The Bankruptcy Lawyers Blog

It might seem counterintuitive that many credit card companies would inundate the recently bankrupt with solicitations for new cards. It's especially perplexing that those same companies would do so after having spent more than eight years and $100 million lobbying Congress to protect them from irresponsible borrowers with a draconian new bankruptcy law.

But the truth is that credit card companies aren't all that interested in customers who pay their bills in full every month. They really want the so-called revolvers, people who don't cover their balances and pony up those juicy interest payments and fees. The tighter repayment provisions in the new law will encourage companies to trawl for even less-qualified customers.

This is all a stark reminder of just how one-sided the new bankruptcy law is. While access to Chapter 7 bankruptcy has been sharply curtailed in the law, which went into effect in October, credit card companies are welcome to keep stuffing mailboxes with pre-approved cards.

Legislators ignored the five billion solicitations for new cards sent out last year alone. They pretended that the blame for the rising number of bankruptcies and delinquencies lay solely at the doorstep of debtors who recklessly used bankruptcy courts to dodge their responsibilities. This year, we've set a record with more than two million people in this country declaring bankruptcy. And many of their doorsteps are littered with direct mail offering new, high-interest cards.

At the very least, the credit card industry shares responsibility for this surge in bankruptcy filings. And with the reams of data and advanced risk-modeling tools available to financial companies, it is fair to argue that they deserve the better part of the blame.

The industry would have you believe that lending to the recently bankrupt is a service. "The people coming out of bankruptcy need an opportunity to get back on their feet," a spokeswoman for the American Bankers Association was quoted as saying in a recent article in The Times. It is the standard excuse for irresponsible lending: serving the underserved.

Indeed, with the help of these second-chance Samaritans, bankrupt Americans can quickly assume a new millstone of debt - only this time it will be even tougher to escape. If Congress is going to leave its bankruptcy law on the books, it should at least demand as much responsibility from the lenders as it is forcing on the borrowers.

• Print
• Comments

If you've been using credit cards to do your holiday shopping, you might want to think again. Government regulators are urging banks to double the monthly minimum payments on credit cards. And if you're one of the millions of Americans who carries a credit card balance from month to month, you could be in for a real surprise when you get your next bill.

It's a last minute Christmas shopping rush. For people who buy with credit cards, it could take a while to pay off all those gifts. And with consumer debt up to two trillion dollars and 40 percent of credit card holders carrying a monthly balance, credit card debt is a huge problem in this country.

That's why banks are going to double minimum payments on those card balances, starting as early as next month.

We asked shoppers if they pay their entire balance every month.

"Heck no! It doesn't ever work that way. Not since I got my first card in 1963."

One man told us he's in so much debt, he wishes there was no such thing as credit cards.

"It's no good, it's better just to buy what you have in your pocket and then you don't have to worry about it later."

Even though the doubling of the minimum credit card payment might hurt some consumers, the government says it's being put into place to help them pay off their debt.

For example, if you have a credit card balance of $2,000 dollars with an 18 percent interest rate, it will take you 30 years to pay it off if you pay the usual 2 percent minimum payment. But with that minimum increasing to four percent, it will only take 10 years to pay off.

Diane Gaskill says she pays hers in full every month for that very reason.

"I know a lot of people who don't and are always worried after the first of the year and trying to catch up and save all their money so they can pay it off.

But for some, these credit card changes won't make an ounce of difference in their overall debt.

"Won't affect me a bit. Cause if I can't pay it at them minimum now, I can't pay it at the minimum rate then."

And with new bankruptcy bills in place now, it's even harder to wipe out consumer debt.

• Print
• Comments

The drop-off in consumer bankruptcy petitions since the nation's bankruptcy law changed belies the fact that there are still many Americans in serious financial trouble.

Bankruptcy filings peaked at a record of more than 315,000 a week before the law took effect Oct. 17 but have since fallen to a weekly rate of about 3,500, according to Lundquist Consulting Inc., a financial-information and consulting company based in Burlingame, Calif.

"As far as what's happening in the (bankruptcy) courts, it's like the snake that swallowed the rat," said Texas lawyer John Penn, who is president of the American Bankruptcy Institute in Washington. "It's going to take a while to digest, but the system will go on."

• Print
• Comments

Supreme Court Opinion: Lockhart v. United States, Dec. 7, 2005
6th Circuit Update Dec-15-2005
8th Circuit Update Dec-15-2005
10th Circuit Update Dec-15-2005

• Print
• Comments

The Budger Reconciliation Act, approved by the House of Representitives earlier this week and by the Senate yesterday, raised the fees associated with filing for bankruptcy. Under the new fee structure, the cost of filing a Chapter 7 bankruptcy will rise from $220 to $245, and the cost of filing for Chapter 13 bankruptcy will rise from $150 to $235. These prices still do not include the various fees found under 28 U.S.C. 1930 (b), which raise the costs to $299 to file for Chapter 7 and $274 to file for Chapter 13.

Chapter 11 bankruptcy filings were intended to increase in cost from $1,000 to $2,750, but due to an error in which section was cited in the bill, only railroad bankruptcy fees were raised for Chapter 11.

This increase was opposed by all democratic senators, and several republicans. It took the vote of Vide President Dick Chaney to break the tie and pass the act. This new fee structure has been put in place solely to raise funds, and at the expense of the Americans who can least afford it. The new fees do not go into effect until 60 days after the bill was passed, and it still must pass the House one more time, due to edits made by the Senate to avoid violating Senate budget reconciliation rules.

• Print
• Comments

"Newly Bankrupt Raking In Piles of Credit Offers"

By TIMOTHY EGAN

Re-Published from the New York Times: December 11, 2005

TACOMA, Wash., Dec. 9 - As one of more than two million Americans who rushed to a courthouse this year to file for bankruptcy before a tough new law took effect, Laura Fogle is glad for her chance at a fresh start. A nurse and single mother of two, she blames her use of credit cards after cancer surgery for falling into deep debt.

Kevin P. Casey for The New York Times

Laura Fogle, a nurse who lives in Tacoma, Wash., filed for bankruptcy, but that hasn't stopped credit lenders from seeking her business.

Ms. Fogle is broke, and may not seem to be the kind of person to whom banks would want to offer credit cards. But she said she had no sooner filed for bankruptcy, and sworn off plastic, than she was hit with a flurry of solicitations from major banks.

-----Brought to you by StartFreshToday.com - Your Complete BAPCPA Solution.--------

• Print
• Comments

By Gail Appleson, St. Louis Post-Dispatch

Debtors still can get a fresh start under new bankruptcy rules that took effect
Oct. 17, but changes in the law make it much more complicated and expensive.

The new law - the Bankruptcy Abuse Prevention and Consumer Protection Act of
2005 - aims to make it harder to escape debts; it requires an investigation
into whether people who want to declare bankruptcy can pay off at least some
bills.

But the new rules also introduced liability risks for lawyers, making it almost
impossible now to find one who's willing to take a pro bono bankruptcy case.

"No, this is not a good law," said William Mueller of the Law Offices of
Mueller and Haller, doing business as The Bankruptcy Center in Belleville.
Congress said it passed the hundreds of pages of changes to make people pay
creditors if they are able to do so, he said. "But that's not what's been done."

But credit industry officials said stringent new rules were needed to stop
debtors from misusing the system to cheat creditors.

"The high level of bankruptcy in this country is of serious concern," said
Susan Keating, president and chief executive of the National Foundation for
Credit Counseling in Silver Spring, Md. "With the level of consumer debt today
and the attitude 'Buy now, pay later,' we have some very serious problems
looming."

• Print
• Comments

The following comes from the NACBA member e-mail updates:

December 8, 2005

Dear NACBA Member,

I'm very pleased to announce that NACBA's Board of Directors has selected Brad Botes as NACBA's first full-time Executive Director, effective January 1, 2006. Brad has been a member of NACBA's board.

Read Brad's bio

Brad brings a great deal of enthusiasm, as well as management and organizational expertise, to this new position, a position that NACBA has come to need, and, with our increased membership, can now afford.

Our expanded staffing, including Administrative Director Candace Lambrecht, as well as Jewell Allred, who will be Brad's assistant, will enhance the value of NACBA membership. I am confident that you will soon see the positive results of these changes, which will include upgrades to the NACBA listserv, making it more usable for those who might find it overwhelming in its current form, improvements in the NACBA website, and additional educational opportunities for our members.

Maureen Thompson will continue to work as part of our team, with the new title of Legislative Director. We expect that Maureen will now be able to broaden her activities to include more work with the media, and more work with members pursuing state legislative initiatives, in addition to her continued work on Capitol Hill. Watch for more details of some of these efforts in the months to come.

I know you will join me in welcoming Brad and Jewell to their new positions. We will be giving contact information in early January.

Sincerely,

Henry J. Sommer
NACBA President

• Print
• Comments

The Supreme Court ruled today that the government can seize an individual's social security benefits to pay old student loans. This case protects that government's ability to distribute student loans, but hurts certian citizens who depend on their social security check, and is a topic of much debate in legal circles. Click here to read an article on MSNBC detailing the decision.

• Print
• Comments

This piece, Tri-Cities Lawyer Arrested for Contempt (November 30, 2005), reports on a lawyer arrested for contempt for pressuring his client to lie at trial. The lawyer was caught when the client presented the judge with the email exchanges documenting the lawyer's advice to the client to lie - and her response that "I understand that in defense cases you cannot always tell the entire truth. I am just concerned that I am telling a complete lie."

• Print
• Comments

High interest rates, combined with a slow job market have combined to force higher than normal foreclosure rates on American home owners, with no relief in sight. It seems that today families who typically would not have had such troubles find themselves unable to make their mortgage payments and end up losing their homes. Read on below to find an article by Rebecca Deusser disecting this troubling new trend.

• Print
• Comments

Hale Stewart, a Houston, TX tax lawyer and accountant, sees the American financial picture boiled down to a few basic elements -- "weak job growth, lack of meaningful upward mobility, and an explosion of consumer debt."

In his view, because "people are making the same [money] as they did five years ago," they've turned to things like credit cards and home equity to finance their lifestyles and cover basic needs.

Stewart, who writes many blog articles on economic issues under the pseudonym "Bonddad," believes the American consumer is "almost maxed out on debt. Eventually they'll get to a point where they just can't take any more [debt] on, voluntarily or otherwise."

"The economy is standing up on sticks. Something's just not working right."

• Print
• Comments

Kovacs is as all-American as one can be. Blonde and blue-eyed, with a winning smile, she works a quiet government job in the suburbs of Maryland while raising a baby girl by herself.

She likes to go to concerts in D.C. with friends, wonders if her daughter will start walking soon, and exercises regularly to get rid of her (largely imagined) excess poundage.

And like many other Americans, Melanie (not her real name) is climbing her way out of a quicksand trap of credit card debt and rising prices for goods, while trying to provide a good education for her daughter and a decent living for herself.

Melanie's solution was to refinance her new home in Maryland using a two-year adjustable mortgage, and cash out the equity to pay off her credit card debt.

"It got to the point where it felt like I was getting nowhere," she recalls. "I'd make these big payments each month, but the interest just kept getting bigger and bigger, so my debt never really changed."

By consolidating her debt via the refinance, Melanie is taking a risk, due to the possibility of her mortgage payments increasing, but she sees it as a good deal.

"My total payments will only be $100 more a month...it's worth it to get rid of those awful credit cards, and housing prices in this area are just fantastic." Melanie plans to sell her home before her payments increase, counting on the continuing appreciation of homes in the D.C. area to offset her closing costs.

• Print
• Comments

By JUSTIN KRUSE Special correspondent

"Sam" liked to spend money. He spent it on himself; he spent it on his family; he even spent it on his friends. It wasn't that he made a lot of money, but he liked to buy things that would make him or the people around him happy. This all happened three years ago, but Sam is still paying for it today.

"I guess I went a little bit crazy with my credit cards," the 20-year-old Onalaska native said. "It didn't feel like I was spending my money. It was too easy to use."

Now Sam, who agreed to talk on condition of anonymity, is $6,000 in debt and barely making his minimum payments as a UW-La Crosse student working part time.

He received his first credit card when he graduated from high school. Half a year later he had maxed out his credit card and opened a new card to transfer his old balance. He saw "0 percent interest for six months" as a blessing. He thought he would just pay off his old balance on his new card with no interest charges and be out of debt.

But somehow it didn't work out that way. Instead of paying off the new card and cutting it up he fell back into his old ways and started charging again. Pretty soon his new card, which was used to pay off the old card's debt, began to acquire its own debt. Sam had another maxed out card, and again, he signed up for a new card at "0 percent interest."

"I couldn't really stop," Sam said about his spending habits. "If I saw something that I liked I would buy it with my credit card."

• Print
• Comments

By ALEX VEIGA, AP Business Writer1 hour, 19 minutes ago

A sustained decline will hit the U.S. housing market next year, costing the nation as many as 800,000 jobs, according to a new economic report released Wednesday.

The slowdown is likely to last several years, with as many as 500,000 construction jobs and 300,000 financial sector positions lost, the quarterly Anderson Forecast predicted.

"We expect housing to start slowing the economy this quarter or the next," said Edward Leamer, director of the study done at the University of California, Los Angeles.

"Some jobs in manufacturing might well disappear as a result of weakness in housing, but this may be offset by jobs brought home or not lost to foreign competition," he wrote.

• Print
• Comments

A new opinion by the Supreme Court decides that student loans can be paid by an offset to social security benefits. The entire document is linked to below.
Download file

• Print
• Comments

The new bankruptcy laws were intended to bennifit credit card issuers by forcing their clients to pay back some of what they owe every month. However, this is not what always happens. Read through this article by Liz Pulliam Weston for a full report.

• Print
• Comments

Be sure to checkout ABI's Bankruptcy Blog. It is a well written journal which attempts to review all new cases which interpret the BAPCPA.

• Print
• Comments

By Andrea Coombes, MarketWatch
Last Update: 8:56 PM ET Dec 4, 2005

SAN FRANCISCO (MarketWatch) -- New bankruptcy rules are boosting legal costs, a side effect that will likely push more debt-laden consumers to consider going it alone in bankruptcy court.

But if you fumble a bankruptcy proceeding, representing yourself could end up costing you more than you'd save on legal fees. Many bankruptcy lawyers will say you need a lawyer; self-help-book marketers will say you don't. Here's what you need to know before deciding whether to handle it on your own.

Already, attorneys say they're charging 10% to 75% more because of the additional investigative work required under the new law, which went into effect in October, with fees for a Chapter 7 filing as high as $1,750 versus $1,000 before the new law, though fees vary widely by locale.

In Chapter 7, most of a consumer's debts are wiped out. Lawyers charge higher fees for the more-complex Chapter 13, in which consumers enter a repayment plan to pay back a portion of their debts.

Bankruptcy "can be an expensive proceeding, but it can be much more expensive if you don't do it properly, and it can cause you hardships that may be irreversible, such as losing a home or a car that might have been protected," said Brad Botes, a consumer bankruptcy attorney with Bond & Botes, in Birmingham, Ala.

And, many lawyers say, added paperwork requirements under the new law, plus more-stringent rules regarding erroneous filings, make self-filing an even worse idea now.

• Print
• Comments (1)

Thanks to our friend Max Gardner III provided us with this letter he wrote to a reporter at the LA Times.

I have never seen so many "urban myths" about the current status of our Bankruptcy laws. For example, a substantial number of American consumers simply believe that bankruptcy relief is no longer available. They think the Bankruptcy laws have been revoked by the Congress. Some other myths include the following: you must take and pass a test before you file; you must take and pass a test before you can get out of bankruptcy after you file; the IRS will audit all of your tax returns if you file; a husband can file but not a wife; a wife can file but not a husband; you have to have a fixed number of children to file; you cannot file if you have any children; you cannot collect any additional child support if you file; you will be required to pay substantially more child support if you file; you cannot own a car and file; if you own a car and file the car will be repossessed; you must have lived in the same state for at least 10 years before you can file; you can't file in the state you live in; your home will be subject to an inspection and complete inventory by the FBI if you file; if you make more than $166.00 per month then you cannot file; and the list goes on and on.

Of course, none of these statements are accurate. What we are finding out here in the real world is that one of the unintended consequences of Bankruptcy Reform is that in many instances the relief is better under the new law than under the old law. And, more importantly, the new law will certainly not slow down the number of new cases. With the cost of energy, the doubling of the minimum monthly payments on most credit cards as of next month, and the interest rates kicking in on all of the Adjustable Rate Mortgages, I fully expect the number of cases filed in 2006 to come close to those filed in 2004. It will take some time to reach the 2005 total since about 800,000 debtors filed in the weeks before October 17.

So, the point of this email is to suggest that you write a story on these "urban myths" and to let the average American know that bankruptcy relief is still an option and in some cases a better deal than it was before October 17.

O. Max Gardner III

• Print
• Comments

The United States Bankruptcy Court for the District of Nevada recently held that the $125,000 exemption cap under new Code Section 522(p) on homestead interests not held for more than 1,215 days before the petition is filed applies to all debtors, even where the debtor's state has opted out of the federal bankruptcy exemptions and has a state law homestead exemption that is higher than the new federal cap. In re Virissimo, 2005 Bankr. LEXIS 2085, No. BK-S-05-13605-LBR (Bankr. D. Nev. October 31, 2005).

• Print
• Comments

Counsel hoping to avoid the new pre-petition credit counseling requirement by relying on the "exigent circumstances" provision under new Bankruptcy Code Section 109(h)(3)-brought about by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA)-should take close note of a recent decision by the United States Bankruptcy Court for the Western District of Missouri. In re Gee, No. 05-71886-drd (Oct. 26, 2005).

In the case, the debtor filed a Chapter 13 petition on the day that her home was scheduled for a foreclosure sale. However, she had not received or requested the credit counseling required under new Bankruptcy Code Section 109(h)(1) before she filed her petition. Accordingly, along with the petition, the debtor's attorney filed a certification of "exigent circumstances" under Section 109(h)(3) asking the court to waive the credit counseling requirement due to the impending foreclosure sale, the debtor's lack of funds, and her inability to meet with counsel. Four days after filing her petition, the debtor sought to obtain credit counseling, but was advised that she would have to wait to receive paperwork through the mail in order to register for the counseling.

The court held that the debtor did not satisfy Section 109(h)(3) because her attorney's certification did not establish that the debtor had requested and not received credit counseling during the five-day period prior to the filing of her petition.

• Print
• Comments

Three months have passed since hurricane Katrina, and the unoffical grace period offered by most lenders has ended. Today, December 1, hundreds of home owners who lost their houses to the storm must begin making payments on their mortgages again. This sudden demand for money will force many of these debtors into bankruptcy, or will at least mark the beginning of a long struggle to get out of debt. A story discussing this issue written by Caroline Mayer is included below.

• Print
• Comments