An AOL Daily Finance article Aug. 14 proposes that the U.S. economy has already become a plutonomy.

“Two generations ago, ‘two Americas’ referred to the sharp divide between prospering Americans and those mired in poverty, stagnation and prejudice, a gulf addressed by Michael Harrington in his influential book, The Other America: Poverty in the United States,” writes Charles Hugh Smith in “Why Growth May Still Leave 95% of Americans Behind.”

“With the advent of social programs such as Medicare, Medicaid, food stamps and housing subsidies, much of the grinding rural and urban poverty described in the book has been alleviated.

“But the gap between the super-rich, the wealthy and ‘the rest of us’ has widened, forming what is in essence two Americas — the top 5% and the bottom 95%. And this is creating a situation where economic growth, as measured by GDP, may increasingly mean that 95% of Americans are still not doing better financially.”

Stocks rally even as unemployment ratchets up

For recent evidence look no further than the market’s reaction to the August jobs numbers. This from a Sept. 3 CNBC stock blog: “Stocks were sharply higher Friday after the government reported August non-farm payrolls fell much less than expected.”

That’s right–the private sector added 67,000 jobs, but overall we still lost more than were created, and the “official unemployment rate” ticked UP to 9.6 per cent. Total unemployment remains at nearly 17 per cent. Furthermore, as the Kansas City Business Journal says, “Idled workers who haven’t actively been seeking work aren’t counted among the unemployed.

“It’s estimated that 16.7 percent of Americans want to work but don’t have a job.

“The net gain of 67,000 on private business payrolls couldn’t make up for 114,000 temporary Census Bureau jobs that ended in August. Also, state and local governments cut about 10,000 workers. Manufacturing employment declined by 27,000 jobs.”

Nevertheless, the news wasn’t as bad as Wall Street feared, so the  “August numbers . . . pushed up stock gauges on Friday,” according to a Sept. 3 piece in The New York Times, which also reported that “Optimists were taking their good news where they could. By the end of the day, the Standard & Poor’s 500-stock index was up 1.32 percent, continuing a rally that began in the middle of the week. Market reaction to the jobs data on Friday was tempered somewhat by a report that said growth in the services sector had slowed in August.”

CEOs make out as layoffs increase

A recent report from the Institute for Policy Studies has been making headlines, too–this  from the Kansas City Star:

CEO compensation totaled $598 million at the 50 companies that laid off the most workers

“The nation’s biggest job-cutting companies paid their top executives an average of $12 million last year, according to a report released today.

“The 50 U.S. chief executives who laid off the most employees between November 2008 and April 2010 eliminated a total of 531,363 jobs, according to the Institute for Policy Studies, a research group that works for social justice and against wealth concentration.

“In ‘CEO Pay and the Great Recession,’ the institute said the $598 million in combined pay for the 50 executives would have paid one month’s worth of average-sized unemployment benefits for each of the laid-off workers.”

And for anyone confused by headlines about CEOs having it rough, too, this is from the institute, itself:

“Month after month, the headlines have pounded home a remarkably consistent message: Corporate executives, here in the Great Recession, are suffering, too.

“Corporate executives, in reality, are not suffering at all. Their pay, to be sure, dipped on average in 2009 from 2008 levels, just as their pay in 2008, the first Great Recession year, dipped somewhat from 2007. But executive pay overall remains far above inflationadjusted levels of years past. In fact, after adjusting for inflation, CEO pay in 2009 more than doubled the CEO pay average for the decade of the 1990s, more than quadrupled the CEO pay average for the 1980s, and ran approximately eight times the CEO average for all the decades of the mid-20th century.

“American workers, by contrast, are taking home less in real weekly wages than they took home in the 1970s. Back in those years, precious few top executives made over 30 times what their workers made. In 2009, we calculate in the 17th annual Executive Excess, CEOs of major U.S. corporations averaged 263 times the average compensation of American workers. CEOs are clearly not hurting.”

Reagan’s budget director chimes in

Moreover, anyone who thinks these data are some sort of liberal claptrap or anti-capitalist propaganda should take a gander at David Stockman’s op-ed piece in the July 31 NY Times. Yes, that Stockman, former director of President Reagan’s Office of Management and Budget. Here’s an excerpt:

“It is not surprising, then, that during the last bubble (from 2002 to 2006) the top 1 percent of Americans — paid mainly from the Wall Street casino — received two-thirds of the gain in national income, while the bottom 90 percent — mainly dependent on Main Street’s shrinking economy — got only 12 percent. This growing wealth gap is not the market’s fault. It’s the decaying fruit of bad economic policy.”

“Furthermore,” says the AOL Daily Finance article, “the very rich are pulling away from the merely wealthy. Those earning $10 million or more per year are increasingly wealthier than the 321,000 earning $1 million or more, and those top earners are pulling away from the rest of the top 5% of households by income.

“In the housing and stock market boom years of 2002 and 2007, the incomes of the bottom 99% of households by earnings grew by a meager 1.3% a year in inflation-adjusted terms, while the pockets of the top 1% grew 10% a year.

“Over the past 25 years since 1985, the top 1%’s share of national income has doubled — in 2007, it netted 23% of the nation’s total income. The income of the wealthiest Americans — the top 0.1% — has tripled in that 25 year period. This wafer-thin slice of Americans now earn as much as the bottom 120 million wage earners.”

Greenspan weighs in, too

A crucial factor in this equation concerns the difference between money and capital. Both the working poor and middle-class workers labor for wages, that is, money. The ultra wealthy have the advantage of the clout of capital, that is, the leverage of being able to use finance as a tool to make more money. Hence, the original Citigroup paper referenced Part One, which was aimed at investors aiming at joining in the upper ranks of the Plutonomists. Citing a recent Bloomberg piece on Alan Greenspan, the Daily Finance piece continues, “The extremely wealthy are pulling away because their earnings come from capital, not labor. While wages have stagnated, returns on capital investments and speculations have soared. None other than former Federal Reserve Chairman Alan Greenspan recently described this yawning divide between those in the top slice of the economy who are doing very well and the 95% below them who are struggling.”

(For more information and a terrific slide show, see this ongoing series at Slate.)

As the first two installments at Slate demonstrate, the causes of what Paul Krugman labels the “Great Divergence” are not readily apparent. We will monitor the Slate series and update here with more, if applicable.

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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

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

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

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.”

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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

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.

Geoff Williams is a successful columnist, blogger, business journalist and personal-finance writer.

You’d think he’d have known better, but years of mismanaging his own finances left him in a deep hole, with more debt than he could handle. In other words, his crisis was not a sudden emergency event, but a pernicious series of events. Finally,  in 2008, he decided to file for bankruptcy protection.

Went bankrupt, wrote a book

Later, a peculiar thing happened: He got asked to co-author a book . It’s called Living Well with Bad Credit: Buy a House, Start a Business, and Even Take a Vacation No Matter How Low Your Credit Score and is available from Amazon.

There’s a tremendous Jan 28 interview with Williams at WalletPop.com, where he usually writes about personal finance. In this Q&A, entitled “Life After Bankruptcy: Living Well with Bad Credit,” he answers questions from a fellow writer about “coming out” to family, friends, and readers about his own bankruptcy. He explains the genesis of the book deal, describes the slippery slope to bad credit–including signs that should raise red flags–and discusses both the effects of and returning from bad-credit purgatory. It’s a good piece, well worth a full read, but here’s some excerpted highlights:

Friends are still friends

Responding to a question about the stigma of bankruptcy, he says, “As for what our neighbors, my friends and others think, well, I’m in the process of finding out. My parents wish I’d have kept my mouth shut and had written about anything else, but I’ve talked about my book on my Facebook page, so I know that some of my relatives know about the book and may know about my financial history. And some friends have learned about it and are still my friends. I haven’t shied away from my bankruptcy, but you know, it’s not like I go to my daughters’ parent-teacher conference and say, ‘But before we discuss how Lorelei’s coming along with her reading and how Isabelle is faring in social studies, I really should tell you all about my financial history…’ ”

Asked how people wind up in debt trouble, he mentions singular, tragic events, “For some people, bad credit really is out of their control. They’re stricken with cancer, for instance, . . .  [o]r there’s a divorce . . . .

“But with most people, it begins with one mistake” that “snowballs,” such as buying a car that’s too expensive for one’s income, which leads to not paying off credit-card balances–which is now two blunders. “You’re paying too much for a car every month, and you aren’t paying down your credit card debt. At some point, you realize what’s happening and become concerned about the credit card debt, so you pay it down more, which is great, but because of that, instead of cutting back on your entertainment budget, you stop putting money in your savings account. And now every month, you’re making three mistakes.”

Be creative

Asked about living well with bad credit, Williams says flat out that “Living well with bad credit is harder than living well with good credit.” He mentions having  “more hoops to jump through, and more hassles to deal with.” Examples include renting an apartment and booking hotels and rental cars for a vacation. But none of those are impossible: “You can [get an apartment] . . . . But you’re going to have to look longer and harder for one and be more creative in the way that you look for an apartment.”

As far as taking a vacation, “. . .things get trickier because many hotels and rental cars treat debit cards differently from credit cards. If you book a hotel for one night with a debit card, the hotel might hold enough money to pay for an extra night and then not release that money until several days later.”

‘Light-bulb’ moments

The single-most telling Q & A, however, may well be the following, quoted in its entirety:

WalletPop: Having started out with good credit, and then living well with bad, what have been some of your “light bulb” moments?

How to think about new loans

In a May 3 piece for WalletPop, “How to file bankruptcy and still get a loan,” Williams addresses home mortgages, auto loans and personal loans.

Now, this is critical to bear in mind. Often critics of bankruptcy harp on the length of time that bankruptcy lingers on a credit report. However, often overlooked are two important considerations:

1. the equal or longer amount of time a poor credit rating will hang on for someone who keeps making minimum or no payments to creditors, and
2. the relatively short period required for a bankruptcy to be discharged.

So, yes, a Chapter 7 filing remains on your record for 10 years, and Chapter 13 for seven; but the Chapter 7 is normally discharged within 60 to 90 days from the meeting with creditors; the Chapter 13 discharge follows the payback period, normally three to five years, with the discharge papers arriving anywhere from a few weeks to a few months after the final payment.

What this means is that a Chapter 7 filer could receive credit-card offers within months of the initial filing, a Chapter 13 filer might get similar offers within four years. The important thing to keep in mind is to zealously, relentlessly focus on what caused the problems–if credit-card mismanagement was the culprit, a cash-only lifestyle might be in order. Certainly, creating–and sticking with–a budget will be crucial.

Higher interest rates, but still obtainable

Now, what has Williams learned about home loans? The biggest pill to swallow is that you’ll pay higher interest rates than someone without  a bankruptcy on record. The silver lining is, home loans can still be possible. Williams indirectly quotes a senior vice-president of a company that operates in 25 states: “if you’ve had a bankruptcy, it typically takes five years to get a conventional home loan and two years if you’re going for an FHA loan.

“But it’s possible to get one sooner, if you aim for an unconventional loan, like a lease-option, where you rent a home while saving up the money for your down payment and biding your time until your credit score goes up.”

The main thing is “to get back in the game” by starting immediately to rebuild your credit record and FICO score. One tool is the secured credit card, described at this bankrate.com article as something you go for after establishing “good financial habits”:

Using secured credit cards

” ‘A general guideline would be six months [after your discharge],’  says Whelan, a bankruptcy judge for 12 years.”You’ll put money in an account and the credit card company will give you a credit limit of that same amount. When the bill comes in, you pay it, as you would a normal card. You get the deposit back only when you close the account or switch to an unsecured version. Some card companies may also be willing to give you a credit limit higher than your actual deposit, says Curtis Arnold, founder and spokesperson for Cardratings.com. Tip: Look for a card that reports to one, and preferably all, of the credit bureaus.

“The good news: Many secured cards report as unsecured cards, says Arnold. ‘And assuming your account’s in good standing, once you’ve had it for a year you should start getting halfway decent offers on on unsecured cards.’ ”

Taking care of fundamentals

Another thing–even if you eschew a credit card, even the secured version, do keep impeccable records. And no matter what, pay all bills on time. Doing those two things and saving up a personal emergency fund will go a long way to demonstrating to lenders that you’re taking financial responsibility.

As far as auto loans go, Williams recounts a tale of having his car go kaput and being able to get financing for a “fairly new car, a 2006 Subaru,” even though he was self-employed. “I suspect anyone with a steady income — and especially if you have a place of employment — will be able to get a car, even if your bankruptcy was yesterday. Granted, my story is just one example, but I’ve talked to enough experts over the past few years to come to this conclusion: Loans are tight, but the car industry, frankly, wants very much for you — and everyone under the sun — to buy a car. So they will do what they can to make a sale happen.

“That is, again, if you have real proof of income and if you can stomach a higher interest rate than what the sticker and commercials are promising.”

‘Second-chance’ auto loans

Also, there are companies that specialize in sub-prime auto loans. Some of them use bankruptcy discharge filings to solicit new customers. Once again, there is a difference between Chapter 7 and Chapter 13 filers. The following is from an April 27 post at autocreditexpress.com:

“A Chapter 7 bankruptcy is fairly short and is usually over in a matter of months. A Chapter 13 bankruptcy can last either 3 or 5 years. If you are currently in a Chapter 7 bankruptcy, you will need to wait until it has been discharged.

“If you are currently in a Chapter 13 bankruptcy, you will need to contact the Trustee and have him request an order to incur additional debt from the court. Since your Chapter 13 bankruptcy is based on your income and expenses, you need to get permission from the court before you take on any significant additional debt, such as a car. If the court approves the request, they will furnish you with the document. Make sure you have this document when you apply for a car loan, because you will need this as proof that the court will allow it. The order also states the maximum amount the court will permit you to borrow.”

Notice, however, none of this applies to a dismissed bankruptcy, which means the filer has failed to follow the terms of the court (most commonly by not making required payments). “If your bankruptcy has been dismissed, no bad credit lender will approve you for a second chance car loan.”

UPDATE: Please see more info about auto loans, bankruptcy and “reaffirmation agreements” here.

Personal loans

As for personal loans, Williams indicates that anything is possible but in most situations it will be a challenge until your credit score has improved. He says Hale Walker, the mortgage company VP, advises that the worst thing to do is “hunker down and hide . . .with every passing day, as you start restoring your credit, that bankruptcy becomes a little less significant.

” ‘And if you’re working on your credit and can show lenders you’ve been paying your bills, they might be able to put together a package that makes sense,’ says Walker. ‘You’re going to have much better luck if you pay your bills and live your life than if you do nothing and just wait for a magical two years to have passed and then start trying to get a loan.’ ”

To re-emphasize, the experts are in agreement:

• Keep steady income; work two jobs if necessary, or get part-time, supplemental work.
• Rectify past behavior or money management issues.
• Create–and stick with–a budget.
• Maintain good records to be able to show to a lender.
• Get pumped up about rebuilding your credit record: Be persistent.

Additional resources

Related links:

April 4, New York Daily News: There is life after bankruptcy; Credit could thaw in 18-24 months

August 16, 2009, Parade: How to Bounce Back from Bankruptcy

August 4, 2009, “The Smarter Wallet”: How to Build Good Credit and Clean Up Bad Credit

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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

Quite often, the people or companies using these scare tactics are pitching products or programs of their own. If you read something along the lines of bankruptcy will “ruin your life,” be sure to investigate what course of action or product is being offered as an alternative to bankruptcy. (As we’ve noted before, be particularly wary of so-called “debt settlement” companies that offer the moon while demonizing the bankruptcy process–more about this in Part 2.)

FTC and credit counseling

For instance, legit credit counseling agencies do exist. Here’s the Federal Trade Commission’s page called “Information About Credit Counseling and Debtor Education,” a thorough overview of the credit-counseling aspect of bankruptcy that also includes a link to “list of approved debtor education providers at www.usdoj.gov/ust/eo/bapcpa/ccde/de_approved.htm or at the bankruptcy clerk’s office in your district.” The page also features a good list of crucial questions to ask of any debt counseling agency or service.

One thing that pops out, though, concerns fees and up-front costs: The FTC says the cost for the initial session should “generally be about $50, depending on where you live, the types of services you receive, and other factors.” Furthermore, “If you cannot afford to pay a fee for credit counseling, you should request a fee waiver from the counseling organization before the session begins.”

Now, if counseling or other research indicates that bankruptcy protection is not for you, then don’t pursue it–and certainly don’t use the protection frivolously.

Bankruptcy ruins credit-rating?

That being said, however, many of the horror stories are just that, scary stories that don’t bear up under research. For example, will bankruptcy ruin your credit rating? Unfortunately, that’s not a yes-or-no answer. True, bankruptcy is the single largest hit a credit score can take. Here’s a recent comparison  (not exact, due to the vagaries if the FICO equations) from CNN.Money.com, showing various effects of mortgage delinquency, foreclosure and bankruptcy: clearly, at a range of 130 to 240 points, bankruptcy is a huge hit.

If you’re 30 days late, expect your rating to drop 40 to 110 points; 90 days late, 70 to 135 points–but if you lose your home, it’s somewhere in the 85 to 160 range. And that’s regardless of whether the loss is through foreclosure, short sale or deed-in-lieu.

For a homeowner, the primary concern often becomes the tradeoff between saving the home (usually through Chapter 13 protection) and the lowered credit rating: If losing the home results in major credit-rating downgrade, what’s been accomplished?

Another consideration involves the “weighting” of the FICO analysis. The way it works is someone with a high credit rating has more to lose, according to the CNN piece:

“Some borrowers will fall much more steeply than others for the same payment problem, according to Maxine Sweet, vice president for public education at Experian, one of the nation’s main credit bureaus.

” ‘If you picture someone who has just one mortgage and one other credit account versus a mature credit user like me with 15 accounts, if they miss one payment that would impact their scores a lot more,’ she said. ‘For me, one missed payment would just be a blip.’

“The point loss also depends on the borrower’s starting point: People with very high credit scores have more to lose than low-score borrowers; the impact of a single blemish on an 800 score is more than on a 500.”

This comes into play for many who have been struggling for a long time; that is, their credit ratings may already be in tatters.

Making a business decision

The cold, hard business decision, then, becomes “What’s the best way to start over, and begin rebuilding?”

Again from the CNN article: “Despite the problems a poor credit score can cause, Experian’s Sweet recommends that people who are in financial dead ends, like totally unaffordable mortgages, it’s better to recognize that and cut your losses quickly; don’t prolong the problem.

” ‘You need to do what you need to do to get your finances back in order,’ she said. “Don’t worry about your credit score.”

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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, please know the laws have changed recently. For bankruptcy basics, please see:

Principles of bankruptcy

Basics of bankruptcy

Introduction to Chapter 7

Introduction to Chapter 13

Yet, with every new round of data concerning bankruptcy rates, it seems like somebody, somewhere  has to trot out this old, tired pony and flog it around the arena of “shame-on-you.”

The latest, apparently,  is a woman named Mary Hunt, who runs some sort of debt-control Web site called DPL, short for “Debt-Proof Living.” Her regimen looks kinda like Dave Ramsey’s: there’s a “boot camp,” a repayment plan,  and a component for building emergency funds. She offers a free newsletter, and paid members get access at various monthly subscriptions (three months for $10, six for $18, a year for $29, etc.).  Today’s home page offers such tidbits as “Five Quick and Easy Tricks with Bacon”; a method for “Quick Bathroom Cleanup”; and “Mary’s Thought for the Day” for anyone who might “Feel Like a Failure” (if so, keep persevering…like Abraham Lincoln did).

Which, of course, is all good: if she can make a buck by helping folks get debt under control–hey, why not?

‘Moral failing’

But in at least one columnist’s opinion, Hunt went over the top in a recent version of her blog. Writing April 17 at the Minneapolis-St. Paul Star-Tribune, John Ewoldt says: “Everyday Cheapskate” columnist Mary Hunt wrote recently that bankruptcy is a moral failing. Hunt’s opinion isn’t a random swipe — it is based on personal experience after she slowly clawed her way out of a $100,000 credit card debt without declaring bankruptcy. Since then, she has written many books about using credit wisely.

“Hunt’s ‘moral failing’ comment was in response to a personal finance expert who wrote that if you can’t get out of your financial mess in two years, consider filing for personal bankruptcy.

As Ewoldt says, people need to be accountable.  No competent professional will say otherwise. In fact, anyone who downplays the gravity of filing for bankruptcy protection is neither competent nor professional.

But “moral failing” ? That’s simply ridiculous.

Have unscrupulous people ever dodged debt by playing the system? Undoubtedly. But for most–especially nowadays, in this economy, in this crisis–it’s simply a business decision.

Well, don’t buy GM cars, then

Ewoldt asks: “Where’s her column that no one should buy a vehicle from General Motors because it needed a bailout?”

Indeed. In fact, upon reading her background story, one suspects Hunt might be projecting qualities from her past–behavior from years ago–onto jammed-up debtors of today.  According to Hunt, her early years of marriage were characterized by her impulsive, compulsive spending and abuse of every credit card she could lay hands on, mail-order catalogs and even the checkbook–issued from the bank where her husband was a manager. No doubt that caused some friction at home.

Having hit bottom, the pair eventually turned things around. She writes: “It took us 13 years to pay back more than $100,000 in unsecured debt, plus all the penalties and interest. Had I known then what I know now, we could have paid it back in six years or less. But, that’s not important now. What matters is that we did it … we persevered and we are so much better for having gone through it.”

That’s nice. But what really matters is they learned their lesson, and she quit committing credit abuse.

But most folks fighting to keep their homes, fending off harassment, looking for work or dealing with a medical emergency are not guilty of the types of out-of-control acquisition that Hunt concedes afflicted her.

Medical bills, job loss, divorce

According to Ewoldt, “More than 60 percent of people who declare bankruptcy are in over their heads due to medical bills, according to a 2007 study published last year by the American Journal of Medicine. While Hunt and others personalize bankruptcy as people spending willy-nilly or gambling away the farm, about 90 percent of personal bankruptcies result from medical bills, job loss or divorce, said Henry Sommer, the former president of the National Association of Consumer Bankruptcy Attorneys.”

And from the Big Huff herself, at Huffington Post (Apr. 5), we see a reference to a study that’s gaining traction around the Web, in a piece in which Huffington writes: “The consequences of our failed financial system are everywhere you look.”

Huffington, whose larger point is the pressing, critical need for deep, meaningful reform of the financial system, writes: “A study by Elizabeth Warren and Ohio University’s Deborah Thorne, entitled ‘The Vulnerable Middle Class: Bankruptcy and Class Status,’ found that the personal bankruptcy surge is being led by former members of the middle class.

“According to the report, the proportion of bankruptcies filed by those who had attended college went from around 46 percent in 1991 to almost 60 percent in 2007. And, ominously, the data for the report was compiled before the economic crash. ‘I’m almost afraid to look at the data now,’ says Warren.”

Rich and famous

An April 9 article in The Wall Street Journal, headlined “Foreclosures Hit Rich and Famous,” informs us that “Big borrowers are more likely to default than ordinary people, according to data from First American CoreLogic. Its loan database, reflecting more than 80% of the overall home-loan market, includes 1,700 loans with balances of $4 million or more. About 14.8% of those loans were 90 days or more overdue at the end of January, compared with 8.7% for all home loans tracked by First American. Sam Khater, a senior economist at First American, said the bigger borrowers may be more prone [than smaller borrowers] to stop making payments when they have lost all their home equity.”

And, yes, it raises eyebrows to learn that actor Nicholas Cage had “a Tudor mansion in Bel-Air” that “was in foreclosure auction . . . [but] reverted to the lender.”

Even more telling, though, is the case of a formerly high-flying exec at Merrill Lynch, Richard Fuscone, whose 14-acre estate in Westchester  was on the foreclosure block. “Mr. Fuscone, Merrill Lynch’s one-time head of Latin America, put his mansion up for sale in November, asking $13.9 million. But he couldn’t find a buyer.

The court had scheduled a foreclosure auction for Thursday for the 18,471-square-foot mansion—with two swimming pools, two elevators, six fireplaces, 11 bathrooms and a seven-car garage.”

But Fuscone took action and got the foreclosure process stalled. How’d he do that?

He filed for bankruptcy protection:

“The personal bankruptcy filed in U.S. Bankruptcy Court Wednesday temporarily freezes the foreclosure process.

“Reached by phone, Mr. Fuscone declined to comment. Brokers and real estate tracking companies say that his home is one of the most expensive properties to face foreclosure proceedings yet.”

Well, at least he was reached.

Ewoldt says he e-mailed Ms. Hunt but received no reply.

“Hunt,” he writes, “who didn’t reply to an e-mail outlining these concerns, should quit picking on the little guy.”

(Editor’s note: In the next installment, Mike Hinshaw will take a look at life after bankruptcy.)

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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

“One of the worst economic downturns of modern history has produced a big increase in the number of delinquent borrowers, and creditors are suing them by the millions.

“Concern is mounting in government and among consumer advocates that the debtors are not always getting a fair shake in these cases.”

The NYT says national stats are not kept, but that such seizures are up 30 per cent in Cleveland from the past year to this; 55 per cent in Atlanta since 2004; and 121 per cent in Phoenix since 2005.

Phony paperwork

Sometimes the creditors are able to sneakily grab the dough: “Some consumers do not even know they are being sued; the people who are supposed to serve them with formal notice have sometimes been caught skipping that step and doctoring the paperwork.”

Anyone lucky enough to realize that their bank account is being targeted should definitely take notice and appropriate action. Often the creditors instigating the action can’t even prove up on the debt, hoping instead to bully their way to a favorable judgment, via the ignorance of the individuals being sued–or the courts’ lack of recourse when the individual mounts no defense.

“In far more cases, consumers are served but still do not offer a defense. Few can afford lawyers; others are intimidated or confused. In their absence, judges can offer little relief.

“In the rare event that a consumer battles back, creditors frequently lack the documentation to prove their claim, and cases are dropped.”

As the article mentions, filing for bankruptcy protection can help, despite the restrictions in the law that the banking-and credit lobby got passed in 2005.  A Chapter 7 filing can discharge many debts, and Chapter 13 protection offers a structured repayment plan. Both will stop harassment and lawsuits from unsecured creditors and debt collectors.

When defendants don’t show, creditors win by default

Still, it’s imperative to be proactive because some states “allow creditors to charge high interest rates for years after a lawsuit is decided in their favor. In others, creditors can win lawsuits by default and seize wages and bank accounts without a case ever appearing before a judge.”

One example from the article cites a case that “shows how punishing the system can be. In January 2001, a Mr. [Casey] Jones, 45, a maintenance worker from California Crossroads, Va., took out a $4,097 personal loan from Beneficial Virginia, a subprime lender now owned by HSBC, the big bank.

“He fell behind, and Beneficial sued. Mr. Jones did not appear in court.”

By not appearing in court, Jones virtually guaranteed Beneficial of winning a default judgment, resulting in an award of “$4,750, plus $900 in lawyers’ fees, with the debt accruing interest at 27.55 percent until paid in full. The bank started garnishing his wages in March 2003.

“Over the next six years, the bank deducted more than $10,000 from Mr. Jones’s paychecks, but he made little headway on his debt.”

But only $134 applied to principal

By the spring of 2009, Jones still owed “$3,965, a sum nearly equal to the original loan amount.” He finally got an attorney, who discovered  “that all but $134 of his payments had gone toward interest, fees and court costs.”

The bank finally stopped once Jones got a lawyer, which saved him nearly four grand–but by then, he had already paid more than double the original loan.

Student loans up to $56 billion

On another front, a Reuters piece posted at CNBC (Apr. 1) rings an alarm bell about increasing levels of student loans, saying the “unprecedented number of loans . . .[has]negative long-term implications for the housing and auto markets.”

The Great Recession has taken a chunk from the rate of bank-backed credit cards, both in apps submitted and in apps approved. Meanwhile,  however, Equifax told Reuters that outstanding student loans total $56 billion, a rise of “about 50 percent since 2007.”

The news service quoted Dann Adams, president of Equifax’ U.S. Consumer Information Solutions: “This generation of students will be less able to buy their first home given their debt load. Their largest payment will be their student loan.”

Here’s something to keep in mind, though: Even though the recent changes to student-loan law include upper limits on the size of payments to service the loan (10 per cent of discretionary income versus the current 15 per cent), the bankruptcy code offers very little protection regarding student loans.

Hardship exemption

Basically, the only relief through bankruptcy court is obtaining a ruling that repayment of the loan represents an extreme hardship. It’s not impossible, but it is difficult. Here’s a site that offers a pretty good rundown of the process, including guidelines for both Chapter 7 and Chapter 13, along with some “case-study”-type examples.

(Note: For a good summary of the student-loan changes, see this April 8 post at the San Francisco Chronicle’s Web site, via Ivestopedia. Oddly enough, there’s also an Investopedia link to a slideshow “The Top 5 Reasons why People go Bankrupt,” listed as medical expenses; job loss; poor/excess use of credit; divorce/separation; unexpected expenses such as loss through theft or catastrophes.)

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It’s true that the bankruptcy reform act of 2005 changed many aspects of the law for those needing protection and also for attorneys who practice bankruptcy law. If you’re considering filing for bankruptcy, it’s important to receive counsel from not only trained bankruptcy attorneys but also from experienced bankruptcy attorneys. Bankruptcy offers many consumers powerful tools for starting over, but it can be a complex process–and timing the submission of your petition can be crucial to your ongoing success, for years to come. We have background information available as well as a simple form that will get you started today. Please notice some terms seem similar on your first reading, so don’t hesitate to click back and forth to get a feel for the terminology and the distinctions between different programs.

Perhaps debt elimination is best for you. If so, start here.

Maybe debt consolidation is better for you: In that case, start here.

If you already have exhausted the preceding information, you may be ready to consider invoking protection from the bankruptcy code–if so, read here.

If you need immediate help, you can complete a short form at the bottom of this page.

The Associated Press reports today: “New claims for unemployment benefits fell more than expected last week as layoffs ease and hiring slowly recovers.”

A “seasonal adjustment” to the stats is involved, though, as Marketwatch reports, also today: “Initial claims fell 14,000 to a seasonally adjusted 442,000 in the week ended March 20, the Labor Department said Thursday.

“The latest figures reflect annual revisions using new seasonal factors, and put claims 10,000 lower than they would have been under the previous assumptions, a Labor Department official said. Without the annual revision, claims would have totaled about 453,000. Economists surveyed by MarketWatch predicted claims would drop to 450,000. See our complete economic calendar.”

The AP explains that the seasonal adjustment addresses such factors as jobs ending for temporary holiday-workers.
“The department updates its seasonal adjustment methods every year, and revises its data for the previous five years. Seasonal adjustment attempts to filter out expected changes in employment such as the layoff of temporary retail employees after the winter holidays. The goal of seasonally adjusted figures is to provide a more accurate picture of underlying economic trends.”Excluding seasonal adjustment, initial claims fell by more than 30,000 last week to 405,557.”

The ‘cusp’ of a jobs upturn?

The AP account also quotes one economist as saying we’re on “the cusp of a hiring recovery,” but also that “Carl Riccadonna, senior U.S. economist at Deutsche Bank, said claims need to fall below 400,000 before the economy will consistently create jobs. Claims will likely fall below that level sometime in April, Riccadonna wrote in a note to clients.”

Earlier in the month, a Reuters’ report–based on January data–described a bleak picture in “[n]early 200 metropolitan areas [where] reported jobless rates . . . [were] at least 10 percent in January, showing that unemployment problems persist at the local level.”

Perhaps to be expected, given the high rates of foreclosure and bankruptcy filings, California was singled out as particularly hard hit. But so was one area in Illinois: “Rockford, Illinois, had the largest increase in unemployment from a year earlier, of 5.8 percentage points, primarily due to manufacturing job losses, said the Labor Department.”

Reuters said the largest gains in hiring were in an area of Washington state (3,000 jobs) and one in New Jersey (1,900).

Of particular interest during tax season might be this quirkily headlined March 22 post from the Contra Costa Times, via Philly.com:

Unemployment can be added wrinkle at tax time

It’s a thorough introduction to the vagaries of the tax code that face any number of folks without jobs, regardless of  “whether you got laid off, fired or took a buyout package . . . .

“Some who received a hefty severance or voluntary buyout package could end up in a higher tax bracket and owing taxes. Conversely, taxpayers whose income took a big hit may now qualify for tax breaks.”

That seems like common sense. But here’s a nugget many may not know:

Unemployment benefits are taxable: Form 1099-G

“Surprising to many,unemployment benefits are considered taxable income. The feds began taxing unemployment payments starting in 1979. But for tax year 2009, the first $2,400 of unemployment payments are not taxable at the federal level due to stimulus legislation passed last year.”

Apparently, if you have obtained unemployment benefits during 2009, you should have already received a form 1099-G, “showing the amount of taxable unemployment benefits paid in the prior year.” If you haven’t received yours, you can download one here (it includes IRS contact info).

Here’s some more highlights from the article:

• Taxpayers who itemize can deduct job-hunting expenses under the category of miscellaneous itemized deductions.
• People who have seen a steep drop in income should be aware of the little-known Savers Credit . . . a federal income tax break that rewards low- and moderate-income taxpayers for contributing to an IRA, 401(k) or other qualified retirement plan.
• The stimulus plan significantly increased the Earned Income Tax Credit.
• If you were laid off and got a big severance package, your income level could go up as could your tax bracket. The same scenario could happen if you took a voluntary buyout package.
• Taxpayers should also aware they could get hit with penalty taxes when making early withdrawals from retirement accounts.

There’s also separate sections for “TAX TIPS FOR THE UNEMPLOYED” and “TAX CREDITS TO WATCH.”

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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, please know the laws have changed recently. For bankruptcy basics, please see:

Principles of bankruptcy

Basics of bankruptcy

Introduction to Chapter 7

Introduction to Chapter 13