Bankruptcy Questions Answered

Housing Prices Hit Eight-Year Low

The latest figures from Standard & Poor’s Case-Schiller Index show that the double-dip in the housing market many economists feared is now a reality. In other words, according to sources, housing market prices have taken another nosedive and home values are now near the same level they were in mid-2002.

How much of a dip is this second downward spike? Reports indicate that:

• The first quarter of 2011 saw a 4.2 percent decline in home prices.
• In the final quarter of 2010, prices dropped 3.6 percent.
• Home prices are currently 5.1 percent lower than they were this time last year and, according to Standard & Poor’s, have reached a new low even for the recession.

If all this sounds like bad news, the kicker is that the cycle of foreclosures and lowered home values seems unlikely to end any time soon.

Gloomy Outlook for the Housing Market

Consider these troublesome figures.

• About 1.9 million homes in the U.S. are currently in some stage of foreclosure, according to RealtyTrac, a company that keeps track of such things.
• Housing prices fall when supply is greater than demand (that is, when there are more homes available than people looking to buy).
• Right now, supply is skyrocketing: empty foreclosure properties are common sights in many states, and apparently nearly two million more are about to follow.
• Unfortunately, demand is also fairly low: many Americans are still skittish about their employment situation and unwilling to take on the burden of a mortgage. Further, many banks have tightened lending standards, making mortgage loans harder to come by even for those interested in buying.
• On top of all this, sources note that as many as 28 percent of U.S. homes are currently underwater, meaning that the owner owes more on the mortgage than the home’s current value. Underwater homeowners may find themselves in foreclosure down the line, whether by strategically defaulting or by being unable to make payments.

Can Chapter 13 Bankruptcy Help?

In the past, Chapter 13 bankruptcy has often been heralded as a way to stave off or prevent foreclosure for some filers. The question of whether Chapter 13 could help some of the millions of Americans who might have mortgage foreclosure in their future is a complex one.

Chapter 13 may work for some people facing foreclosure, but only if those people have sufficient income to make regular payments according to the repayment plan. In other words, if you’re in danger of losing your home because you lost your job, Chapter 13 may not do the trick.

One interesting note, though, is that some sources have reported bankruptcy judges ruling for mortgage cram-downs in Chapter 13 cases, despite laws that prohibit such rulings.

Posted in Bankruptcy and the Economy, Economy, Foreclosure, Mortgage Foreclosure, housing market, recession | Comments Off

Bankruptcy Filings Dropped in April

Recently released numbers on personal bankruptcy filings show that April’s numbers were down from both March 2011 and April 2010, more or less following the trends that experts have predicted for the remainder of this year. Here’s a closer look at the specifics, and what this means for you.

Breakdown of April Bankruptcy Figures

• The 21 business days in April saw 130,000 total bankruptcy filings, which comes to 6,177 filings per business day.
• The number of filings shows a decline of 2.9 percent from March, and 7.1 percent from April 2010.
• So far this year, filings have decreased each month at a rate somewhere between 5.6 percent and 8.2 percent compared to 2010 numbers.
• In the past 12 months, 4.9 in 1,000 people have filed bankruptcy petitions. The number in 2004 (before the new bankruptcy law was passed) was 5.5 per thousand.

According to these statistics, April 2011 bankruptcy numbers suggest a decline in bankruptcy filings both compared to recent months and to last year. Bankruptcy filing rates, though not as popularly cited as unemployment numbers, can be used to offer at least a partial picture of economic recovery.

Projected Bankruptcy Filings for 2011

Based on the numbers for April and 2011 so far, predictions for total bankruptcy filings this year include the following:

• 1.475 million bankruptcy filings if Americans continue filing at the daily average rate (5,876) for the first four months of 2011 combined;
• 1.525 million bankruptcy filings if we continue at April’s daily average rate (6,177); or
• 1.499 million bankruptcy filings if the last eight months of the year make up the same proportion of filings as they did in the last two years.

How does that compare with the recent past? In 2010, the country had 1.56 million total filings; in 2009, the total was 1.474 million; and in 2008, 1.118 million. If filings stay on track, then, it looks like 2010 might have been the peak year for bankruptcy filings and 2011 will be the beginning of a decline.

There is no guarantee, however, that bankruptcies will steadily decrease. After all, the housing market is still glutted with foreclosure properties and home prices don’t seem to be rising. As a new wave of foreclosures begins to affect homeowners, combined with sluggish growth in the jobs sector, the need for bankruptcy protection could climb or remain constant for a few years to come.

Bankruptcy Filings and the “New” Law

If nothing else, these latest bankruptcy numbers suggest (once again) that the Bankruptcy Abuse Prevention and Consumer Protection Act passed in 2005 had little real effect on bankruptcy filing totals.

Those truly in need of the financial relief and protection bankruptcy offers are still largely able to get that help from the bankruptcy court, despite the tightened restrictions the law introduced.

Posted in Bankruptcy Statistics, Bankruptcy and the Economy, Economy, Filing Bankruptcy, year in bankruptcy | Comments Off

Study: Bankruptcy Considered or Filed by One in Eight Americans

A study recently published by the web site Find Law indicates that a considerable percentage of the U.S. population (one in eight survey respondents, or nearly 13 percent) has either considered filing for bankruptcy or actually done so.

That figure may seem high, but in a nation of consumer debt, depreciating home values and a limited job market, perhaps it’s no wonder that so many of us are in need of serious the serious financial protection and debt relief that bankruptcy can offer.

Who Is Considering Bankruptcy?

The study breaks down potential bankruptcy filers in part by age:

• Americans between 35 and 54 are reportedly the group most likely to consider bankruptcy as an option.
• Americans 18 – 34 and 55 and older are, according to sources, half as likely as the middle age group to consider or actually file for bankruptcy.
• Senior citizens (those 65 and older) are apparently the least likely group to consider bankruptcy as a debt relief option, at only seven percent.

How Have Bankruptcy Filing Numbers Changed in Recent Years?

Sources indicate that in 2010, 1.5 million Americans actually filed for bankruptcy protection. This number marks the highest annual total since 2005, when the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) took effect and tightened the standards for those interested in bankruptcy protection.

Why Do So Many People Need Bankruptcy Protection?

While no two bankruptcy cases are alike, bankruptcy filers often note common triggers that led them to seek the protection of the bankruptcy court. These include:

• Unexpected medical expenses: Illness and injury can both cause serious medical bills to build up, particularly for those people who are uninsured or underinsured. And even an otherwise happy event, like the birth of a child, can prove very expensive.
• Change in family makeup: Divorce and death are difficult to deal with on their own, but are often compounded by the financial troubles they cause. Many families are forced to face unpleasant financial realities after divorce or death carries off a primary breadwinner.
• Job loss or reduction: Even good employees are at risk of losing their jobs in the current economic climate, and even though layoffs have slowed in recent months, the unemployment rate remains high. It’s no secret that this type of financial burden can lead a household to seek bankruptcy protection.
• Fear of foreclosure: Even those with good health and steady jobs may find themselves unable to keep up with their mortgage, and some families opt to file for bankruptcy in hopes of fending off mortgage foreclosure.

Considering the many factors that can contribute to a household’s decision to file for bankruptcy protection, it may be a wonder that only one in eight Americans has thought about personal bankruptcy!

Posted in Bankruptcy, Bankruptcy News and Events, Economy, Filing Bankruptcy, Setting the Record Straight about Bankruptcy, bankruptcy study | Comments Off

Lawsuit Alleges Mortgage Fraud by Deutsche Bank

News reports this week announce that the U.S. Department of Justice has initiated a lawsuit against Deutsche Bank, one of the world’s largest, claiming that the institution lied to federal regulators in order to secure taxpayer-funded insurance for less-than-secure mortgages.

Here’s a look at the details and some of the underlying issues.

The Charges against Deutsche Bank

According to the lawsuit, Deutsche Bank and its subsidiary MortgageIT:

• Initiated risky mortgage loans to homebuyers. Some of these loans may have been subprime, and since their initiation, sources indicate, about a third have defaulted.
• Lied to federal regulators. While the loans themselves may have been a bad move financially, what interests prosecutors is what happens next: that Deutsche Bank allegedly lied to officials with the Federal Housing Authority (FHA) in order to secure insurance for the shoddy loans.
• Got taxpayer-backed insurance for questionable loans. Because of its reportedly false claims that it was evaluating its mortgages for default risk, Deutsche Bank managed to secure FHA funding (which comes from tax dollars) for the questionable loans.
• Required money from the government when the loans defaulted. Now, as many as 12,500 of Deutsche Bank’s loans have apparently defaulted (meaning that the homes have gone into foreclosure), leaving the government responsible for covering the losses. The money goes to those investors who own the mortgage debt. Sources note that, to date, defaulted Deutsche Bank loans have cost the government more than $386 million.

Because of all these allegations, the Justice Department is reportedly suing the bank for $1 billion, an amount that represents the dollar amount lost plus individual penalties for each mortgage that went into default.

What Mortgage Lending Rules Were Broken?

The government’s lawsuit charges that Deutsche Bank and MortgageIT failed to follow the rules required of anyone interested in federal mortgage insurance. These rules require lenders to:

• Annually verify various records of mortgage borrowers, including credit reports, incomes and record of employment. This measure is to make sure borrowers are not at risk of defaulting.
• Examine any loan that goes into default shortly after being originated in an effort to prevent and eliminate careless lending techniques.
• Act in the government’s best interest, because any money needed to guarantee loans that defaulted would come directly from taxpayers’ pockets.

The lawsuit claims that Deutsche Bank did none of these things and so is both on the hook for the money lost by the government and responsible for paying penalties for breaking the rules of engagement for obtaining federal insurance.

Some sources suggest that the Deutsche Bank lawsuit could be the first of many; after all, reckless lending techniques were fairly common during the housing boom that touched off the current recession.

Posted in Bankruptcy and Predatory Lending, Consumer Protection, Economy, Mortgage, Mortgage Foreclosure, predatory lending | Comments Off

The Truth About Bankruptcy: Report Shows Many Wages Unlivable

A recent press release from a group called Wider Opportunities for Women reveals what many families struggling to make ends meet already know: many families with breadwinners employed full-time are unable to earn enough money to ensure a basic standard of living.

The study (discussed more below) highlights the troubling economic reality that many Americans face and could potentially help to de-mythologize the reasons people are pushed to file for bankruptcyprotection.

The Basic Economic Security Test

Here’s some background about the study and its findings.

• Data collected since 1995: Over the past fifteen years, WOW has gathered data from state and federal pools (including census reports) to attempt to determine how much income is required to establish economic security across the country. The study attempts to determine not what people can survive on minimally, but how much they need to earn in order to achieve stability without help from public assistance.
• Economic security numbers: The study found that a single person would need to earn $30,012 per year (about $14 per hour), a single person with two children $57,756 annually (about $27 per hour), and a family of four $67,920 per year ($16 per hour for two workers) to establish economic stability.
• Minimum wage not enough: Compare the above numbers to the federal minimum wage ($7.25 per hour) and to the income identified as poverty-level for those groups ($10,830 for an individual and $22,050 for a family of four) and it’s easy to see that current diagnostic standards for “poverty” are somewhat misleading. Sources report that more than 14 percent of Americans lived below the poverty line in 2009.

Financial Stability, Emergencies and Bankruptcy

Given these numbers, it’s no wonder that millions of Americans require help from the bankruptcy court each year. One essential part of economic stability, as the report highlights, is being able to save money for emergencies. And, on bankruptcy filing surveys, filers commonly cite as reasons they filed financial emergencies such as:

• Illness or injury that led to high medical costs and/or job loss;
• Job loss, layoff, or reduction;
• Family events such as divorce, the death of a family member and the birth or adoption of a child;
• Over-extension on credit (which can result from relying on credit to buy necessities); and
• Unexpected expenses (like a car or home repair).

Recession Hurting Many Families

The study also showed that Americans with less education have the most difficulties finding jobs with livable wages, and that more low-income families than ever have reported not being able to afford basics like food within three months of losing their income.

Posted in Bankruptcy, Economy, Setting the Record Straight about Bankruptcy, debt, jobs, statistics | Comments Off

One Bandwagon to Hop on: Credit Card Spending Down

Consumer credit use has dropped since the beginning of the Great Recession, which seems like good news for a country plagued by excessive consumer debt (often in the unhealthy, revolving credit-card type), as a recent report from Credit.com notes.

Here’s a look at some potential causes of that dip and how you can resist the urge to spend, even if you’re surrounded by good-time plastic-swipers.

What Do Lowered Credit Card Debt Numbers Really Mean?

The easy assumption is that Americans are purchasing less on credit and/or paying down the debt they currently have. But, according to some insiders, that may account for only part of the decrease in credit card debt we’ve seen lately. Here are some other potential causes:

• Credit card issuer charge-offs: Credit card companies make a lot of money from fees and interest, but they also end up "charging off" a lot of debt each year. Of course, they can afford to do this because of all the other income they collect, but still. When a customer files for bankruptcy and has her credit card debt forgiven by the court, the company generally writes that off as lost revenue. Similarly, if a consumer simply cannot pay, the issuer may sell the debt to a collection agency and charge off that debt. These numbers may not show up in the report of how much credit card debt Americans are currently holding, so we may have racked up more than we actually have to pay off.
• Tightened lending standards: Another result of the credit crisis we’ve found ourselves in is that lending standards for ordinary Americans have gotten tighter than ever before. This means that, even if an ordinary consumer may want to take on more debt, he may not be able to because nobody will lend to him. While this reads on a numbers-only report like lowered consumer debt, it can be a bad thing if consumers need access to lines of credit to buy cars or homes.
• New credit card rules: Finally, some analysts have suggested that the new rules introduced by the Credit CARD Act have given consumers a better idea of what they’re getting themselves into when they sign up for credit cards, and thus acted as a preventative measure against excessive consumer debt.

Climb Aboard the Less-Debt Ship

So how can you take advantage of this trend to help improve your personal financial situation? Check out these tips on avoiding over-spending when you’re out with non-frugal buddies. Suggestions include:

• Stick with cash so you don’t get caught with other people’s meals or drinks on your card;
• Pretend you’re coming down with something to avoid being pressured into pricey drinks with dinner;
• Think up something big you can say you’re saving for to avoid endless purchases… and then really save; and more.

No matter what your reasons for improving your financial profile, these tips should help you get a head start.

Posted in Bankruptcy and the Economy, Consumer Credit, Credit Cards, Credit and Bankruptcy, Economy, consumer debt | Comments Off

A Look at Consumer Debt Where You Live

Though the U.S. economy is certainly not in top health just yet, a number of indicators suggest that we may be pulling out of this recession – but that may be a mixed blessing for many consumers.

Two recent reports (one from the Federal Reserve and one from CareOne Services) suggest that Americans have started spending more, which may be good for the economy overall, but could be a bad thing for individual debt loads.

Consumer Debt, State by State

The CareOne Services report examined 135,000 people across the country who were active in some sort of debt management program in 2009 or 2010 and found that, among that group, the average debt load was more than $10,000 in every state.

Here’s a look at the top of the heap for unsecured debt in the U.S.:

• Delaware: Average consumer debt is $20,233, spread over seven creditors.
• Rhode Island: Average consumer debt is $20,130, spread over seven creditors.
• Maine: Average consumer debt is $19,454, spread over six creditors.
• Alaska: Average consumer debt is $19,225, spread over six creditors.
• Colorado: Average consumer debt is $18,811, spread over six creditors.
• South Dakota: Average consumer debt is $18,707, spread over seven creditors.
• North Carolina: Average consumer debt is $18,536, spread over six creditors.
• Connecticut: Average consumer debt is $17,334, spread over six creditors.
• Wisconsin: Average consumer debt is $16,903, spread over five creditors.
• Alabama: Average consumer debt is $16,591, spread over seven creditors.

The ten states that had the lowest debt totals for those seeking debt settlement or debt management services are:

• California: Average consumer debt is $12,801, to five creditors.
• Michigan: Average consumer debt is $13,328, to five creditors.
• Mississippi: Average consumer debt is $13,512, to six creditors.
• Vermont: Average consumer debt is $13,707, to five creditors.
• Missouri: Average consumer debt is $13,737, to six creditors.
• Indiana: Average consumer debt is $13,945, to five creditors.
• Kentucky: Average consumer debt is $14,028, to six creditors.
• Iowa: Average consumer debt is $14,099, to five creditors.
• Virginia: Average consumer debt is $14,194, to five creditors.
• Tennessee: Average consumer debt is $14,222, to six creditors.

Increased Spending, Increased Debt, Increasing Need for Debt Relief?

During the holiday season, many economists seemed cheered by the increases in consumer spending, but personal finance advocates may find the same numbers troubling. The Fed’s report shows that our nation’s revolving debt (which basically means credit card debt) rose by 3.5 percent in December of last year.

Further, though our total amount of revolving debt apparently dropped in 2010, it dropped by a smaller amount than in 2009. This could mean that people are optimistic about the job market and the economy in general, but it could also mean they’re turning to their credit cards for necessities they can no longer afford thanks to rising prices or decreased income - and risk taking on more debt than they can handle and heading towards bankruptcy.

Posted in Bankruptcy and the Economy, Credit and Bankruptcy, Economy, consumer debt, recession | Comments Off

Avoid Refund Anticipation Loans this Tax Season!

If you’re counting on a tax refund this year, you may have heard of refund anticipation loans (or RALs), which some tax-preparation services offer to people as part of tax preparation services. But these loans, as most consumer advocates will agree, are not a good deal for you the consumer.

Here’s a look at why tax refund anticipation loans (sometimes called a refund anticipation check) may not be all that they're promised, and what the federal government is doing to help you avoid them.

Why RALs Are a Bad Financial Move

So what is a refund anticipation loan? Basically:

• It’s a cash advance loan that charges you a high interest rate to get some of your tax return dollars earlier than you would have otherwise gotten them.
• Some tax preparation services offer them to customers who are expecting a tax return that year. Generally, a customer can receive the money for a “fee” of some kind – just like a payday loan. In fact, RALs are very much akin to payday loans: their “fees” are just high interest rates disguised to look harmless.
• RALs eat into whatever tax return you can expect to get. After all, you have to pay for the privilege of receiving your money early, and that money comes out of whatever you would have received from the federal government.
• RALs can also set you up for debt. What happens if there’s a mistake in your tax forms or if you end up getting a smaller return than you expected? If you take out a refund anticipation loan for the full amount of your return and then receive a smaller actual return from the government, you’ll still be responsible fore repaying the loan amount in full. Yikes.
• RALs may present a tempting prospect to unbanked Americans – after all, if you don’t have a bank account, waiting for a refund check from the government and then paying to have it cashed can seem like a waste of time and money. But paying for the RAL itself will almost always cost more.

So What Are the Feds Doing about the RAL Problem?

This year, the Treasury is launching a new program that offers an alternative to refund anticipation loans, particularly aimed at people without bank accounts who might be susceptible to the RAL’s siren song. Here are the gist:

• Debit card distribution: The Treasury will be sending debit cards pre-loaded with people’s refunds to 600,000 Americans selected at random to participate.
• Experiment to see what works: If the program proves popular, the pre-loaded debit card system could become standard practice in future years.
• Varied terms on cards: In order to test various features, the debit cards will come with a variety of features. Some will require no fees to make purchases or withdraw money from ATMs, while others will charge small fees to be activated, check balances or use at certain retailers.

The goal of this program, it seems, is to offer a lower-cost alternative to RALs and RACs to the people most likely to be tempted to choose them.

Posted in Bankruptcy and Predatory Lending, Economy, Financial Literacy, predatory lending, saving money | Comments Off

2011 may Be a Record Year for Foreclosures

Much has been written in the last few years about the foreclosure crisis that took hold once the housing bubble burst. And, according to the Associated Press, this year will not offer any relief – in fact, sources suggest, 2011 looks like it could see even more foreclosures than 2010 did.

1.2 Million Foreclosures Predicted for 2011

So why are news outlets and industry insiders predicting that 2011 will have more mortgage foreclosures than any year we’ve seen? A number of factors are apparently contributing:

• High unemployment: While the national unemployment rate has declined slightly since its peak of just above 10 percent, it’s still much higher than normal and millions of Americans without work are or will soon be unable to keep up with their mortgage payments.
• Plunging home values: Further, the crash of the housing market means that millions of homeowners are currently “under water” on their mortgages – in other words, they owe more than the home’s value and so have little incentive to pay their loans back.
• Delayed foreclosures last year: Another spur for 2011’s foreclosure season is the delays in foreclosure processing that happened at the end of last year: in addition to ordinary holiday moratoria on foreclosure proceedings, the robo-signing scandal halted foreclosures on many properties around the country. Those foreclosures that were delayed may now proceed normally.

A Look at the Numbers

So just how bad is the foreclosure crisis expected to get this year? The numbers provided by news outlets paint a pretty bleak picture:

• A reported five million borrowers are currently behind on payments by at least two months; without serious change in the employment scene, that number is likely to increase.
• It seems that as many as 2.9 million (that’s one in every 45) U.S. houses were in some stage of the foreclosure process last year. This could mean that the homeowners simply received notice of default or that the foreclosure actually took place.
• Apparently, five states are responsible for the bulk of foreclosures around the country, and insiders expect the pain to worsen in these areas: California, Arizona, Florida, Michigan and Illinois have reportedly accounted for about 1.5 million of the foreclosure notices received last year.

An End in Sight?

One source quoted in the Associated Press article seems to think that 2011 will show the “peak” of foreclosure filings in the U.S., which could be taken for either a good sign or a bad sign – 2009 and 2010 both set records for foreclosure volume.

And is there any hope if your home is nearing foreclosure? You may still be able to benefit from the protection of Chapter 13 bankruptcy (ask a lawyer for details), or perhaps from lowered mortgage rates. But many banks, it seems, are still less than eager to offer refinancing deals.

Posted in Bankruptcy and the Economy, Chapter 13 Bankruptcy, Economy, Foreclosure, Mortgage Foreclosure | Comments Off

Bureau of Consumer Financial Protection Overseer Named

The New York Times reported last week that the newly created Bureau of Consumer Financial Protection now has an overseer of enforcement. Richard Cordray, former attorney general of Ohio, was reportedly hired to the post by presidential appointee Elizabeth Warren, who is currently in charge of the bureau.

So what will Mr. Cordray’s responsibilities be in the new post? According to the Times, he’ll be focused on overseeing enforcement actions for a variety of consumer-related financial issues, including the following:

• Foreclosure fraud: Recent financial news like the robo-signing scandal and other questionable foreclosure practices would fall under Mr. Cordray’s purview, it seems. And, as sources note, he ought to be prepared to fight against such questionable bank behavior, since his position as Ohio’s AG included fighting certain kinds of foreclosure fraud.
• Abusive payday lenders: As many debt-laden Americans know, payday lenders can charge outlandish fees and interest rates and lead ordinary consumers into a crippling cycle of debt. As part of his position in the Bureau of Consumer Financial Protection, Mr. Cordray would be responsible for making sure that regulations and laws for payday lenders are sufficient, followed and enforced.
• Questionable bank behavior: On a grander scale, Cordray’s responsibilities may reach as far as making sure larger financial entities like banks and other lenders follow laws designed to keep them from engaging in the sort of risky, fast-and-loose behavior that led to the crash of the housing market and touched off the current recession.

Cordray’s Past Consumer Protection Actions

So how did Cordray get the job? It seems his résumé includes a variety of consumer-friendly moves, including:

• Lawsuits against big financial firms: The Times reports that Cordray managed to squeeze $2 billion from major names in the finance world, including American International Group (AIG), Merril Lynch and Marsh & McLennan.
• Bold strikes at government overseers: Another notch on Cordray’s belt, the Times notes, is that he called out the Securities and Exchange Commission (SEC) for falling down on the job and thus enabling many of the abuses in the finance world that led to our current financial mess.

Role of the Consumer Financial Protection Bureau

Many consumer advocates lauded the creation of the Consumer Financial Protection Bureau, which was outlined in the financial overhaul bill passed early in Obama’s tenure as president. When it is fully up and running, the bureau, headed by former Harvard bankruptcy professor Elizabeth Warren, will be responsible for making sure consumer interests are taken into consideration when lawmakers consider regulatory changes for financial and other matters.

Posted in Bankruptcy and the Economy, Consumer Protection, Economy, Financial Literacy, Foreclosure | Comments Off