for jobs because they believe none are available. A year ago, the number of discouraged workers was only 642,000.

Perhaps unsurprisingly, job losses continued in certain sectors (including construction, manufacturing and wholesale trade) and increased in temporary help services (likely from holiday hires).

Looking Ahead

So what do these numbers mean for the future of the U.S. economy and job market? Some analysts suggest the unemployment rate will actually get higher as the economy begins to pick up.

This may sound counter-intuitive, but makes sense upon closer examination: as the economic situation improves nationally, more people will likely enter the work force, believing more opportunities for work are available. And, even if more jobs do crop up, they may not keep pace with the number of new workers seeking employment.

For now, the problem of long-term unemployment continues to plague Americans: the average length of time without a job was 29.1 weeks as of December, which is apparently the highest average since 1948, when records were first kept.

Additional Resources

Employment Situation (BLS News Release, January 2010)

Decade in Bankruptcy: 13 Million Consumer Filings

In a decade with two recessions, two wars and skyrocketing unemployment, bankruptcy became a financial safety net for a record 13 million Americans.

It's no wonder that Time called it the decade from hell.

Between January 2000 and December 2009, 13,363,085 personal bankruptcy petitions were filed as Americans attempted to defy debt, stop foreclosure and get a fresh financial start.

A large percentage of those came in 2005, when a new bankruptcy law threatened to make it more difficult to file Chapter 7 bankruptcy. More than 2 million bankruptcies were filed that year, as consumers rushed to beat the October deadline.

The decade total was an increase of nearly 29% over the bankruptcies filed in the 1990s.