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.)

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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

Not to beat a dead(beat) horse ourselves, but the “myth of the deadbeat” comes up fairly regularly when researching bankruptcy topics. We most recently this phenomenon a few weeks ago here, where we mentioned that at least one news outlet has quit covering weekly info on personal bankruptcies because, well, it’s just not newsworthy.

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