15 Million Americans Working at or Below Poverty Level
Wages are weak across the board-according to the Economic Policy Institute (EPI), the wages of most U.S. workers, when adjusted for inflation, declined in both 2004 and 2005. A significant portion of the American workforce, though, finds itself in even more dire straits. Approximately 7.3 million working Americans are earning minimum wage, currently $5.15/hour. The minimum wage rate hasn't increased since September, 1997.
In 2005 dollars, a worker needs to earn $6.27/hour to have the same purchasing power $5.15/hour brought in 1997. Millions of Americans haven't seen a dime of that increase, and more than 70% of them are adults. In fact, more than 700,000 minimum wage earners in the United States today are single mothers with minor children in the home. In addition, EPI estimates that more than 8 million additional workers earn within $1/hour of the minimum wage. Those workers earning minimum wage to $6.15/hour and working a 40 hour week 52 weeks a year earn between $10,712 and $12,792 annually.
These two groups of workers make up more than 10% of the U.S. workforce, while another 7.5 million people are unemployed. Given these numbers, it's not surprising that the would-be bankruptcy petitioners currently being routed into credit counseling are being advised-at a rate of more than 95%--that they have no realistic option but to file bankruptcy.
Bankruptcy Counseling Requirement Has Little Impact
Creditors pushed hard for new provisions requiring debtors to see credit counselors before filing for bankruptcy protection, but the results thus far haven't helped their cause. Thirteen weeks into the new provisions, only a very small fraction of those visiting credit counselors pre-filing are even eligible for the debt management plans creditors had hoped would minimize their losses.
Bankruptcy Counseling Law Doesn't Deter Filings
By Caroline E. Mayer
Washington Post Staff Writer
Tuesday, January 17, 2006
Three months after a new bankruptcy law took effect, the overwhelming majority of debtors seen by credit counseling agencies are filing for bankruptcy instead of using repayment plans envisioned by the law's supporters.
The law requires debtors to see credit counselors before they file for bankruptcy protection. It is a prerequisite that banks and credit card issuers hoped would steer consumers away from bankruptcy court and into plans that would allow them to repay debts over a few years.
But so far, that is not happening.
The counseling agencies say most debtors are in such deep financial trouble that they cannot qualify for a debt-management plan.
"Typically, consumers are too far gone when they get to us," said Ivan L. Hand Jr., president and chief executive of Money Management International Inc. (MMI), the nation's largest credit-counseling organization.
That was true during an afternoon spent with MMI credit counselor Lynn Cameron as she advised consumers from a small, gray cubicle in a 150-operator call center in Phoenix last month.
"Bankruptcy is about the only option," Cameron told a Colorado couple whose home was about to be foreclosed upon.
"It doesn't look like you have any alternative at this point," she said on her next call -- with a Maryland family of four with more than $59,000 in credit card debt.
"Bankruptcy looks like a very good option," she repeated an hour later to a disabled 60-year-old with no income and no assets but lots of debts.
In the first 13 weeks after the new law took effect Oct. 17, only 4.5 percent of the 14,907 debtors counseled by MMI had sufficient income to be considered for a plan to pay back debts over a few years. Of those
669 debtors, only 42 have signed up so far for such a debt-management plan.
Chapter 13 Debtor With Previously Filed Case May Seek Automatic Stay Under Section 362(C)(4)(B)
The United States Bankruptcy Court for the Southern District of Texas recently untied some of the knotty problems associated with the automatic stay for debtors who have pending bankruptcy cases within a prior one-year period. In re Toro-Arcila, 334 B.R. 224 (Bankr. S.D. Tex. Dec. 12, 2005)
The debtor filed a Chapter 13 case without disclosing in his petition that he had previously filed a Chapter 13 case, which had been dismissed only a few days prior to the filing of the instant case. Two weeks later, the debtor filed an amended petition this time disclosing the prior case, and then, on the 30th day after the initial petition, he filed a motion to extend the automatic stay beyond the initial 30-day period under 11 U.S.C. 362 § (c)(3)(B) and alternatively to impose a stay under 11 U.S.C. 362 § (c)(4)(B).
Continue Reading...New Bankruptcy Laws aren't that Bad
By Rodney Tanaka, Staff Writer
Inland Valley Daily Bulletin
WEST COVINA - New bankruptcy laws went into effect on Oct. 17, prompting an unprecedented surge in filings as people worried they wouldn't qualify under the new regulations. But contrary to popular belief the new laws don't eliminate bankruptcy as an option, said M. Erik Clark, a partner with the West Covina law firm of Borowitz, Lozano & Clark. "Bankruptcy is an option once we clear the hurdles," he said Wednesday. The Bankruptcy Abuse Prevention and Consumer Protection Act went into effect on Oct. 17. More than 600,000 bankruptcies were filed nationwide in October 2005 to beat the deadline, compared to about 130,000 filed in October 2004, according to the American Bankruptcy Institute. Advanced publicity about the new law suggested the new regulations were much less debtor friendly and restricted access to Chapter 7 of the bankruptcy code, said Samuel Gerdano, executive director of the American Bankruptcy Institute. Some even believed that bankruptcy would not be available after Oct. 17. "So that kind of panic environment caused a stampede to file, a rush that courts are only now beginning to finish working their way through," Gerdano said. "Since Oct. 17, filings really dropped off dramatically nationwide." But most people will still be eligible to file for Chapter 7, he said. By many accounts, the new law represents the most significant revision to the United States bankruptcy code since the late 1800s, Clark said. One major change is the "means test," measuring a debtor's income against the median income of his or her home state. For example, a single Californian's average monthly income from the previous six months would be compared to California's median income. The annual median income in California is estimated at $42,012. If the debtor's average income falls below the state median, they are not affected by many of the new laws, Clark said. But even those with incomes above the state median can qualify for bankruptcy, they just need to take several additional steps, he said. Much of the burden of these new laws falls on bankruptcy attorneys and others who counsel debtors, Clark said. The laws require more receipts and paperwork, and debtors will likely pay more in bankruptcy court filing fees, Clark said. Someone planning to file for bankruptcy must also attend a U.S. Trustee-approved credit counseling program before filing. "The end result is it made it more complicated and more expensive for people facing financial problems to get relief," Clark said. Most people who file for bankruptcy are not trying to cheat the system, nor are they people who don't know how to manage their money, Clark said. They are for the most part hard-working, honest people who come across circumstances they either didn't or couldn't plan for, such as medical expenses or those going through a divorce, he said. "The bankruptcy system was set up to give people a fresh start when some sort of event made their financial situation overwhelming," Clark said.
Economic Challenges for America in 2006
2006 is predicted to be a strong year of growth for the American economy, continuing the rebuilding that has been taking place since the tumble our stock market took a few years ago. While many have forgotten the challenges that led to the dot-com burst and the insuing "mini-crash" on the stock market, there are still some who would caution us of approaching diffuculties. Read below to see the top six dangers the US economy faces this new year, according to Dean Calbreath.
Continue Reading...New Bankruptcy Rules Review
After the holiday season rushed past us, we now find outselves in the year 2006, and many Americans are wondering where all of their savings went. This time of year is often one of the hardest - extra expenses, higher heating bills, and unexpected costs seem to come at us from everywhere. What many Americans do not even realize, though, is that the rules for filing for bankruptcy have been changed. So before you decide that you'll file your debt away, be sure to read up on those changes.
The Economy in a Nutshell
By LAWRENCE MISHEL
and ROSS EISENBREY
1. Profits are up, but the wages and the incomes of average Americans are down.
* Inflation-adjusted hourly and weekly wages are still below where they were at the start of the recovery in November 2001. Yet, productivity-the growth of the economic pie-is up by 13.5%.
* Wage growth has been shortchanged because 35% of the growth of total income in the corporate sector has been distributed as corporate profits, far more than the 22% in previous periods.
* Consequently, median household income (inflation-adjusted) has fallen five years in a row and was 4% lower in 2004 than in 1999, falling from $46,129 to $44,389.
2. More and more people are deeper and deeper in debt.
* The indebtedness of U.S. households, after adjusting for inflation, has risen 35.7% over the last four years.
* The level of debt as a percent of after-tax income is the highest ever measured in our history. Mortgage and consumer debt is now 115% of after-tax income, twice the level of 30 years ago.
* The debt-service ratio (the percent of after-tax income that goes to pay off debts) is at an all-time high of 13.6%.
* The personal savings rate is negative for the first time since WWII.
Continue Reading...Bankruptcy Education
It is important for all of us to be educated on the realities of bankruptcy, even if it does not seem to be a reality we will soon face, the day may come when we think that filing is the answer. But many debtors, especially students, do not understand all of the ins and outs of filing for bankruptcy. What are the bennifits? What are the ramifications? Why we don't all need to be bankruptcy experts, it's a good idea for us all to have a basic idea.
Below are links to two articles detailing the bankruptcy process for those who wish to learn more.
A Q&A on the new Bankruptcy Law
Some Students see Bankruptcy as a Quick Fix
Consumer Tips for Repaying Holiday Debt
It seems that some professionals in the bankruptcy industry have a severe detachment from the reality that debtors in this country face. Read below to see just how unrealistic the expectations of some so called experts are when it comes to the spending habits of those in debt.
Continue Reading...What to do if you're squeezed by credit-card debt
When consumers find themselves under the load of credit card debt, it can be very daunting to ever find their way out. While help is available, consumers don't always know who to turn to - some turn to the credit card companies themselves. There are measures that a lender can take to help their debtors - they do want them to keep making payments, after all. Read below to discover some of the bennifits - and dangers - of the various types of assistance your credit card company may be able to offer.
Continue Reading...Credit Card Charge-Offs
Credit card losses, or charge-offs, topped 7% in October due to the surge in bankruptcy filings in the final weeks leading up to the full implementation of the bankruptcy reform laws. The worst is not over, since issuers treat bankruptcy related charge-offs differently. Last week, MBNA reported that its charge-offs were up sharply in November and it is bracing for another hit in December. MBNA charges-off bankrupt accounts by the end of the second calendar month following receipt of notification of the filing from the applicable court. Capital One's charge-offs for October exploded to 7.93%. Since Cap One promptly charges-off bankrupt accounts, the figures for November were significantly below the prior month. Nevertheless, the accelerated rate of bankruptcy filings in September and October are biting the bank credit card industry hard. Credit card issuers should realize lower charge-off ratios in the second quarter of 2006 and beyond as the bankruptcy process becomes more onerous for American consumers. During July, August and September, there were a record 542,022 consumer and business bankruptcy filings, a 37% increase over one-year ago. It is expected that filings for the first two weeks of October may exceed 300,000. These filings will be reflected on card issuers' books in December and January.
Continue Reading...Increase in Minimums May Max-Out Many Consumers
By Kathy Chu
USA TODAY
In case you weren't spending enough this holiday season to buy gifts and heat your home, you might have to take another hit: higher credit card payments.
Nearly three years after regulators said minimum monthly payments should let you pay off debt in a "reasonable period of time," some banks are finally acting.
Most of the top 10 credit card issuers have raised their minimum payments this year.
Regulators urged banks to adjust their minimum payments by the end of this year. The banks' delayed response to the guidelines issued in January 2003 means millions of people are being hit with higher credit card bills this holiday season.
The increase comes just as energy bills are soaring and a new bankruptcy law has made it harder to erase debt.
Banks say it takes time to update systems to accommodate the regulators' instructions. "These are not simple changes," said Alan Elias, a spokesman for Washington Mutual.
Still, "With a few exceptions, we expect them to be in compliance by year's end," said Barbara Grunkemeyer of the Office of the Comptroller of the Currency, one of the agencies that issued the guidelines.
Regulators didn't require minimum payments to rise by a fixed amount. But they said payments should cover fees and finance charges, plus 1 percent of principal. Until now, some minimums didn't even cover the interest owed, so debt would just kept growing.
Some card holders could see their minimum payment double, to 4 percent of the balance from 2 percent. On a $10,000 balance, the payment could jump to $400 from $200.
In the long run, the change is healthy for consumers: It means they'll pay off their credit cards more quickly. But at least at first, the higher payments could create financial hardship.
John Penn of the American Bankruptcy Institute expects more filings from low-income consumers who can't handle higher credit card payments. "If one of your bills doubled, it won't knock you out of the game immediately," Penn said. "You'll be late on some other bills, and you'll scramble, and it'll catch up to you eventually."
Yet it might not be feasible for some to declare bankruptcy.
"If (issuers) had done this a year ago, consumers who were underwater may have considered bankruptcy," but they may think twice about doing so after the stricter bankruptcy rules have taken effect, said Chi Chi Wu, staff attorney at the National Consumer Law Center.
Credit Card Changes May Break your Back
During January, American consumers could see their minimum payments on their credit cards increase by much as 100%. This increase has the potential to harshly effect many debtors, quite possibly pushing some to the brink of bankruptcy. Read below to learn about what consumers can do to prevent credit card debt from ruining their finances.
Continue Reading...Local bankruptcy trustee's best guess is that filings will pick up again in Spring
BY JULIAN BENBOW
TIMES-DISPATCH STAFF WRITER
Tuesday, December 27, 2005
Chapter 13 bankruptcy trustee Robert Hyman said about 450 cases came through his downtown office in the last three months of 2004. The total so far in the same span this year: 25.
After the historic spike in bankruptcy filings just before Congress' bankruptcy-reform bill took effect in October, filings fell off locally and nationally. Hyman guessed that activity will pick up again in the spring, but at this point he admits that a good guess is about all he has.
"It's a crystal-ball call," said Hyman, one of three Chapter 13 trustees in Virginia. "You figure Christmas debt will start catching up around February, so around April you can [anticipate] some filings."
Just not at the same pace as before.
More than 4,100 area residents filed for bankruptcy protection at the federal court in Richmond in October. Last month, only 86 consumer petitions were filed. While the dropoff might suggest that consumers' financial woes aren't as bad as advertised, Hyman said that doesn't necessarily mean people aren't swimming in debt.
"The same people that had financial troubles on Oct. 1 still had financial trouble on Nov. 1," he said. "I just think that really anyone who thought about [filing for bankruptcy] has already done it.
"There are always going to be unforeseen circumstances. But I don't think it's ever going to get back to where it was."
The change in the law was meant to balance the filing system for debtors and creditors by making it more difficult to file for Chapter 7 bankruptcy -- liquidation -- and encouraging credit counseling and Chapter 13 bankruptcy -- reorganization of debts.
Continue Reading...Debt may pile quicker in '06: New credit laws could put some in deeper hole
DOVER - With minimum payments for many credit cards set to double in January, those who scrape by month to month may get socked when their holiday shopping bills come in.
Federal mandates requiring the rise in minimum payment rates are meant to encourage people to pay off their debt more quickly. But though crafted with an eye toward solvency, the requirements could exact a toll in the short run - especially among those who don't see the change coming.
Nancy Coverdale of Dover always pays above the minimum on her bill. But that's her decision, she said, and she's not happy to hear she won't have a choice about whether to pay more in the future.
She'd never heard of the change before Thursday. "It really shouldn't be," she said.
"What about the people who can barely make the minimum payment?"
Continue Reading...