People considering, already in, or emerging from bankruptcy protection should have the best information possible in order to plan for their financial futures.

Economy, foreclosures, lending, medical costs

Accordingly, as closely as we can, we monitor stories and studies about bankruptcy itself, of course–but also these core subjects: economy and unemployment; foreclosures and housing starts; lending (mortgages and credit-card); and the health-care system (including medical bankruptcies).

Our latest three posts are as follows:

• “Jumping the gap from Wall Street bonuses to cornbread mix,” about the differing effects of the recession on different sectors and people who have decided they can’t wait for the government formulate an effective jobs policy.
• “Against din of housing slump and unemployment, credit-card reform loophole exploited: subprime, pre-account fees,” showing how banks begin to exploit gaps in reform legislation almost before the ink is dry on the bill.
• “Despite new credit laws, young adults can still fall into traps: Don’t let them–know your options for them and for you,” listing alternatives to risky credit cards for hard-pressed households and for those with college-age children.

Origins of ‘Plutonomy’

Today we’ll look at a relatively new term: plutonomy,apparently first used by Citigroup analyst Ajay Kapur in a 2005 paper for clients. An October paper, also crediting two other Citigroup analysts, refers to a September paper but then expounds on the term, although somewhat scattered in and among pitches to potential clients. Some of the paper reads like working notes, but following are selected, crucial excerpts, with some of our own reformatting for clarity’s sake :

• The World is dividing into two blocs–the Plutonomy and the rest. The U.S., U.K. and Canada are the key Plutonomies–economies powered by the wealthy. Continental Europe (ex-Italy) and Japan are in the egalitarian bloc.
• In plutonomies the rich absorb a disproportionate chunk of the economy and have a massive impact on reported aggregate numbers like savings rates, current account deficits, consumption levels, etc.
• [T]he world is dividing into two blocs–the plutonomies, where economic growth is powered by and largely consumed by the wealthy few, and the rest. Plutonomies have occurred before in sixteenth century Spain, in seventeenth century Holland, the Gilded Age and the Roaring Twenties in the U.S.
• What are the common drivers of Plutonomy?
  1. Disruptive technology-driven productivity gains,
  2. creative financial innovation,
  3. capitalist-friendly cooperative governments,
  4. an international dimension of immigrants and overseas conquests invigorating wealth creation,
  5. the rule of law,
  6. and patenting inventions.
• Often these wealth waves involve great complexity, exploited best by the rich and educated of the time.

How to participate

The idea for the analyst team, of course, was to sell a method by which their clients could prosper–in other words, trading strategies to exploit the wealth-gap economy.  One way, they wrote, was to buy equities in general. But better yet, buy stocks of companies that cater to the really wealthy–hence, the “Plutonomy basket”: a mix of equities issued by companies that cater to the very rich. In the pre-recession era the team was writing, they offered a basket of “luxury stocks” that had returned an enviable “an annualized return of 17.8%, handsomely outperforming indices such as the S&P500.”

And why not? After all, the team reasons, “Perhaps one reason that societies allow plutonomy, is because enough of the electorate believe they have a chance of becoming a Pluto-participant. Why kill it off, if you can join it?”

In short, a plutonomy seems merely an embodiment of the old adage, “The rich get richer, and the poor get poorer.” To a certain, the adage holds true.

Of and by the wealthy

But the rich/richer, poor/poorer framework aphoristically glosses over the middle class. In that sense, plutonomy is a portmanteau, blending economy with plutocracy: an economy driven by the wealthy, of and by the wealthy.

It is in that sense that a Wall Street Journal blogger admonishes us in an Aug.5 “Wealth Report” to face the “surprising” recognition of “just how much or our consumer economy is now dependent on the rich, and how that share has increased as the U.S. emerges from recession.”

Blogger Robert Frank notes that, “According to new research from Moody’s Analytics, the top 5% of Americans by income account for 37% of all consumer outlays . . . .

“By contrast, the bottom 80% by income account for 39.5% of all consumer outlays.

“It is no surprise, of course, that the rich spend so much, since they earn a disproportionate share of income. According to economists Emmanuel Saez and Thomas Piketty, the top 10% of earners captured about half of all income as of 2007.”

A question of stability

To his credit, Frank also recognizes the inherent problem:

“The data may be a further sign that the U.S. is becoming a Plutonomy–an economy dependent on the spending and investing of the wealthy. And Plutonomies are far less stable than economies built on more evenly distributed income and mass consumption. ‘I don’t think it’s healthy for the economy to be so dependent on the top 2% of the income distribution, [Moody's chief economist Mark] Zandi said. He added that, ‘In the near term it highlights the fragility of the recovery.’ ”

However, Frank stops short on two fronts, the evolving recognition that:

the economy already has become a Plutonomy, and

some experts believe the parameters “of and by” have been transcended, such that what we have now is an economy “of, by, and for” the wealthy.

[EDITOR'S NOTE--To be continued in Part Two.]

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The bankruptcy reform act of 2005 increased the complexity of the law, but if you are overwhelmed by debt, filing for bankruptcy protection may be your most pragmatic alternative. If you are facing foreclosure of your home (sometimes referred to as your “primary residence,” as opposed to a second home, or “vacation home”), bankruptcy protection may be your best route to saving the home. If you are struggling with medical bills, you may be in a special category for setting debt aside, and if you have problems with credit-card debt, you should be aware that some of those laws have changed recently, too. Whatever you do, before making major, life-changing financial decisions, consider consulting a trained, experience attorney. For bankruptcy basics, please see:

Principles of bankruptcy

Basics of bankruptcy

Introduction to Chapter 7

Introduction to Chapter 13

In our most recent post, we surveyed news of the economy and discussed the machinations of at least one company that already is egregiously flouting the new credit-card reform law.

One article we cited was from the St. Louis Post-Dispatch, which describes how  First Premier has concocted “pre-account fees” that somehow obligate consumer before opening an account.

Avoiding credit traps

Another aspect of that piece is worth mentioning, too: Whether you are considering bankruptcy protection or about to your bankruptcy finalized through discharge, you may feel you need at least some kind of credit card. Of course you don’t want to fall in the same trap described in the Post-Dispatch piece. But, as the article points out, diligent shopping may turn up a decent secured card.

“Consumer advocates say people with bad credit would be better off with ’secured’ credit cards,” says the article, “which are common among major banks.

Secured credit cards

“Consumers place money, often $300 to $500, on deposit with the bank. The bank then gives them a credit card with a limit of the deposit amount, or somewhat more. Many such cards carry annual or monthly fees, although some don’t, and some carry application fees. There are bad deals among secured cards, but there’s enough competition that consumers can find a reasonable offer, advocates say.”

If you’re intent on rebuilding your credit score, using a decent secured card is a reasonable way to start. Through time, you may build up to having real credit extended–or qualify for a better card. Obviously, if misusing consumer credit was a problem in the past, you’ll need to be vigilant about not repeating past mistakes: a secured card can help make baby steps to staying in bounds.

Considerations for college kids

Some consumer advocates even recommend a secured card for college-age children–especially now, in light of the portion of new regs aimed at the under-21 crowd. With the fall semester kicking off, these are timely questions. Furthermore, weighing the risks and benefits of credit for young adults can also be a worthwhile exercise for recession-pressed households because some of the same questions apply to budgets and rebuilding credit.

As noted last February in the University of Iowa’s Daily Iowan, “Starting Feb. 22, students under 21 will be required to have a cosigner or show proof that they can independently take responsibility for any debt when applying for a credit card.” In other words, to get around having a co-signer, they’ll have to prove regular income or demonstrate a solid savings account.

Credit reform watered down

Well, that’s the idea behind the new regs. However, it may come as no surprise that despite the tougher-sounding regs of the new law, the intent is already getting creamed. In other words, the combination of determined youngsters and willing lenders can result in not much having changed. From a May 20 piece at CreditCardGuide.com:

“The student card segment of the new Credit CARD Act was designed specifically to protect young adults under age 21 from falling into the debt trap early on. With this in mind, Congress drafted provisions specifying that those under 21 can only receive credit cards if they can demonstrate sufficient income, or get a cosigner for the card. It was left to the Federal Reserve to specify what constituted ’sufficient income,’ and how exactly it must be demonstrated.”

In other words, Congress punted. Oh, and guess what? The Fed punted, too. So the whole thing gets stair-stepped down to the credit-card companies setting policy.

“The Fed chose to apply vague standards for evaluating income, simply requiring card issuers to have ‘financial information indicating the consumer has an independent ability to make the required minimum periodic payments on the proposed extension of credit.’ The Fed explicitly declined to follow suggestions from consumer advocates that card issuers be obliged to only consider income earned from wages, as well as requiring a higher residual income or lower debt-to-income ratio for consumers less than 21 years old. The Fed also declined requests that card issuers be compelled to verify income or asset information stated on applications submitted by consumers under the age of 21.”

So what’s new?

Doesn’t off much hope for the new financial reform act, does it? We see the same stair-stepping in the regs, with the agencies left to promulgate the actual rules. Can we expect the regulated industries to wind up setting policy, there, too?

For young-adult credit cards, says CreditCardGuide.com, “The upshot is that getting a student credit card in the post-credit card reform era appears to remain as easy as ever—with little else required than going online to fill out a credit card application, no co-signer required. Credit limits on new student credit cards range anywhere from $300 to $2000 or higher, and credit limits increase over time for anyone paying their credit card bills on time.

“One major credit card issuer has set the ’sufficient income’ level for those under age 21 at a mere $2,000 per year. Applicants are allowed to include scholarships, grants, and parental contributions in that total. Since these sources of income for most full-time students would exceed more than $2,000; effectively any student under the age of 21 could be approved under that guideline.”

Wise use of credit starts at home

Bottom line? Make sure your college-age kids understand that they have your support as long as they don’t skirt the intent of the law by signing up on their own with one of the rogue lenders.

Accordingly, you will need to consider: is it wise to co-sign on a card for a college student–especially one who is leaving home for the first time? Perhaps the child would be better off with a debit card–one that  is NOT tied to so-called “overdraft protection,” a misleading term for “more ways for the bank to charge fees.” (One suggestion: sit down with the child and read this Consumer Affairs discussion of debit cards vs credit cards.)

On the other hand, many parents also would like to be help their kids get their own credit ratings established. With that in mind, here’s some options from “Should you co-sign for your college-bound kid?”:

• A low-limit, student card they can use as a starter card: “These cards typically have a credit limit of $1,000 or less and no annual fee. Some offer no interest on balances for the first 6 or 7 months.”
• The aforementioned secured card, which also beings establishing credit history: You may have to shop around to avoid exorbitant fees, but the “spending limit is based on a deposit with the bank. Usually, there’s a minimum deposit of $300 to $500 required. If they can’t pay the bill, the bank uses that collateral.”
• Let them piggyback on your card: Despite the changes in the law, you can still let children become “an authorized user on your credit card account. Since you get the bills, you can see how much they’re spending and what they’re buying. Because they have a real credit card, they are creating a credit history.”

Breaking the cycle

The article says one Virginia couple, Stephen and Cheryl Wiley of Glen Allen, Va., chose to piggyback for their two daughters. “The Wileys did not want the girls to have their own credit cards. But they wanted Kelly and Katherine to have a way to pay in an emergency and start establishing credit. The authorized user cards do both of those things.

“The girls know the rules. The cards are for emergency purchases only.  Any charges must be paid off by the due date. If not, their name will be taken off the account.

“The Wileys say there’s a reason they’re so strict. Back in 1990, they had to file for bankruptcy protection because of medical bills. They know how a bad credit report can hurt you and they don’t want that to happen to their daughters.”

[Next time: Perhaps an unfamiliar term, plutonomy has entered the lexicon to describe our wealth-gap economy.]

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The bankruptcy reform act of 2005 increased the complexity of the law, but if you are overwhelmed by debt, filing for bankruptcy protection may be your most pragmatic alternative. If you are facing foreclosure of your home (sometimes referred to as your “primary residence,” as opposed to a second home, or “vacation home”), bankruptcy protection may be your best route to saving the home. If you are struggling with medical bills, you may be in a special category for setting debt aside, and if you have problems with credit-card debt, you should be aware that some of those laws have changed recently, too. Whatever you do, before making major, life-changing financial decisions, consider consulting a trained, experience attorney. For bankruptcy basics, please see:

Principles of bankruptcy

Basics of bankruptcy

Introduction to Chapter 7

Introduction to Chapter 13

Let’s survey some ledes from around the country.

Housing, unemployment, bankruptcy

“Housing sales in July plunged to their lowest level in more than a decade, exceeding even the grimmest forecasts.”

That’s from The New York Times, Aug. 24.

Here’s another, also from the same edition of the Times: “The Dow Jones industrial average and the Standard & Poor’s 500-stock index ended lower Tuesday for a fourth consecutive day, unable to rebound from a disappointing report on existing-home sales.”

This one’s from the Wall Street Journal, Aug. 5: “More Americans filed for bankruptcy protection in July, reversing a trend of declining filings over the previous three months and highlighting the continuing financial struggles of many consumers.”

Highest rates since ‘reform act’ of ‘05

“Long-term unemployment and small-business failures continue to propel personal bankruptcy filings,” reports an Aug. 22 article in the Tenneseean (our emphasis added), “with Tennessee in step with a national trend that shows the number of cases spiking in July for the first time after declining for three months.

From the Aug. 18 Economist, we get the following brief (and the following chart, as well, based on data from the Administrative Office of  the US Courts): “Bankruptcy filings rose 20% in the year to June 30th compared with the previous 12-month period, according to statistics released on August 17th by the Administrative Office of the US Courts. This takes quarterly filings to their highest point since tougher bankruptcy laws were introduced at the end of 2005. That change brought a spike of bankruptcies, as companies and individuals rushed to declare themselves broke under the more lenient old regime. The data suggest that an older trend is reasserting itself. This is could be more bad news for America—or it could just mean that creative destruction is alive and well.”

One recent blog mentions that the return to pre-2005 levels may “merely be” a statistical “reversion to mean.”

Election fodder?

That would be some mean-dang revertin’, all right, given that the credit-card lobby’s pure intent in getting the “reform act” of ‘05  was to make it harder for people to file for Chapter 7 protection. They did, and it is–yet, Chapter 7 filings far outnumber Chapter 13 filings.

Perhaps cheekily, the blog ends with the admonition to watch for this chart as the election nears–with the rejoinder to see how many times it appears with the pre-2005 years left off the chart. But, really, that’s a good suggestion: Any candidate from any party who monkeys with the data should be immediately suspect.

Reform fail? Credit-card company hits loophole

Speaking of credit-card companies, it looks as though at least some are definitely reverting to mean. The credit-card reform legislation passed last year was supposed to rein in the heinous practices of the industry. But as this Aug. 21 piece in the St. Louis Post-Dispatch demonstrates, loopholes already are being exploited.

“When Congress passed the credit card reform act last year, it took aim at the sort of high-fee card that sat in Lynne Fischer’s purse until recently. There’s now some evidence that Congress missed.

“Lynne Fischer, 64, lives in St. Louis Hills on about $1,700 a month from a small pension and a disability check. She’s had problems paying some bills. ‘My credit history is not well,’ she says.

“Still, she wanted a credit card for emergencies: ‘What if my car breaks down?’ she asked. When the mail last fall brought an offer from First Premier Bank of South Dakota, she applied.

“It was a costly decision. . . .”

The article describes First Premier as using this business model: The company “offers cards for people with bad credit, and they charge significant up-front fees. They pitch the card as a way for customers to rebuild their credit by making on-time payments.”

The article also says that consumer advocates label such practitioners as predatory “fee harvesters,” a term we will probably see more often in the months to come. At any rate, and perhaps needless to belabor, she finally realized it was a stinky deal: “Fischer sometimes made only the minimum payment, and so she ended up paying interest on those fees. When she called to cancel the card this summer, she says the bank’s representative insisted that she pay $253 — an amount consisting mainly of the fees.”

Oh–but there’s more. The quote next at bat really, truly exhibits the depths of the ether-soaked depravity in which these companies are willing to traffic.

“As of last week, First Premier was offering a card with an annual fee of $75. That’s 25 percent of the $300 credit limit. But it also has a $95 ‘processing fee’ that must be paid before the customer gets the card.

“It’s perfectly legal, says First Premier. ‘The credit card act does not preclude fees charged prior to the account being opened,’ says Darrin Graham, the bank’s vice president for marketing. So, the $95 fee doesn’t count.”

Holy moly and Great Winged-Leaping Lizard-Bats! and whatever other mythical creatures that defy reason. Let’s look at that statement again, with emphasis added:

“The credit card act does not preclude fees charged prior to the account being opened.”

Just imagine if this becomes a trend: Utility companies guess where we’re going to move, then start billing us before we move in; Redbox and Netflix get predictive software, and charge us for movies before we select them. And on and on…

Perhaps First Premier is simply running interference for the rest of the industry, trying an end-around to see how much trouble such tactics will attract. Or perhaps they really are the junkies they appear to be, addicted to cash flow they pump from the least sophisticated, most vulnerable consumers they can bag. We’ll keep following and let you know what we find.

[Next time: Using credit cards under the new law and credit for college-age children.]

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The bankruptcy reform act of 2005 increased the complexity of the law, but if you are overwhelmed by debt, filing for bankruptcy protection may be your most pragmatic alternative. If you are facing foreclosure of your home (sometimes referred to as your “primary residence,” as opposed to a second home, or “vacation home”), bankruptcy protection may be your best route to saving the home. If you are struggling with medical bills, you may be in a special category for setting debt aside, and if you have problems with credit-card debt, you should be aware that some of those laws have changed recently, too. Whatever you do, before making major, life-changing financial decisions, consider consulting a trained, experience attorney. For bankruptcy basics, please see:

Principles of bankruptcy

Basics of bankruptcy

Introduction to Chapter 7

Introduction to Chapter 13

That recovery we keep hearing so much about?

Seems to be going be well–if you work in the neighborhood where the Great Recession was engineered.

According to an Aug. 13 article in MarketWatch, “Bonuses in the financial services industry will increase slightly this year as the sector outpaces the recovery of the broader economy, according to a forecast published by Johnson Associates Inc. Thursday.”

Supposedly, it’s a big deal among legislators, too. Apparently some of them see problems with bonuses for those in the sector that caused the problems that nearly drove the economy off the cliff.

“The increase in bonuses would come at a time when rising compensation in the sector has become a hot issue for lawmakers in the wake of the financial crisis.”

Of course, bonuses were off the charts during the boom leading up to the crisis. Trouble is, nothing changed during…

Cuomo’s report

“But when the financial crisis hit in 2008, compensation stayed at these levels even as bank earnings plummeted. According to an investigation by Attorney General Andrew Cuomo’s office, at Bank of America net income fell to $4 billion from $14 billion, but total payouts still remained at $18 billion. Citigroup and Merrill Lynch, now owned by Bank of America, lost $54 billion in 2008, but still paid out about $9 billion in bonuses. Read more about Cuomo’s [2009] report here. [" According to the 2009 article, "Attorney General Andrew Cuomo's office analyzed 2008 bonuses and earnings at the nine financial institutions that were the first to receive government money from the Troubled Asset Relief Program, or TARP."

Another bailout beneficiary, GM is doing pretty well, although fellow bailee Chrysler is still struggling. Ford, not a bailee, is doing OK, too. Other big corps are reeling in the dough, like say, Disney (riding blockbusters Toy Story 2; Alice in Wonderland; and Iron Man 2).

The 'new abnormal'

And people aren't just buying downsized cars and going to the movies. Describing a "bifurcated market," this July 29 BusinessWeek article says bewildered-and-bewildering consumers are scrimping on soap and other basics in order to blow money on luxuries.

"The new abnormal has given rise to a nation of schizophrenic consumers. They splurge on high-end discretionary items and cut back on brand-name toothpaste and shampoo. Companies such as Cupertino, California-based Apple, whose net income jumped 94 percent in its last quarter, and Starbucks Corp., which saw a 61 percent increase in operating income over the same time frame, are thriving.

"Mercedes-Benz is having a record sales year; deliveries of new vehicles in the U.S. rose 25 percent in the first six months of 2010. Lexus and BMW were also up. Though luxury-goods manufacturers such as Hermes International SCA and Burberry Group Plc are looking primarily to Asia for growth, their recent earnings reports suggest stabilization and even modest improvement in the U.S."

Well, who can blame the American consumer for being at least a little crazy?

As the Aug. 17 Detroit Free-Press says, "The U.S. lost nearly 3 million jobs in the second half of 2008.

A 'deep hole'

"The hole was so deep that even with the 620,000 private-sector jobs that the Economic Policy Institute reports were added over the last seven months, it doesn't feel like a recovery to many.

"Charles Ballard, a Michigan State University economist, agrees that the recovery is very slow, but not ending.

" 'We're coming out of the worst economic downturn in our lifetimes,' Ballard said. 'Given that a sledge hammer was taken to the economy when Lehman Brothers failed, we're lucky the damage hasn't been worse.' "

Foreclosures still raging

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The bankruptcy reform act of 2005 increased the complexity of the law, but if you are overwhelmed by debt, filing for bankruptcy protection may be your most pragmatic alternative. If you are facing foreclosure of your home (sometimes referred to as your “primary residence,” as opposed to a second home, or “vacation home”), bankruptcy protection may be your best route to saving the home. If you are struggling with medical bills, you may be in a special category for setting debt aside, and if you have problems with credit-card debt, you should be aware that some of those laws have changed recently, too. Whatever you do, before making major, life-changing financial decisions, consider consulting a trained, experience attorney. For bankruptcy basics, please see:

Principles of bankruptcy

Basics of bankruptcy

Introduction to Chapter 7

Introduction to Chapter 13

We’ve alerted readers several times about shady companies in the “debt-settlement” industry (most recently here) who take advantage of consumers. The problem is so severe and widespread that Congress and the GAO had to get involved.

Well, now we’ve noticed a new angle, but no officials are warning about this, yet.

You’ve probably seen  those seemingly endless, “let-me-tell-you-a-story,” ad pitches (so-called “long-copy”  in Web marketing lingo that’s derived from the older, direct-mail industry) that seem to go on forever, usually presenting a personal story along the lines of “how I stumbled upon these secret methods.” Typically they have lurid, multi-deck headlines that scream (BECAUSE IT’S EXCITING!!!!!) and have key phrases highlighted (often in yellow) and “code word,” take-action-now phrases that are underlined or otherwise set off by some graphic device.

‘Secrets’

OK, now we’re not saying all such ads are for scams or for bogus products. However, we do read a variety of news and business publications and search the Net in order to stay abreast of bankruptcy-related topics. Lately, we’ve noticed such long-copy ads turning up in news searches (that is, not just Web sites, but copy that slips past the “news” filter of Yahoo! or Google, etc. ), and these ads are for books or reports that promise to deliver “secrets” of bankruptcy–yes, SECRETS!!! and, moreover, secrets that ATTORNEYS WON’T TELL YOU!!!

In short, pure bunkum.

What’s insidious, though, is such an ad that weaves in just enough facts to:

1. sound somewhat credible, and
2. pique the imagination.

By the way, no–we’re not going to supply any links–somebody might take that as an endorsement. But after reading this, you should be able to spot ‘em.

Look for careless, sloppy writing

One claim, for example, starts out like this:

The new bankruptcy law is very different from the old bankruptcy law. Unfortunately the new law was written by the credit card banks so it should come as no surprise that it’s loaded with clever traps each designed to punish consumers who seek debt relief through personal bankruptcy.

The good news is – you can still use the new bankruptcy law to wipe out your debts but the new bankruptcy process is much more complicated than before. Bankruptcy used be such a simple process but today it’s like tap dancing through a minefield! Make one small mistake and you’ll end up being forced into five long years of financial security!

One clue, perhaps too subtle in the Internet  extant, is the number of grammar and logic errors, especially in a relatively short passage. ( The word each is unnecessary, as punctuated; otherwise a comma should precede. Then, the word to is missing in “Bankruptcy used be . . .”). In an era in which almost all publications have cut back and therefore miss copy editors, we might overlook such errors.

But this one is a thought-killer: after warning us about “tap dancing through a minefield,” we learn that if we make one crucial mistake–which sounds DEADLY!!!–but, no, we arrive instead at “five long years of financial security.”

See what we mean? By the structure of the argument, the phrase five long years should result in something like financial slavery or indentured servitude. Or anything along those lines–but not “financial security.”

OK, we’ll quit parsing in just a another line or two…in recognition that too many editors have been laid off during the Panic, the Great Recession…

The next clue is the inflated language, the embroidery, the emotions-directed diction:

• no surprise
• loaded with
• clever traps
• designed to punish
• tap dancing/minefield

etc.

Be wary of inflated claims

But the really big problem is out and out misinformation. Take this passage, for instance:

The first trap is the biggest one – the dreaded Chapter 13 bankruptcy trap. With a Straight Bankruptcy or Chapter 7 bankruptcy the judge in bankruptcy court bangs his gavel and all your debts instantly vanish – once and for all. Believe me, this is the kind of bankruptcy you want!

But under the new bankruptcy law it’s more difficult than ever to qualify for a Chapter 7 bankruptcy. Under the new bankruptcy law the bankruptcy court has a formula it must use to determine whether or not you can qualify. If you fail this important test, your debts remain and you’re forced into a very different kind of bankruptcy – the long and drawn-out Chapter 13 bankruptcy.

Under the Chapter 13 bankruptcy all your debts remain. You’re forced to repay each and every one right down to the last penny! All a Chapter 13 does for you is extend the terms of the loans giving you more time to pay. In most cases you get five long years to repay everything.

First, it’s true that Chapter 7 and Chapter 13 are very different; yes, Chapter 7 is basically a liquidation vehicle; yes, Chapter 13 is basically a re-payment plan. It’s also true that the Bankruptcy Reform Act of 2005 made it more difficult to qualify for Chapter 7, and yes, it’s true that the credit-card companies wanted Chapter 7 qualification to be more difficult.

However, the plan backfired on Wall Street when the products of its financial engineers cratered the economy. Since the crash, millions of consumers have qualified for Chapter 7 protection. But it’s not true that “all your debts instantly vanish.”  For example, Chapter 7 can not address child support or student loans (except in rare “hardship” cases); neither can it help with taxes, court fees, DWI-related costs, and a few others.

And this is just false: “Under the Chapter 13 bankruptcy all your debts remain.” We can’t emphasize this enough: that statement is not true.

What happens under Chapter 13 is that debts get restructured. The main thing is a certain amount of income is required because the court-appointed trustee takes monthly payments from the debtor and applies them  to the total debt, over time– first to secured debt (e.g., a mortgage) then to the most important unsecured debt (e.g., back taxes). By the time the trustee gets to unsecured credit cards, the creditors will likely be receiving only percentages of the original claim.

A very good, very thorough explanation can found in this July 24 article at CNNMoney.com.

So what’s the lesson, here? Easy–keep your money: there’s no “secrets” that a good, experienced attorney won’t share with clients. Ask if you can file bankruptcy yourself (you can); ask if you can hire an “advocate firm” to help with your filing (yep, you can do that, too); in fact, ask any and every thing you can think of.. Most experts agree that your safest route to a well prepared bankruptcy filing is by using a trained, experienced attorney.

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The bankruptcy reform act of 2005 increased the complexity of the law, but if you are overwhelmed by debt, filing for bankruptcy protection may be your most pragmatic alternative. If you are facing foreclosure of your home (sometimes referred to as your “primary residence,” as opposed to a second home, or “vacation home”), bankruptcy protection may be your best route to saving the home. If you are struggling with medical bills, you may be in a special category for setting debt aside, and if you have problems with credit-card debt, you should be aware that some of those laws have changed recently, too. Whatever you do, before making major, life-changing financial decisions, consider consulting a trained, experience attorney. For bankruptcy basics, please see:

Principles of bankruptcy

Basics of bankruptcy

Introduction to Chapter 7

Introduction to Chapter 13

[Editor's Note: This is the conclusion of a two-part look at the difference between home mortgage delinquencies of the wealthy--which are on a dramatic rise--and alternatives for the less well-to-do. Part 1 is here.]

Maybe ’shrewdness’ is breaching class lines

One guy who doesn’t care about credit ratings and FICO scores–anymore–is a former public affairs worker named Del Phillips who tried to stay in his Chicago home by working out a loan modification, even after he had lost his job.

This is a from a June 25 piece in the Chicago Tribune, and, boy, talk about sneaky…check out this lender:

Phillips bought the one-bedroom condo, tucked into a Lakeview courtyard building, in May 2007 for $212,500, securing a first mortgage of $159,375 and a $53,125 second note, both from Chase Bank, according to county records. In January 2009, he lost his public affairs job, began drawing on his savings and, in April 2009, after the government began its Home Affordable Modification Program, applied for a mortgage loan modification from Chase.

Customer service representatives with Chase, he said, told him to keep paying the monthly mortgage of about $1,400 while he awaited a decision on his application. In September, the still-unemployed Phillips was turned down for a modification because, as the letter stated, his hardship “is not of a permanent nature.”

It’s a common, Catch-22 tactic that lenders commonly use: pressure the homeowner to maintain regular payments regardless of the personal hardship and sacrifice, only to later deny a loan mod because the homeowner has maintained payments–thereby demonstrating no financial hardship.

And the lender had yet more tactics at its disposal:

Phillips decided to stop paying the mortgage and try to sell his condo in a short sale, in which a homeowner sells the property, with the lender’s approval, for less than the amount owed on the mortgage. A short sale typically does not tarnish an individual’s credit history as much as a foreclosure.

Short sales and second notes

Short sales can indeed be an alternative, but not with a balky holder of a second note as explained here, in May 2009 FindLaw piece: “Going back to the issue at hand, what is a short-sale? We discussed the basics of a short-sale in a blog post last year. A short-sale is a foreclosure alternative for distressed homeowners, whereby a distressed homeowner can sell their home for less than they owe on their mortgage, if the lender agrees to the sale.

“A problem with short-sale solution, however, lies in the second mortgage, where it might not always be so easy to convince the holder of a lesser mortgage (for example, a home equity line of credit (HELOC)) to drop the loan. As a result, the short sale remedy isn’t used as much as it could be, to assist distressed homeowners.”

But, lo and behold, Phillips got a decent short-sale offer and dang if the lender didn’t approve it.

Well, of course, with a catch: “Chase notified Phillips that it would still have the legal right to pursue him at a later date for the approximately $54,000 owed on the second mortgage.

” ‘A short sale may satisfy the first lien, but the customer could still be responsible for the second lien,’ said a spokesman for Chase, while declining to discuss Phillips specifically.”

‘He did everything right’

Finally Phillips sought help from a federally approved housing agency, where counselors brought up the alternatives of filing for protection under the bankruptcy code. He didn’t like the idea and resisted “but after consulting with an attorney, in late February he filed for Chapter 7 bankruptcy, not the Chapter 13 that would have negotiated his debts, including those with Chase.”

In other words, he chose not to try to save the house under Chapter 13 and enter a repayment plan to creditors. Instead, the lender will probably be forced to take whatever it can get for the condo–without any recourse to go after Phillips for the second note. He told the Times he couldn’t stand the thought of not only losing the home in a short sale but also then repaying the lender $54,000 on a home he no longer lived in.

” ‘My other option was to say I’ll roll the dice with the bank,’ Phillips said. ‘Will they really come after me? I wouldn’t put it past the bank industry to do that. It’s going to kill me to pay a bank for a house I no longer owned. I was, like, there’s no way I’m going to pay the bank another dime.’ ”

He now regrets paying in good faith “the more than $12,000 he paid toward his mortgage while he sought a loan modification that never materialized.” The lender sent notice of loan default in late May, but Phillips expects to stay in the condo for several months while the legal system works, using unemployment benefits to pay condo association fees and stay alive while job hunting and considering a move to another state.

” ‘ (Phillips) did everything right. He had good credit, and then he lost his job,’ said Michael van Zalingen, director of homeownership services for Neighborhood Housing Services. ‘If your lender isn’t interested in helping you, or the only thing you qualify for hurts your household, I don’t think you have any moral obligation to stay bound in that mortgage or paying to that company when it no longer makes economic sense for you.’ ”

*************************************************************************

The bankruptcy reform act of 2005 increased the complexity of the law, but if you are overwhelmed by debt, filing for bankruptcy protection may be your most pragmatic alternative. If you are facing foreclosure of your home (sometimes referred to as your “primary residence,” as opposed to a second home, or “vacation home”), bankruptcy protection may be your best route to saving the home. If you are struggling with medical bills, you may be in a special category for setting debt aside, and if you have problems with credit-card debt, you should be aware that some of those laws have changed recently, too. Whatever you do, before making major, life-changing financial decisions, consider consulting a trained, experience attorney. For bankruptcy basics, please see:

Principles of bankruptcy

Basics of bankruptcy

Introduction to Chapter 7

Introduction to Chapter 13

[Editor's Note: This is the first of two parts looking at the difference between home mortgage delinquencies of the wealthy--which are on a dramatic rise--and alternatives for the less well-to-do.]

A recent headline in The New York Times:

Biggest Defaulters on Mortgages Are the Rich

If you’re thinking, yeah, well–what else do you expect from the Times? OK, here’s basically the same story from Fox:

Wealthy Walk Away From Mortgages

Reading both accounts, one will notice a  shared theme, namely the question  “what’s best for the community?”

Community and neighborhood interests are crucially important. Hence our posts about the nonsensical behavior of institutions that lets home after home slide into foreclosure, which affects property values like bombing a pond. Aanymore, this ain’t about ripples from a pebble. What really hurts a neighborhood more? Owner-driven bankruptcy–or bank-driven foreclosure?

Property-value loss cascades through neighborhoods

Foreclosed properties littered through a neighborhood affect property values throughout the entire community, not merely the adjacent homes.

On the other hand we’ve all seen major league bankruptcies, from big players such as The Donald to major automakers. Not to mention the current, wadded-up mess with the Texas Rangers baseball club…

How is it that when “the big boys” do it, it’s a business decision?

Yet, when consumers file for bankruptcy protection, they are somehow…sneaky?

Unemployment data say ‘no progress’

Let’s look at the numbers of the so-called recovery: Since June of last year the unemployment rate is virtually unchanged, whether you look at the so-called “official rate” (row U-3 in the labor department’s Table A-15) of 9.7 per cent in June 2009 versus 9.6 per cent last month. Ok, that’s not “seasonally adjusted.” The seasonally adjusted figures show a slightly better picture: 9.5 percent in June 2009 versus 9.5 per cent last month–which means even when we consider the lesser numbers of jobless people counted in the “official rate,” there’s no change in a year.

And the same holds true for row U-6, which is the actual “total unemployed” rate. The not-seasonally-adjusted rate in June 2009 was 16.8 per cent in June 2009 and 16.7 per cent last month. Again, a .1 per cent difference. The seasonally-adjusted rate was 16.5 per cent in June 2009 and 16.5 per cent last month. Same pattern.

On the bright side, last month’s rate is down in both columns from a peak in April, when the “official rate” was 9.9 per cent and the actual rate was 17.1 per cent.

So we’ve progressed to the point that we’re back to where we were a year ago–with total unemployment actually closer to 20 per cent than it is to the claimed “official rate” of nearly 10 per cent.

Wealthy ditch mansions as business decisions

And now even the wealthy are sending “jingle mail” to their mortgage servicers, sending in the keys to their mansions (some primary, some secondary homes–and some that were intended as investments) and heading off to, well, wherever the rich go. What’s sort of fascinating, though, is that they’re ditching these high-end properties in significantly higher measure than the less well-to-do have been.

According to the July 8 Times piece, “Whether it is their residence, a second home or a house bought as an investment, the rich have stopped paying the mortgage at a rate that greatly exceeds the rest of the population.”

The article cites data showing that “[m]ore than one in seven homeowners with loans in excess of a million dollars are seriously delinquent” while only “[a]bout one in 12 mortgages below the million-dollar mark is delinquent.”

So basically “homeowners with less lavish housing are much more likely to keep writing checks to their lender.”

Lends a new meaning to “there goes the neighborhood,” doesn’t it? Makes one wonder what the brainiacs behind credit ratings and FICO scores are going to do with these data.

The data were provided by analytics firm CoreLogic to the Times, who says, “Though it is hard to prove, the CoreLogic data suggest that many of the well-to-do are purposely dumping their financially draining properties, just as they would any sour investment.

“ ‘The rich are different: they are more ruthless,’ said Sam Khater, CoreLogic’s senior economist.”

The Fox account shares a similar perspective concerning the data: “As for those investment or second homes, Corelogic says delinquents on those topping the million dollar mark sit at 23%, while it’s just 10% on the cheaper ones.”

But the Fox writer tries a reverse spin: now that the wealthy are acting like the plebe sub-primers, suddenly having mortgage problems isn’t a class sin. But it just goes to show how the salt-of-the-earth middle class endeavors to persevere, against all odds.

“So to me this isn’t just an excuse to bash the wealthy, ” writes Gerri Willis, “… but a testament to the middle class…”They understand the value of a dollar and the value of a contract.

“Many are just too proud to throw up their hands and wave the white flag — for better or for worse.”

In other words, Willis seems to be saying, C’mon guys, even if it makes no business sense and the banks refuse to work with you, keep making those payments and honoring those contracts!

(In Part 2, we’ll have a look at what happened to Del Phillips and his condo.)

*************************************************************************

The bankruptcy reform act of 2005 increased the complexity of the law, but if you are overwhelmed by debt, filing for bankruptcy protection may be your most pragmatic alternative. If you are facing foreclosure of your home (sometimes referred to as your “primary residence,” as opposed to a second home, or “vacation home”), bankruptcy protection may be your best route to saving the home. If you are struggling with medical bills, you may be in a special category for setting debt aside, and if you have problems with credit-card debt, you should be aware that some of those laws have changed recently, too. Whatever you do, before making major, life-changing financial decisions, consider consulting a trained, experience attorney. For bankruptcy basics, please see:

Principles of bankruptcy

Basics of bankruptcy

Introduction to Chapter 7

Introduction to Chapter 13

A few weeks ago, one of the largest settlements involving the Federal Trade Commission (FTC) has resulted in $108 million being set aside for homeowners ripped-off by the mortgage giant, now a part of Bank of America.

Two-year probe into Countrywide abuses

The U.S. Trustee Program (USTP), a unit within the Justice Department, worked closely with the FTC in the two-year effort “to carry out parallel investigations relating to Countrywide’s improper conduct in servicing home loans,” according to a June 7 department press release. The USTP is charged with ensuring the efficiency and integrity of the federal bankruptcy system except for the six judicial districts in Alabama and North Carolina.

The investigation into Countrywide’s abusive practices apparently stemmed from federal bankruptcy officials’ interest in the case of a couple in Cherokee County, Georgia. Anyone who has tried to deal with an abusive lender or mortgage note servicer will recognize at least some of the scam-bully tactics that Countrywide employed to pound John and Robin Atchley, he a utility lineman and she a postal worker–until they gave up and sold the home even though they were under protection of a Chapter 13 bankruptcy filing.

Shameless, systemic bully tactics

That didn’t stop Countrywide, though–company officials lied to the bankruptcy court, then conjured up bogus escrow fees, and even levied more charges after the Atchleys had come up $2,000 just make the sale of the house go through.

To be sure, Countrywide didn’t start or stop with the Atchleys; the company got in trouble in courts around the country, including USTP complaints in Ohio and Florida, plus court sanctions in Pennsylvania, Texas and North Carolina.

One couple’s testimony

But what got the attention of federal officials was the Atchleys’ testimony before a Congressional committee.

According to a June 7 piece in The Atlanta Journal-Constitution, “The Atchley case got the attention of federal bankruptcy officials and later the Federal Trade Commission. Robin Atchley testified two years ago before a Senate committee.

“[FTC Chairman Jon] Leibowitz said the FTC listened to Atchley’s testimony and responded.

“ ‘Today the FTC is delivering a message of our own,’  he said. ‘Follow the law or face the consequences.’ ”

The problem is, even the FTC comes across as less than forthright. In beating its drum about the settlement, the agency seems to be overlooking basic math: the $108 million settlement is intended address abuses heaped on about 200,000 homeowners. If evenly applied, in round number that comes out to $540 per household.

In their case alone, the Atchleys figure Countrywide beat them out of more than $15,000.

FTC should not crow too loudly

At least one columnist gets this angle, too. Michelle Singletary writes “The Color of Money” for The Washington Post. Here’s her lede from the June 10 column: “It’s an all-too-familiar Washington story. Officials call a news conference to pat themselves on the back for righting a wrong they shouldn’t have allowed in the first place.

“Meanwhile, the hapless victims are left to ponder what might have been had those officials been more vigilant.”

Singletary also lists some examples of the kinds of made-up fees and inflated charges that Countrywide routinely inflicted.

“The FTC says Countrywide charged excessive fees for services such as property inspections, inflated the amount owed when borrowers filed for bankruptcy protection, and didn’t tell people when new fees or charges were being added to their loans.

“Some homeowners, for example, were charged as much as $2,500 for trustee fees, even though the going rate for such a service was in the range of $600. ‘Just mowing a lawn could result in a $300 bill to a homeowner,’ FTC Chairman Jon Leibowitz said.”

Countrywide not alone

And as a post at BNET.com points out with this headline, “Countrywide’s Foreclosure Scam: It’s Not the Only Lender Ripping Off Homeowners.” Indeed, this point should be in a memo tomorrow, on the desk of every US Representative and Senator: “Bank of America’s (BAC) move to settle federal charges that its Countrywide unit gouged homeowners facing foreclosure should mark the beginning, not the end, of a full-blown government crackdown on mortgage lenders. That’s because the practices Countrywide is accused of — which range from raising the cost of property inspections, to lying to borrowers about how much they owed, to charging $300 to mow the lawn — are endemic among loan servicers.”

Citing this page at MortgageLoan.com, the post lists these as chief  among “senseless practices” that are “cited by industry observers, or complained about by consumers”:

1. Charging fees for services not performed, or fines not actually due. Sometimes, lenders make extra cash by charging imaginary fees that are totally unwarranted. Mortgage documents and mathematical calculations can be complicated, so many consumers are unable to figure out when they’re being bilked. At the mercy of mortgage companies, they often overpay, even while facing foreclosure and bankruptcy.
2. Overstating the balance owed on a home loan. University research into recent foreclosure data found that almost half of the loans analyzed in the study included inflated balances or vague, unspecified charges. In more than 90 percent of the cases, homeowners disagreed with mortgage company calculations, believing that they were both inaccurate and too high.
3. Accumulating various fees or charges that are intentionally erroneous. Most of the fees mentioned in the study were relatively small, but they added up to gigantic amounts of extra profit for those companies who collect them. If a lender has, for example, 200,000 customers across the U.S. and overcharges each of them by $100, it adds up to additional revenue of $20 million-for basically doing nothing.
4. Failing to follow basic industry regulations. Investigators have found that some mortgage lenders are so negligent or sloppy, they don’t even comply with the most fundamental rules and regulations. A lender is required, for example, to show documented proof that they’re the actual mortgage holder before attempting to collect payments from a homeowner. But some companies don’t even verify this essential information.

Settlement bars further abuses

However, despite the relatively small monetary settlement, the consent order also bars Bank of America (who bought Countrywide after the investigations had begun and who conceded no guilt in the settlement) from using such tactics in the future. Again, from Singletary: “The settlement also requires that the Countrywide loan-servicing operation make significant changes in handling bankruptcy cases. For example, the servicer must send borrowers in Chapter 13 bankruptcy proceedings a monthly notice with information about what amounts are owed. The servicer also has to come up with a program that ensures the accuracy of loan information filed in those Chapter 13 cases.”

That is a good thing, necessary to restore confidence in power of the protection of a bankruptcy filing.

Two federal Web sites

Furthermore, the government has created two Web sites, one intended to help keep Countrywide victims informed, and another, says the USTP “for information on reporting mortgage and other financial fraud, as well as valuable tips on protecting themselves against mortgage and financial scams.”

If these measure do indeed help consumers going forward…well, let’s Singletary sign us out, first quoting Robin Atchley:

” ‘I’m hopeful the settlement will help other families avoid the nightmare we went through and save their homes,’  Atchley said.

“When Atchley’s words come true, then that’ll be something to crow about.”

*************************************************************************

The bankruptcy reform act of 2005 increased the complexity of the law, but if you are overwhelmed by debt, filing for bankruptcy protection may be your most pragmatic alternative. If you are facing foreclosure of your home (sometimes referred to as your “primary residence,” as opposed to a second home, or “vacation home”), bankruptcy protection may be your best route to saving the home. If you are struggling with medical bills, you may be in a special category for setting debt aside, and if you have problems with credit-card debt, you should be aware that some of those laws have changed recently, too. Whatever you do, before making major, life-changing financial decisions, consider consulting a trained, experience attorney. For bankruptcy basics, please see:

Principles of bankruptcy

Basics of bankruptcy

Introduction to Chapter 7

Introduction to Chapter 13

* _ * _  * _ *_ * _ * _  * _ *_ * _ * _  * _ *_ * _ * _  * _ *_ * _ * _  * _ *_ *

UPDATE from “Life After Bankruptcy, Part 4″ re: “Second-Chance Auto Loans”:

If your bankruptcy protection plans include keeping a vehicle that you’re paying off via an auto loan, make sure you understand about the reaffirmation agreement. Not understanding this crucial aspect can be a costly mistake later down the road.  Here’s three good links to columns about autos and reaffirmation agreements, one here, another here, and another here. Following is an excerpt from the second column:

A reaffirmation agreement is a legally enforceable contract filed with the bankruptcy court that states your promise to repay all or a portion of a debt that may otherwise have been subject to discharge in your bankruptcy case. Some lenders demand that you sign this agreement and will not send you statements or report payments to the credit bureau without the court-approved agreement. In many instances, lenders consider it a breach of the terms of your loan and will repossess the car if you fail to sign the agreement.

There are some lenders who will allow you to keep the car and continue to make regular monthly payments. Unfortunately, this also means that future payments might not be reported on your credit report. You will be able to pay off the car and eventually receive the vehicle title, but you might not see any benefit to your credit for all those payments.

* _ * _  * _ *_ * _ * _  * _ *_ * _ * _  * _ *_ * _ * _  * _ *_ * _ * _  * _ *_ *

What are we to make of the Senate’s action to ditch the extension of unemployment benefits?

For the horde of folks facing foreclosure, unemployment, bankruptcy–and God only knows what else in this misnomer of a recovery–the partisan voting lines and continued reliance on the stealth filibuster must taste something awfully like betrayal.

The Socialists, or more accurately, at least one Socialist Web site blames the Democrats in the Senate and President Obama, pinning the following headline atop its coverage of the vote that leaves more than one million unemployed staring down the double barrels of a 12-gauge economic threat:

Senate Democrats and Obama abandon the jobless

Here’s the first two grafs from that June 26 account:

“Senate Democrats gave up efforts to extend unemployment benefits for millions of jobless workers after the third vote on overcoming a Republican filibuster failed. The final vote Thursday was 57 to 41, three votes short of the 60 necessary to cut off debate, with one Democrat, Ben Nelson of Nebraska, joining a unanimous Republican opposition.

“Senate Majority Leader Harry Reid, whose home state, Nevada, has the highest unemployment rate in the country, indicated there would be no further effort to revive the unemployment benefit extension unless one or more Republican senators expressed willingness to change their position. ‘We can’t pass it unless we get some Republicans,’ Reid told reporters. ‘It’s up to them.’ “

Reading thus far, one wonders if the headline writer simply bonked out…or purposely jumped the fence. For instance, here’s the June 24 hed and lede covering the same event by the decidedly capitalist Bloomberg BusinessWeek:

Republicans Kill Unemployment Aid, Buyout Tax Boost

“Senate Republicans killed legislation to extend unemployment benefits, provide aid to state governments and increase taxes on buyout fund managers, saying the bill would add too much to the federal deficit.

“Today’s vote was 57-41 in favor of the measure, with 60 needed to advance it. Democrats repeatedly cut the bill in an effort to win over lawmakers who objected to its cost. The latest version version would have added $33 billion to the budget shortfall, a fraction of previous proposals; Republicans said the cost-cutting didn’t go far enough.”

But, no, apparently the hed writer at the Socialist site was working from the writer’s copy. In the fourth graf, the writer all but ignores the concerted GOP effort to kill the benefits extension–and blames the Democrats while glossing over the fact that 60 votes are needed for the cloture to overcome the filibuster:

“While the Democrats, who control the Senate by a 59 to 41 majority, whine about Republican opposition, some 200,000 unemployed workers are losing extended benefits each week. The total number cut off benefits since June 2, when the last such extension expired, reached 1.2 million Friday.  Assuming the deadlock continues, a total of 5.7 million workers will lose extended benefits by the time the program expires completely in November.”

So what are the Dems supposed to do? Beat ‘em up? Egg their cars? It’s obvious they can’t be shamed into caring about economically ravaged consumers. Remember, it was basically this same Senate that refused to budge last year when they could have passed reforms allowing bankruptcy judges to modify terms of loans on primary residences.

According to the BusinessWeek piece, Senator Baucus hopes for pressure from the public to launch support for a benefits extension as a separate, stand-alone measure: “Senate Finance Committee Chairman Max Baucus, a Montana Democrat, said he didn’t know if lawmakers would try to pass an unemployment benefit extension as a separate measure. The bill derailed yesterday would have continued some extended jobless benefits through November.

“ ‘We’ll have to take stock and see,’ Baucus said. ‘I hope frankly that enough people in the country realize what’s going on here and call members of the Senate on the Republican side and say, “Hey, we need some help here.” ‘ ”

On the other hand, maybe the Dems could force the balky mules to go through the pain of an actual filibuster–the stealth filibuster has got to go.

CNBC.com has picked up a story from The New York Times that echoes many warnings we have discussed several times about so-called debt-settlement firms. Our most recent peeks under the hood of this industry were in a four-part series beginning here and ending here.

McCaskill fires warning shot?

Although we covered the GAO study mentioned in the Times piece, we may have left out a nugget that the Times includes–well, even if we did mention it, it bears repeating, especially Sen. McCaskill’s parting shot:

Consumer watchdogs point to another reason customers wind up confused and upset: bogus marketing promises.

In April, the United States Government Accountability Office released a report drawing on undercover agents who posed as prospective customers at 20 debt settlement companies. According to the report, 17 of the 20 firms advised clients to stop paying their credit card bills. Some companies marketed their programs as if they had the imprimatur of the federal government, with one advertising itself as a “national debt relief stimulus plan.” Several claimed that 85 to 100 percent of their customers completed their programs.

“The vast majority of companies provided fraudulent and deceptive information,” said Gregory D. Kutz, managing director of forensic audits and special investigations at the G.A.O. in testimony before the Senate Commerce Committee during an April hearing.

At the same hearing, Senator Claire McCaskill, a Missouri Democrat, pressed Mr. Ansbach, the Usoba lobbyist, to explain why his organization refused to disclose its membership.

“The leadership in our trade group candidly was concerned that publishing a list of members ended up being a subpoena list,” Mr. Ansbach said.

“Probably a genuine concern,” Senator McCaskill replied.

Employment up or down–which is it?

Another point we made recently  (in our preceding post) had to do with confusion over interpretation of reported unemployment rates. A June 18 AP story in the  Times reinforces our point about the much ballyhooed recovery in general–and about our longstanding concern regarding confusion over the “official unemployment rate” in particular.

The hed reads: “Most State Jobless Rates Fall,” but the lede belies the headline: “Unemployment rates in a majority of states dropped in May. But the widespread declines were mainly because people gave up looking for work and were no longer counted.”

Here’s a subsequent graf about job gains: “Forty-one states and the District of Columbia saw a net increase in jobs. But that reflected national data showing a huge gain because of government hiring of temporary census workers.”

Senate stuck in filibuster mode

Also unchanged since last we posted is the Senate’s position on helping those unemployed who have reached the end of their benefits–with no significant change in the jobs picture. On June 19 the president reacted to yet another filibuster that creates roadblocks where instead we need an express lane.

In a MarketWatch.com report, Obama is quoted thusly: “”I was disappointed this week to see a dreary and familiar politics get in the way of our ability to move forward on a series of critical issues that have a direct impact on peoples’ lives.

“”Unfortunately, the Republican leadership in the Senate won’t even allow this legislation to come up for a vote.”

In other words, if filing for bankruptcy protection made sense last week, it also makes sense this week–nothing has changed, and nothing seems likely to change anytime soon.

Get informed

In that vein, here’s some tips to use when considering the benefits and drawbacks of bankruptcy protection.  Following are some highlights derived from a list at a June 6 Orlando Sentinel piece.

1. Review the many resources offered by the “official” Web sites of various federal and state agencies:
   • U.S. Department of Justice
   • American Bankruptcy Institute
   • United States Courts
   • Bankruptcy law, state-by-state
   • National Association of Consumer Bankruptcy Attorneys
2. Consider non-bankruptcy options such as consumer-credit counseling–but be sure to avoid the “debt-settlement” or “debt-repair” firms described in the GAO report.
3. Take informed action before using up all your savings or retirement funds.
4. This one is word-for-word from the Sentinel: “Don’t try to ‘game the system’ by running up credit-card charges for jewelry or other luxuries just before filing for bankruptcy — you’ll likely still be on the hook for such debt.”
5. This tip condenses three separate points from the list: Be aware that because of the financial crisis, waves of consumers are turning to the bankruptcy code for protection, and so bankruptcy law is “hot” right now; accordingly, you want to make sure you get trained, seasoned professional counsel; furthermore, such firms will often provide a free consultation to begin–this is your chance to evaluate the firm to avoid a “mill”-type operation.
6. Do not rely on creditors (credit-card companies, bill collectors, etc.) to tell the truth about the legal system or bankruptcy protection.

(mis)Leading myths about bankruptcy

In fact, misinformation is so common that certain “myths” about bankruptcy have arisen, a sort of urban legend. This attorney’s page answers each of the following myths, none of which is true:

1. Bankruptcy relief is no longer available (False: the 2005 “reform” act changed some things, but protection is still available for those who need it.)
2. You can’t file bankruptcy if you have a job (False: In fact, reliable income is a necessity to service a Chapter 13 filing.)
3. Medical bills can’t be discharged in bankruptcy (False: medical debt can be addressed, as can credit-card debt, and even personal loans.)
4. Chapter 13 plans require repayment in full of debt (False: unsecured creditors may receive payments that total 100 per cent of the debt–or zero per cent–each case is different, depending on the unique variables.)
5. People who file bankruptcy can’t get credit for 10 years (False: Although true that bankruptcy will remain on credit reports for up to ten years, many people’s finances are in such disarray that receiving bankruptcy protection can be the start of improving one’s credit score.)
6. You lose everything you own in bankruptcy (False: a small percentage of filers will liquidate a significant amount of assets, but exemptions provide for retaining “tools of the trade” and more–most filings result in little to no loss of assets, and some assets can’t be touched.)
7. Bankruptcy is a sign of personal or moral failure (False: The bankruptcy code is designed to offer a restart, a second chance, for those who have been devastated by events beyond their control such as job loss or medical emergency. See a “typical profile,” based on research by Elizabeth Warren.
8. Bankruptcy costs our society too much (False: This myth is directly traceable to a credit-industry lobbyist.)
9. There is a minimum amount of debt required to file bankruptcy (False: No minimum is necessary.)
10. Married couples must file together (False: Confusion arises most often because of states with community property laws–although it may be in a couple’s best interest for both spouses to file, each can file separately, or not all. This is best decided in conjunction with a trained, experienced bankruptcy attorney.)

*************************************************************************

The bankruptcy reform act of 2005 increased the complexity of the law, but if you are overwhelmed by debt, filing for bankruptcy protection may be your most pragmatic alternative. If you are facing foreclosure of your home (sometimes referred to as your “primary residence,” as opposed to a second home, or “vacation home”), bankruptcy protection may be your best route to saving the home. If you are struggling with medical bills, you may be in a special category for setting debt aside, and if you have problems with credit-card debt, you should be aware that some of those laws have changed recently, too. Whatever you do, before making major, life-changing financial decisions, consider consulting a trained, experience attorney. For bankruptcy basics, please see:

Principles of bankruptcy

Basics of bankruptcy

Introduction to Chapter 7

Introduction to Chapter 13