The Bankruptcy Lawyers Blog

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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Katherine Porter's recent longitudinal post-bankruptcy study revealed something that may be hard for the credit industry to explain--something we've all known though anecdotal evidence for a long time, but which can no longer be denied:  credit card companies are very, very eager to extend new credit to families fresh out of bankruptcy.

In fact, according to Porter's study, a post-bankruptcy household receives about three times as many credit solicitations as a household where there has been no bankruptcy filing.  That's no oversight, either; many of these credit solicitations specifically refer to the recipient's recent bankruptcy.

Many bankruptcy and consumer credit experts, including Harvard Law Professor Elizabeth Warren, have pointed out that there are big profit margins in dealing with a sector of society that struggles to pay its bills on time:  those consumers are more likely to incur late fees, over the limit fees, and to trigger punitive interest rates.

Still, there's no money to be made if the bills aren't paid at all, a fact that calls into question the credit industry's "deadbeat debtor" model of bankruptcy filing.  If, as the credit industry has been loudly proclaiming for a dozen years, it believes that bankruptcy petitioners are morally bankrupt strategic filers who work the system to avoid paying their bills, then it makes no sense that these same credit card companies are tripping over themselves to do business with those debtors again.

No, as Porter explicitly points out, "Efforts to lend to post-bankruptcy familes are more consistent with an adverse events model of bankruptcy than the 'deadbeat debtor' model."

The debtor focus of the bankruptcy reform debate overshadowed to the point of exclusion any serious scrutiny of credit industry behavior.   Porter suggests that post-bankruptcy credit marketing as it exists today is a product of existing bankruptcy law by eliminating the possibility of bankruptcy discharge for eight years and removing "competition" for those repayment dollars by eradicating past debt.

The study sets for excellent support for a completely new analysis of bankruptcy law from the perspective of shaping credit industry as well as debtor behavior to make the most of the fresh start bankruptcy provides.  The entire study is well worth a read:  Bankrupt Profits:  The Credit Industry's Business Model for PostBankruptcy Lending

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Yesterday, the United States District Court for the District of Minnesota entered its final order in the Milavetz case, granting the plaintiff's motion for summary judgment and declaring that:

1.  Sections 526 (a) (4), 528 (a) (4) and 528 (b) (2) are unconstitutional, "as applied to attorneys in the District of Minnesota".

2.  Attorneys in the District of Minnesota are excluded from the term "debt relief agency" as defined in 11 U.S.C. section 101 (12A) and, as such, are not subject to any of the duties relating to BAPCPA defined debt relief agencies. 

The Minnesota law firm of Milavetz, Gallop & Milavetz, P.A., along with two unnamed prospective clients, was among the first to file Constitutional challenges to BACPA, commencing this case in November of 2005, just weeks after the new law took effect.  In December of 2006, the Court made extensive findings declaring various provisions of BAPCPA unConstitutional and unenforceable as applied to attorneys.  Nonetheless, the United States opposed plaintiff's motion for summary judgment at a hearing in February.

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In the November ABI Journal , Part I of Professor Charles Tabb's examination of consumer bankruptcy trends examined filing rates and the Chapter 7 / Chapter 13 balance.  In Part II this month, Professor Tabb makes a clear prediction:  Filing rates probably will soon return to the range of pre-BAPCPA levels.  Tabb doesn't expect, however, that those rates will continue to climb.  That's because his research shows a clear correlation between the level of revolving consumer debt (primarily credit card debt) and bankruptcy filings, and the revolving credit market seems to be largely saturated.

Tabb's analysis is full of interesting details, including the fact that the correlation of bankruptcy filings with revolving debt as a whole is much stronger than the correlation between bankruptcy filings and delinquencies, or between bankruptcy filings and debt-to-income ratios.  Overall debt correlates with bankruptcy filings, but not as closely as revolving debt.  The bottom line:  the level of credit card debt in America appears to be the clearest predictor of the bankruptcy filing rate.  Based on that correlation, we can expect filings to climb back to pre-BAPCPA levels in the near future.

For all its interesting data, the article is as worthy of a read for Tabb's delivery of stunning information such as "The evidence shows that debtors file bankruptcy in very predictable numbers, depending not on what the bankruptcy law provides, but on how burdened they are with debt."  This, Tabb suggests, shouldn't have come as a surprise to Congress.  Of course, those members of Congress who spearheaded the 2005 bankruptcy reforms have shown themselves to be quite easily surprised by the obvious.  Bob Lawless talks about a recent example--one that would be entertaining if real federal legislation hadn't sprung from this kind of ignorance--on the Credit Slips blog:  Senator Grassley Struggles to Understand the Means Testing Forms

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An interesting paper by University of Illinois law professor Charles Tabb appears in this month's American Bankruptcy Institute Journal.  Tabb has crunched some interesting numbers and pointed out that the average monthly quarterly Chapter 7 bankruptcy filings from the beginning of 2001 through the enactment of BAPCPA were 275,297.  When what Tabb calls the "aberrant quarters"--those from the enactment date through the effective date and through the most current quarter for which data is available--are likewise averaged, the average filings are somewhat higher than pre-enactment filings:  298,886/quarter.

Tabb also points out that the Chapter 7:Chapter 13 ratio has changed dramatically from pre-BAPCPA days, but that fluctuation appears to be largely related to the spike and then drop in Chapter 7 filings; the long term proportion is difficult to predict.

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After the way the Associated Press mischaracterized NACBA's findings earlier this year, it shouldn't come as any surprise that an AP reporter this week wrote that the paperwork hurdles in Chapter 7 bankruptcy have "become insurmountable". You can find the original article in the Sun News; we wanted to share with you the response of consumer bankruptcy attorney Sheryl Schelin.

October 16, 2006

Editor
The Sun News
Via Email Only -

To the editor:

In a recent article, Marcy Gordon (AP) tries to convince American consumers that the 2005 changes to the Bankruptcy Code have led to "insurmountable" obstacles barring them from filing for bankruptcy protection. While I am no fan of the new law - the gallingly-named Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA, or "Act") - I cannot allow the portrait painted by Ms. Gordon's article to go unchallenged.

Consumers deserve to know the truth about their rights, free from the gloss of collection industry deception. This Act, as Ms. Gordon essentially acknowledges, was the creation of that industry, lobbyists for which peppered Congress with horror stories about greedy, lying debtors who hide piles of cash from the hardworking, honest creditors. Never mind that such abuses were so rare as to be inconsequential, statistically speaking, or that creditor abuses were arguably more numerous (and yet remain unaddressed). Despite this bad law (both in underlying policy and in execution), consumer bankruptcy attorneys want the public to know that bankruptcy relief is still available.

Ms. Gordon quotes Lawrence Brooke, a DC-area attorney, as saying of the new law, "It's a help-the-banks, squish-the-little-guy law." While I don't disagree with Mr. Brooke on this point, I would hardly qualify the paperwork required as "insurmountable." Any bankruptcy filing requires the debtor to understand thoroughly his financial life. This can be intimidating for many debtors, but it's a step all debtors need to take in some context, if they want to escape the overwhelming pressures such oppressive debt causes. When aided by legal counsel, the debtor will find this process to be actually empowering.

True, attorneys who dabble in bankruptcy may end up reevaluating their business practices. The new laws make it imperative for debtors to receive counsel from qualified attorneys who focus on these areas, keep up with the rapidly developing state of the law, and can advise consumers specifically (as opposed to business interests, which are covered by other chapters and different rules).

Ms. Gordon's article cites filing statistics in support of her claim that the Act is scaring away debtors. Contrary to Ms. Gordon's claims, numbers tell only one small chapter of the story in this case. The 2005 filing numbers were, many believe, artificially inflated: the credit industry created media buzz that the new law would make it nearly impossible for debtors to seek relief. Ironically, the industry's efforts backfired, creating a mad rush to the courthouse in the months immediately preceding the new law's effective date. Further, anecdotal evidence from many of my colleagues in other parts of the country suggests that filings might be climbing back to pre-BAPCPA levels.

Most importantly, the decline in filings this year, I believe, reflects a massive disinformation campaign being waged on "the front lines" of the war against the American consumer. Time and again I hear the same stories from fellow consumer bankruptcy attorneys and their clients who report conversations with aggressive debt collectors that appear to be reading from the same script all across the country - a script appalling in its blatant disregard for the truth and overwhelming in its obvious disdain for the consumer's intelligence:

- "Bankruptcy is no longer available - Congress repealed it."
- "You're not eligible for filing bankruptcy, and I have proof." (Interestingly, when pressed to identify or produce that proof, the collector declines.)
- "You own a home, so you can't file for bankruptcy. That's illegal."
- "You will never get credit again if you file for bankruptcy."
- And my personal favorite: "If you file for bankruptcy, you'll be committing a crime."

To make this as plain as possible: Bankruptcy relief, while admittedly subject to new obligations and requirements, is most certainly still available. Consumers are not ineligible to file for bankruptcy relief simply because they own a home. Nor will the vast majority of consumer debtors facing bankruptcy lose all their property, or forever be denied credit as a result of the filing for bankruptcy. And finally, merely filing for bankruptcy in and of itself will not result in the debtor being subject to criminal prosecution, without intent to defraud, an overt act of perjury in the schedules or other papers filed, or some other specific, distinct criminal act.

The proponents of the Act hold a view that would be laughable if it hadn't led to such absurd results. The irony is that the Act will not achieve the goal of reducing filings in the long run, for one very simple reason: it does nothing to address the real cause of rising filing rates - the underlying oppression of the working poor in America. Rising medical costs, wages that do not keep track with rising costs of living, serious illness and injury, debtor harassment, greedy collectors who try to collect the uncollectible (even going so far as attempting to collect debts long since extinguished by discharge or by the expiration of the statute of limitations), the loss of jobs to overseas markets - these and other contributing factors remain. But so does bankruptcy protection, and that is most definitely a very good thing for the vast majority of consumers who, contrary to Congressional views as evidenced by the new law, are honest, hardworking, and well-intentioned people trying to do the best they can under next-to-impossible circumstances.

And because Congress makes me say it: I am a federally designated debt relief agency. I help people file for bankruptcy under the laws of the United States. And I am proud of it.

Sincerely,

Sheryl Schelin

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As the first anniversary of the controversial 2005 bankruptcy reform provisions nears, the National Association of Consumer Bankruptcy Attorneys (NACBA) has conducted a survey of 700 consumer bankruptcy attorneys. The results are unsurprising: "the primary impact of the new law appears to be more paperwork hassles and higher expenses for already cash-strapped consumers."

More than 75% of the attorneys surveyed indicated that the time involved in preparing a bankruptcy petition has increased by 50% or more since the law change. More than a quarter of respondents said their preparation time had doubled. More than 90% of respondents perceived that the change in the law had primarily increased costs, with little or no substantive impact.

Henry Sommer, President of NACBA, points out that the means test, intended to screen out abuses, has instead demonstrated that the credit industry's ten-year lobby was misguided. "Virtually none of the people who file chapter 7 cases are able to pay more."

Additionally, the study showed:

--Fewer than 1/3 of bankruptcy attorneys report seeing an increase in forced Chapter 13 repayment plans

--More than 2/3 of consumer bankruptcy attorneys report a jump in consumer inquiries during the third quarter of 2006

--Fewer than 10% of cases handled by participating attorneys were linked to discretionary spending issues

The problems that pushed consumers to file for bankruptcy haven't gone away, and consumers are beginning to discover that bankruptcy is still a viable option for them. 57% of attorneys surveyed expect bankruptcy filings to return to pre-BAPCPA levels by the second anniversary of the new law, with more than 10% predicting that filings will reach normal levels by the end of 2006.

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The Chicago Tribune this week announced "Personal Bankruptcy Filings Plunge". Whether through mischaracterization or misunderstanding, mainstream media across the country are reporting on the dramatic drop in bankruptcy filings over a similar period in the previous year: it happened when the fourth quarter 2005 stats were released, and it's happening now, in the wake of the first quarter 2006 stats.

It's certainly true that far fewer personal Chapter 7 cases were filed in the first quarter of 2006 (65,397) than in the first quarter of 2005 (289,239). But in reporting consistently on the dramatic decline, the press persistently ignores the clear trend in filings since the law change.

Breaking down the statistics by month since the law change paints a much more realistic picture:

November, 2005: 5,460 (7); 8,298 (13)
December, 2005: 9,274 (7); 12,362 (13)
January, 2006: 13,033 (7); 14,202 (13)
February, 2006: 19,591 (7); 15,761 (13)
March, 2006: 30,626 (7); 19,351 (13)

In addition to the steady increase in filings each month since the law change, the proportion of Chapter 7 cases is working its way back toward the norm. Although both mainstream media and industry sources like Lundquist Consulting point to the increase in percentage of Chapter 13 filings versus prior years, that ratio is dropping monthly, with Chapter 7 filings far outstripping 13s during March, 2006.

Additionally, the Tribune reports that June personal bankruptcy filings averaged 2,272 per day. Although the paper compared that to the "typical" 5,000-6,000 filings per day before the law change. The more significant comparison, however, seems to be with current numbers: if the reported average is accurate, then June filings--significantly outdistancing March filings--show that the trend back toward pre-BAPCPA numbers continues.

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Back in May, we reported that the National Association of Consumer Bankruptcy Attorneys (NACBA) and the Connecticut Bar Assocation (CBA) had filed suit in federal court alleging that the "debt relief agency" provisions of BAPCPA prohibited attorneys from providing complete and accurate information to their clients, making it impossible to fulfill their ethical obligations.

NACBA/CBA requested a preliminary injunction prohibiting application of those provisions to NACBA/CBA members until the issue had been decided.

Yesterday, the District Court heard arguments on the preliminary injunction. Eugene S. Melchionne, Esq. kindly provided an "eyewitness account" of the hearing. NACBA was represented by Peter Rubin and Henry Sommer, and CBA by Tom Gugliotti and Barry Fiegenbaum. There were also several NACBA members in attendance, including Eugene, Charlie Maglieri, Jed Berliner and Susan Williams.

Peter Rubin, by Eugene's account, presented an excellent case and ably answered the judge's many questions. In contrast, the government's argument reportedly relied heavily on the idea that where the law was written overbroadly, the government wouldn't think of enforcing it "that way."

No indication of the direction the judge might be leaning, but all indications were that he'd educated himself on the issues and asked a number of pertinent questions. We'll post information about the ruling as soon as it is available.

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The internet provides a lot of quick, convenient access, but it has its dangers, too. One of those dangers is that anyone who has access to a computer and can write a reasonable English sentence can hold himself out as an expert and someone, somewhere, is going to be fooled. Maybe a lot of someones. And then the "information" spreads.

That appears to be exactly what happened last week, when The Motley Fool contributor Selena Maranjian decided to pick up a message board post from 2003 explaining why you shouldn't file for bankruptcy and turn it into a column that ended up appearing on MSNBC.com.

So three years ago, a guy calling himself CPAScott wrote a discussion group post about why he didn't think people should file for bankruptcy, and the post was rife with misinformation. And now, three years and one major law change later, his advice appears on MSNBC, giving consumers helpful "information" like:

Bankruptcy will ruin your credit for a minimum of ten years. That's right, Scott isn't even content to suggest (erroneously) that bankruptcy will "ruin" your credit for the ten years it may remain on your credit report. Instead, he suggests that "it may take much longer to repair your FICO score". He completely ignores the fact that people can and should be rebuilding FICO scores during those ten years, and that most who keep their current bills current see significant improvements in the first 12-24 months post-bankruptcy.

You will lose some of your possessions. That's will, not may. Scott completely ignores the fact that most Chapter 7 filers don't own any non-exempt property and so don't lose any possessions, and doesn't even touch on Chapter 13 repayment plans.

You will lose your credit cards. Scott emphasizes that loss of credit cards is a problem because in the event of some unforeseen problem like the need for a car repair, "you might find it difficult--or impossible--to be able to produce the cash necessary to deal with it...spare cash will be sparse." So in addition to ignoring the possibility of obtaining a credit card almost immediately after bankruptcy, our poster seems to advocate relying on credit cards to cover emergency expenses rather than budgeting and saving for them. It's difficult to understand how Scott's header here--that you'll lose your credit cards--leads to his concluding suggestion that spare cash will be sparse.

The list then shifts to scare tactics and guilt: What if after you file bankruptcy, you get in a car accident and the other driver gets a multi-million dollar judgment against you? Bankruptcy proceedings are public record--you might end up in the newspaper! And you wouldn't want that, because bankruptcy is an "admission of defeat" and "saying you can't manage your own life--that your promise...is no good."

Whether Scott is simply misinformed and well-intentioned or an emissary of the credit industry, it's troubling that an anonymous message board post, three years old and full of easily discredited ideas should find it's way to an outlet like MSNBC, where it will likely be read by many consumers as authoritative simply because of the source. The final source, that is...not the guy who once did some ranting on a message board about a subject he clearly knows little about.

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The National Association of Consumer Bankruptcy Attorneys (NACBA) is offering a free workshop to victims survivors of Hurricane Katrina. Many hurricane survivors find themselves beleaguered by financial problems in the wake of property losses, emergency expenses, and interruption of employment.

The event, which will take place in the Grand Ballroom of the New Orleans Marriott Hotel (555 Canal Street) at 3:30 p.m. on May 20, will offer free information about the victims' rights and options.

Participants will then be invited to a screening of Maxed Out, the credit crisis documentary recently featured at the Sundance Film Festival.

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The National Association of Consumer Bankruptcy Attorneys (NACBA) and the Connecticut Bar Association (CBA) filed suit in federal court today challenging provisions of the bankruptcy statute that took effect in October, 2005.

NACBA and CBA assert that the "debt relief agency" provisions of the new law prohibit attorneys from providing certain legal advice and require statements that are untrue or may be misleading to clients and potential clients.

According to CBA President Louis R. Pepe, the requirements, if applied to attorneys, prevent them from carrying out their ethical obligations to clients, since they cannot lawfully provide complete and truthful advice.

NACBA President Henry J. Sommer says that the concerns are so great that some attorneys are choosing not to represent any consumer bankruptcy clients, even on a pro bono basis, for fear of being classified as a debt relief agency under the law.

The lawsuit seeks a preliminary injunction prohibiting the provisions from being applied to attorneys pending further order of the court. No hearing date has yet been set, but we'll all be watching for further developments.

You can read the complaint and additional information at www.nacba.org.

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After BAPCPA went into effect in October, Chapter 13 filings slightly led Chapter 7 filings for the remainder of 2005. However, it looks like that tide is turning already. According to data released by LexisNexis this week, only nine states reported higher Chapter 13 filings in the first quarter of 2006.

In March, more 60% of consumer bankruptcies were filed under Chapter 7. Perhaps even more significantly, the total number of bankruptcy filings in March exceeded 50,0000--more than double the number filed in January of this year.

Perhaps as the effects of the huge increase in filings last October dissipate and the misinformation leading consumers to believe that Chapter 7 is out of reach is gradually corrected, the fluctuations of the past six months are finally stabilizing.

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The March American Bankruptcy Institute Journal includes an interesting analysis of the way BAPCPA may be hurting the very industry that fought so long to see it passed. Henry E. Hildebrand, III, a Chapter 13 Trustee from Tennessee, points out that while more consumers may be filing under Chapter 13 (as the law's proponents intended), those Chapter 13 filings are often not translating into any payments at all to secured creditors.

That's because the new system for determining disposable income is dependent on a formulaic application that doesn't necessarily have a basis in reality. For instance, because "current monthly income" is not, in fact, current monthly income, but rather based on income over a six month period, it is possible that the debtor's actual income is significantly higher than the "current monthly income" on which the Chapter 13 calculations are based. And then, of course, the debtor may also have additional income that is statutorily excluded, such as child support and social security income.

Additionally, since the old system wherein the Trustee could examine expenses for reasonableness on a case-by-case basis has given way to statutorily permitted expenses, many debtors end up with no disposable income-on paper, anyway.

Hildebrand suggests that the consumer credit industry, after years of lobbying for this kind of reform, may turn out to be BAPCPA's biggest victims.

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I listened to the National Association of Consumer Bankruptcy Attorneys' press conference this afternoon. I wish Michael Martinez had, too. Martinez covered the release of NACBA's report on the impact of the October 17, 2005 bankruptcy reform for the Associated Press, which means that his version of NACBA's assessment has appeared-and will presumably continue to appear-in news outlets across the country. Thus, a public already all-too confused about the motivations for and impact of the 2005 bankruptcy reforms will be greeted with this opening assessment:

Last year's overhaul of the nation's bankruptcy code has done little to prevent people from skipping out on debts while burdening others who seek bankruptcy protections for legitimate reasons, according to a survey commissioned by a trade group of bankruptcy attorneys.

Technically, of course, Martinez's opening line is true-NACBA's report, like all of the speakers at the press conference, clearly states that the 2005 reforms have done little to prevent people from skipping out on debts. Unfortunately, Martinez fails to mention that the reason the reforms haven't accomplished that purpose isn't that irresponsible debtors are still slipping through the cracks in large numbers, but because they never were.

In fact, the AP story goes on to say that the credit counseling requirement "did little to weed out deadbeats trying to use bankruptcy to avoid debts." Again, that much is true-because the statement of Brad Botes, Executive Director of NACBA and the NACBA report make the consistent point so clearly conveyed in just one line in the report's title: Bankruptcy Reform's Impact: Where Are All the Deadbeats? The new law isn't weeding them out because it can't find them. It can't find them because they're not the bulk-or even a significant minority-of the people who seek bankruptcy protection.

Of course, that doesn't come as a surprise to anyone who practices bankruptcy law. We already knew that the vast majority-79%, according to the NACBA study-of people filing bankruptcy found themselves in dire straits due to circumstances entirely beyond their control like catastrophic illness, death of a spouse, or job loss.

Bankruptcy reform, as the NACBA report so clearly demonstrates, creates additional hurdles for people already in desperate circumstances-people Botes describes as "already flat on their back due to financial crises over which they have no control." The Associated Press spin on the story creates two more hurdles when it misleads the public into believing that deadbeats are still spinning the process instead of acknowledging that they never were, and when it fails to correct the mythology that has many honest debtors believing that bankruptcy protection is no longer available to them.

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The National Association of Consumer Bankruptcy Attorneys (NACBA) will reveal findings of a study of more than 50,000 consumers impacted by the 2005 bankruptcy reforms today in a live telephone-based press conference. The conference will take place at 1:30 p.m. EST and can be accessed by dialing 1-800-860-2442.

As most consumer bankruptcy attorneys and credit counseling professionals might have anticipated, NACBA is expected to announce that the new bankruptcy law is not working as intended, and is instead imposing harsh burdens on consumers who have already been impacted by difficult circumstances beyond their control.

For complete details of the NACBA study, listen to streaming video of the news event after 6:00 p.m. EST at www.nacba.org.

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The U.S. Trustee has posted updated median income information and IRS standards for allowable living expenses, but the new numbers aren't slated to take effect until February 13, 2006. While the changes aren't dramatic-the increase in median income seems to be in the neighborhood of 3.4% for most states-there are inevitably some clients who will fall within that window.

Obviously, if your client isn't in a hurry and his means test results would differ depending on which set of numbers you applied, you'd simply delay filing until after February 13. But the reality of our industry is that many clients can't wait two weeks to file when they walk through the door.

Must a debtor faced with imminent foreclosure or repossession, but falling in the gap between the 2004 and 2005 numbers, choose between filing in time to invoke the automatic stay and qualifying for Chapter 7? And how can we safely and effectively advise clients in this situation, where there's a significant downside to either option?

Those questions, and the statutory language regarding the applicable numbers, have some practitioners questioning whether the UST's office has exceeded its authority in delaying the application of the new data.

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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.

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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.

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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.

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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.

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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

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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.

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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.

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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.

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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.

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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.

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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.

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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?"

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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.

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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.

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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."

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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

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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.

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"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.--------

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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."

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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

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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.

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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."

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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.

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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."

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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.

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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."

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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.

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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.
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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.

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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.

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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 addit