The Bankruptcy Lawyers Blog

Back in the summer of 2007, we reported on the upside to sliced, diced and flipped consumer mortgages:  the paper trail was hazy at best and in some cases non-existent, and attorneys like April Charney were seeing some success in stopping foreclosures based on lack of evidence.  Later that year, Professor Katherine Porter released a study indicating that the flaws in mortgage claims were even more significant and more prevalent than we'd known.  An overwhelming number of mortgage claimants didn't have the required documentation, didn't bother to file it, or had the numbers wrong. 

The possibilities seemed endless for bankruptcy attorneys and other consumer attorneys defending against mortgage claims.  But nearly three years later, the dust still hasn't settled.  In a recent post on the Credit Slips blog, Professor Porter shares her thoughts on the current state of mortgage proceedings with bad or missing paper--and there are many open questions.  Also interesting are the comments from attorneys and other professionals around the country, demonstrating that the treatment of these poorly documented mortgages varies greatly from jurisdiction to jurisdiction.

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Recently, I wrote about the significant reduction in consumer credit in the United States.  A large part of that reduction comes from tightening credit standards; credit card issuers are offering less credit and even cutting back on existing credit lines.  But that's not the only source of the decrease.

Disillusioned with credit card companies, whether through personal experience or because of the mounting public evidence of unfair practices, many Americans are simply choosing to operate on a cash basis.  At first glance, it seems like a great idea: no fees, no interest, no living beyond your means...but as consumer bankruptcy attorneys we know it's not quite that simple.  Paradoxically, the person who manages his money so well that he can live on an entirely cash basis can present prospective creditors with no evidence that he manages his money well.  That means higher interest rates when it comes time for a car loan or home mortgage. It might even mean no access to those big-ticket loans.  Even if the consumer never plans to use credit even for a major purchase, he may still pay higher insurance rates, have trouble renting apartments and be otherwise impacted by a lack of positive credit history.

What are you advising your clients in this changing consumer credit environment?  To join the movement toward eliminating fees and interest and reducing risk by cutting out credit cards, or to stick with the systematic effort to rebuild credit so it will be there when they need it for big-ticket items?

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For years consumer bankruptcy attorneys have been fighting misconceptions about the impact of bankruptcy on credit.  Consumers with abysmal credit scores and tens (or hundreds) of thousands of dollars in outstanding debt believed that they were somehow protecting their credit so long as they didn't file bankruptcy--and, conversely, that bankruptcy would "ruin" their credit.

Most of us watched the trends and developed some general responses based on what we'd seen happen with our clients: bankruptcy petitioners were likely to start getting new (albeit high-priced) credit offers soon after bankruptcy; starting out with a secured card and slowly building credit allowed many post-bankruptcy consumers to qualify for conventional credit in just a couple of years. 

Recently, the rules of the game have changed.  Anecdotal evidence indicates that it's harder for many consumers in bankruptcy or post-bankruptcy to get automobile loans and other credit that used to be more accessible.  And, of course, this is consistent with the state of the national economy and the shrinking availability of consumer credit across the board.  It's much more difficult to pin down a norm or general rule to share with clients.

That uncertainty may make it seem more difficult to respond to client concerns about credit, but in fact it's only the details that have changed.  The bottom line remains the same:  the client who is sitting in your office considering bankruptcy probably already has serious credit problems.  Consumer credit isn't just shrinking for bankruptcy filers, but for all high-risk borrowers--and it's a near-certainty that your prospective client is already one of those.

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