The Bankruptcy Lawyers Blog

The Chicago Tribune ran an interesting article about attorney salaries last week.  Of course, the general public has a vision of attorneys as lining the walls with money--and maybe once upon a time many of us did, too.  In the 1980s, law was widely rumored to have the highest starting salary of any profession, and law schools quickly filled up with future professionals eager to partake of that benefit.

The reality, however, turned out to be very different for many attorneys, and one reason for that--and for the general misperception that a law degree is a ticket to easy street--is the gap between the highest earning attorneys and everyone else.

The Tribune article cites a study indicating that the bottom 3/4 of the legal profession has been steadily losing ground since 1975.  And "bottom" doesn't mean a whole heck of a lot when you're talking about 75%. That's most attorneys.  Of the roughly 44,000 graduating this year, about one-fifth is projected to earn "well into six figures" at their first jobs, while most will earn less than half of that.

There's good news, though.  One prevailing theory about the income gap in the law--and in many other fields--is that technology allows the "best of the best" a longer reach.  The high-powered among us can serve more clients as technology allows them to work more efficiently, and can reach a broader clientele as technology allows them to get in front of more people.

And that's true for all of us.

While the average attorney won't ever see the economies of scale that increase profits at the top level of the mega-firms to levels beyond the average wage-earner's comprehension or have a private jet at the ready to make it easier to serve clients around the world, improved technology does open up possibilities for all of us.

The explosive growth of the Internet and the increasing number of average citizens who seek information and services online has opened up a new and cost-effective means of expanding your marketing reach.  The ready availability of affordable case-management software , centralized sources for electronic delivery of your required documentation, and virtual assistants makes it manageable to handle a higher volume of cases.

If technology is, in fact, widening the income gap in the legal profession, perhaps it's only because the "bottom" 75% haven't fully taken advantage of those opportunities yet.

 

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It’s the time of year when many high school seniors are deciding which college they will be attending in the fall. In 2008, this decision-making has been marked by growing concerns about student loan availability during these troubled times for the U.S. economy. 

In the midst of the credit crunch, foreclosure crisis and housing market collapse, investors are staying away from asset-based securities that are often the source of funding for student loans, thus making it more difficult to obtain student loans, especially from private lenders. 

Just yesterday, The Education Resources Institute (“TERI”) announced that it voluntarily filed for Chapter 11 bankruptcy. Unfortunately, similar developments to what happened with TERI – the oldest and largest non-profit guarantor of private education loans in the country – have been witnessed with other lenders in the past couple of months:

• On February 27^th, the Pennsylvania Higher Education Assistance Agency announced that it would suspend federal-guaranteed loans beginning in early March;

• the Missouri Higher Education Loan Authority has temporarily stopped offering private loans not guaranteed by the government;

• the College Loan Corporation recently left the federal loan program; and

• Sallie Mae—the largest student lender—recently tightened its lending standards.

So in addition to becoming more difficult to obtain, student loans may also become more expensive to pay off as lenders like Sallie Mae tighten their lending standards and demand higher returns, which will likely translate to higher interest rates on these loans.

With private lenders struggling to get financial backing, it appears that many universities are going to have to turn to federal direct programs, once again indicating that students will likely have to foot an even larger bill since private lender rebates will not be as readily available.

A recent Wall Street Journal story detailed that, despite the growing need for a solution, the Department of Education has yet to outline emergency financial aid plans for those students unable to get loans from traditional sources. Congress has since urged the DOE to come up with a “lender of last resort” plan.

So How Does All of This Affect Bankruptcy Lawyers?

As bankruptcy lawyers, we often get questions about whether student loans are dischargeable in bankruptcy.

And while we’d tell consumers that most student loans cannot be discharged through a bankruptcy case, we’d also let them know that filing bankruptcy may help with a student loan situation through several different means:

• the automatic stay will essentially freeze any action by the student loan collection agency;

• Chapter 13 bankruptcy may help consumers consolidate student loans with the rest of their outstanding bills; and

• discharges of all unsecured debts in bankruptcy cases may free up expendable income for consumers to devote to their student loan payments.

With these things considered, we shouldn’t be surprised if we get more questions from consumers about the dischargeability of student loans, especially when those loans were from private lenders that may be forced out of business in the future as a result of the economy’s struggles.

Thus we need to be prepared for a great variety of questions on student loan dischargeability.

For example, could student loans be discharged if a school closes down? Find out by checking out this resource on the Federal Student Aid website.

In anticipation of such questions, please feel free to comment on this post and send any other information on the dischargeability of student loans that you think will be helpful to both attorneys and consumers.

We’d be happy to post such information and share your insight to help consumers wondering about obtaining or discharging student loans.

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Consumer bankruptcies are obviously a major focus of this blog. As bankruptcy lawyers, we have an interest in helping consumers attain a fresh financial start from debt by showing them how filing bankruptcy may be able to help them responsibly do so.

So while business bankruptcies may not get as much attention here, we all understand what happens when businesses accumulate massive debt and struggle -- it is employees who often suffer, either through the loss of jobs during mass layoffs, reductions of hours or other repercussions.

With all this in mind, Bankaholic recently provided a nice post on 8 Easily Avoidable Causes of Business Debt. Give the post a read -- it's definitely worth the time and a primer for what employers should keep in mind when running their business and providing for their employees.

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Donald Trump has done pretty well for himself financially, and that might equip him to give advice to those aspiring to become millionaires, but it appears that he's a little out of touch when it comes to issues like everyday people facing mortgage foreclosure.

Recently, The Donald decided to take a moment out to give those folks some advice on the Trump Blog, and it boiled down to this:  talk to your mortgage lender.

Trump did offer one piece of advice that makes sense, telling homeowners facing foreclosure to stay in their homes while they attempted to work something out.  But the rest of the post boiled down to a statement that the banks don't really want to foreclose, and will be willing to work with you.

It's an idea that makes a lot of sense in theory.  Why WOULD a bank want to spend the money to foreclose on a home—especially one that's worth less than the outstanding mortgage balance—and then have to turn around and sell that home, possibly at a loss, in order to recoup any of the debt on that house?  It seems, though, that when it comes to those struggling financially, Trump is stuck firmly in the realm of the theoretical; real life experience simply doesn't match his conjecture.

While Trump is cheerfully suggesting that it's easier to work things out than you might imagine, an NPR headline tells us that the Federal Reserve Chairman is urging banks to help borrowers more.   And the California Reinvestment Coalition (CRC) has just released a report tellingly titled The Growing Chasm Between Words and Deeds.  That study was based on the reported experiences of mortgage counseling agencies during December of 2007—a time during which podiums and news reports across the country were littered with positive statements about the great strides lenders were making toward working effectively with borrowers. 

Those agencies reported both foreclosures and short sales as "very common" outcomes during that period, and indicated that the concessions lenders were willing to make were often so short-term as to merely forestall the inevitable.

While this information is unsurprising to bankruptcy attorneys, who see clients every day who have tried and failed to work with their mortgage brokers, it seems that on this issue, one of the nation's most successful businessmen has been getting his financial information from press releases.

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Please note that bankruptcy cases filed on or after February 1, 2008 (today) will be subject to the Census Bureau’s updated median family income data and the Administrative Expense Multipliers.

You can check out the updated figures at the U.S. Trustee’s “Means Testing” page.

 

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Many commentators have suggested that President Bush's mortgage plan was intended to sandbag the effort to make home mortgages subject to modification in bankruptcy.  Naturally, mortgage lenders and investors would much prefer a plan that left the decisions in their hands to one that would allow bankruptcy judges to make the final call on new terms.

If that was the intention, it's not working--or at least not yet.  The effort took a giant step forward today when the House Judiciary Committee passed a compromise bill which is expected to reach the house floor early in the new year.

The bill would allow courts in Chapter 13 bankruptcy cases to modify the terms of subprime and non-traditional home mortgage loans originated between January 1, 2000 and the enactment date of the statute.

The battle is far from over, though:  the bill passed out of committee by a narrow margin (17-15), and there's surely more opposition ahead.

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After ten years of disingenuous representations by the credit industry as it lobbied for bankruptcy reform and the recent protestations of innocence over the BusinessWeek article revealing that many major creditors are selling debts that have already been discharged in bankruptcy, the Predatory Lending Association is a breath of fresh air.  It's outrageously funny simply be being...well...accurate.  Funny, that is, in the way of things we laugh about because the only other option is to cry.

The site offers a "working poor finder" and points out that the difference of "just a few blocks" can radically impact profits.  Consumer testimonials boast, "I would have been homeless two weeks sooner without my payday loan", and debunks "myths" like "Debt traps are a bad thing."

Of course, the payday lenders of America aren't really sponsoring the site, but it's not hard to imagine these words coming from their lips behind closed doors.  Underneath the entertainment, there's serious information about a serious subject, and links to some solid write-ups and research from the Center for Responsible Lending.  Check it out yourself for fun and recommend it to your clients so they know what they're up against.

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If you're in Las Vegas for the annual NACBA conference, stop by and visit the Start Fresh Today booth.  And, if you're not familiar with Start Fresh Today's products, sign up for a free debtor education course demo.  You can arrange an Internet-based or telephonic financial management course for your clients through Start Fresh Today, and purchase all of your due diligence products while you're there!

Demos will take place in the Murcia room of the JW Marriott on Thursday evening, October 25 at 7:00 p.m. and 8:00 p.m.  Each attendee will receive a free ticket to the Start Fresh Today / Total Bankruptcy fundraising party on Saturday evening and ten free tickets for raffles to take place during the party.

Whether or not you've got free tickets, join us for a good time and a great cause on Saturday night.  We'll be gathering at Nine Fine Irishmen from 8:00 to 11:00, and all proceeds will benefit the Clark County Pro Bono Project.  That's inside the New York – New York Hotel & Casino at 3790 Las Vegas Blvd. South.

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Word on the street (and in the New York Times) is that Senator Richard Durbin (D-IL) will soon propose legislation to amend the Bankruptcy Code in order to better protect American homeowners facing foreclosure. 

We don't yet know much about the "Helping Families Avoid Foreclosure Act" and it's provisions, except that it's slated to be proposed in September.  Let's hope it incorporates many of the suggestions set forth in the Joint Memo for Proposed Bankruptcy Law Reform: Solutions to Preserve Homeownership published by the National Consumer Law Center, the National Association of Consumer Bankruptcy Attorneys, the Consumer Federation of America, the National Association of Consumer Advocates, and the Center for Responsible Lending in April.

If you haven't yet read the proposal, it includes (among others) suggested amendments to:

• Eliminate the Chapter 13 prohibition on modification of loans secured by the debtor's primary residence;
• Extend the time allowed for repayment of claims secured by the debtor's residence;
• Allow for balloon payments to pay off home mortgages at the end of the plan; and
  
• Waive the credit counseling requirement when a foreclosure proceeding is in progress

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