Judge takes Congress to task in bankruptcy case

Austin American Statesman ^ | February 5, 2006 | Robert Elder

[cva66snipe]

You want real credit reform? Bring back the debtor's prison!

Be carefull what you ask for. Today you may see one tomorrow you may be one. {Debtor} Most persons in the United States do not have the means to survive catastrophic events. I promise you this. You can not earn enough money to pay the insurers to cover all basis of possibilities.

[longtermmemmory]

Only 15% of the people are affected by the new means test.

In addition it only forces people to go into a ch 13 (and pay the greater lawyer's fee) to pay out that percentage over the means test.

Essentially, unless you are an urgent bankruptcy filing, it just means a little added prebankruptcy planning.

The new law was not writtent for personal responsibility. It was written to make the federal courts a new collection agency for the credit card companies.

The law is SO poorly written and in such conflict with itself that it is invevitable that it will have problems. Contrary to popular myth, bankruptcy was never a panacea. There were those reported BIG bankrupcy cases but it was never what was MSM represented.

One other point, the means test changes state to state. So the actuall numbers will vary. The means test just puts the a piece of your future salary into the "asset" category where under the previous test future salary was only in ch 13's.

I think there is a serious constitutional problem with closing the ch 7 door to some people and not others. It is an equal protection issue. Sadly the judges will end up deciding this one too.

[longtermmemmory]

Just as a point of trivia, there is a process under bankrupcy law called lien stripping. In mortgages this is used when the home is under secured. The motion basically takes the unsecured portion of the mortgage and strips that part off into the unsecured category.

In addition, if the mortgage has any flaws it is possible to removed the obligation from the property. But that is no easy task. (generally happens with the truth and lending form)

[BraveMan]

Thanks, but your hope arrived too late . . .

Actions have consequences. Bankruptcy laws as they currently exist allow anyone, anytime to relieve themselves of their personal responsibility, no matter what the circumstance. ANY effort made, no matter how small, to correct this is derided and demonized.

Rue the day this became Standard Procedure in America.

[RGSpincich]

The new law was not writtent for personal responsibility. It was written to make the federal courts a new collection agency for the credit card companies.

You're right, it's impossible to legislate personal responsibility. But it may be a byproduct of the new laws, none the less.

In the early years there was a stigma attached to bankruptcy. If one was willing to be disgraced by a bankruptcy, one could legally absolve oneself from unsecured debt every seven years or so through the federal bankruptcy courts. Initially, only the most unfortunate debtors took this route. As time passed, bankruptcy became a tool of the habitually irresponsible and dishonest. The truly unfortunate became but a small percentage of the filers, imo.

That stigma of bankruptcy slowly disappeared and bankruptcy became a rite of passage. But we have discovered that the old lenient bankruptcy laws have achieved the same results as did the war on poverty. Entitlement.

Well, now people are not entitled to dismiss debt so freely. Congress has decided to attempt a new tact. Massive inconvenience and increased hardship will replace the stigma in an effort to slow down the rising tide of shirked financial responsibility and to help identify the true unfortunate souls who are in need of financial relief.

Personal responsibility will be practiced those wishing to avoid the hardships associated with the new laws.

[Adder]

I do not disagree with any of that.
Still, the revised bankruptcy laws were rewritten to protect lenders who make poor decisions and who ran to the Congress whining like children.

[doc30]

You left out another, painful addition to the new bankruptcy laws. Homestead excemptions are capped at $125K worth of equity in your home. In FL, property values have skyrocketed and there isn't a livable home available for $125K. What this means is that many people will be forced to sell their homes in bankruptcy if there is more than $125K in equity. Anyone who has owned a homes for several years will face this horrific prospect.

[THEUPMAN]

Did I hit a raw spot?


You rambled about but never really addressed the issues.
or the specific questions ... so lets review.

I asked ..
It is morally right to excuse such types of debt?
Doesn't that just transfer your bad fortune to someone else?
Or do think everyone in "the village" should suffer a little rather then you suffer a lot?
It may be morally right to excuse the debt but is it morally right to FORCE the lender to be morally right?
So now we come to the issue ... is everyone "entitled" to the best health care ( food, housing, big screen tv,fill in item here, child care, education, ..)that money can buy ... EVEN IF THEY DON'T HAVE THE MONEY?

This is the real problem , everyone is a conservative when it comes to other peoples pork, but when the pig is in your pen ... it's a real worth while civic program.

.. From what little coherent exerts I could find, I can only conclude that you believe everyone should share in your misfortune.
And that you are to be the judge as to what good ends someone else's money may be put.

classic liberal

a conservative until the moment you are inconvenienced .. and then .. it suddenly becomes vital that we all "are in this together".

a shame really, but not surprising , this seems to be the norm more and more .

[cva66snipe]

Well I was gonna reply to you until I looked at your homepage. OK son the funs & games over now go have your daddy explain things to you. As for you ranting? Classic Anarchic Punk mentality. If my attitude was as yours I would be a millionare likely twice over now. But I practice what I say. I have forgiven a plenty when a lot more than what I bunkrupted was owed. Now you tell me who's richer?

[Blue_Ridge_Mtn_Geek]

The law creates a perverse incentive to get into debt as deep as possible before filing, to make sure a debt repayment plan is hopeless. The net effect will be increased severity of lender losses per case. The "jury is still out" on whether the frequency of cases will also grow. My guess is that the answer to this is "yes". Time will tell:


The Basics Bankruptcy law backfires on credit card issuers
The industry muscled through tough changes that were supposed to make more filers repay some of what they owe. But that isn’t happening.

By Liz Pulliam Weston

Credit card issuers and other lenders spent a small fortune to get bankruptcy reform legislation passed. Now the new law is costing them even more.

An unprecedented spike in filings before reform took effect in fall 2005 is chewing into lenders' bottom lines, and the subsequent lull is showing signs of being short-lived. Bankruptcy attorneys say their caseloads are starting to pick up, and credit counseling agencies -- which provide now-mandatory sessions for consumers who want to file -- say they're seeing significantly more people than they initially predicted.

All this is raising questions about whether lenders will profit as much from the new bill as they hoped.

It wasn't supposed to be this way. The new law contains a “means test” that was supposed to steer higher-income filers toward repayment plans. Lenders expected a rush of consumers trying to beat the bankruptcy deadline, but nothing like the surge that actually occurred. More than 500,000 bankruptcy cases were filed in the two weeks before the law took effect, compared with a normal weekly volume of 30,000 to 35,000. So far this year more than 2 million cases have been filed, 49% more than the same period last year and eclipsing all previous records.

"I think the actual magnitude really surprised some people," said Cynthia Ullrich, a director in the Fitch Ratings credit card group. "The feedback we received (from credit card issuers) is that it was larger than anticipated."

The hurting begins
Once a consumer files bankruptcy, lenders have 60 days by federal law to "charge off" the filer's accounts -- essentially recognizing that the debt is uncollectible and taking the loss. Fitch predicted the charge-off rate for major issuers could rise more than 30% to 7.5% in the next few months, compared with 5.7% of accounts currently.

Some issuers have already admitted their pain:

J.P. Morgan Chase & Co., the nation's largest credit card issuer, said its charge-off volume would rise 44% in the fourth quarter to $2.3 billion from $1.6 billion for the same period a year ago.

Capital One warned its charge-off rate could rise up to 1 percentage point from the year's previous range of 4.05% to 4.14%.

Discover said it expected the bankruptcy surge to add $250 million to its costs.

Lenders initially said that the rush of filers merely accelerated losses that would have happened anyway -- that people essentially decided to file sooner, to beat the deadline, rather than a little later.

Indeed, filings dropped sharply to 9,447 the week following reform, according to Lundquist Consulting.

But the following week, filings rose to 14,291. Some of those cases appear to be backlog -- filings under the old law that courts are just getting around to reporting -- but the numbers are expected to climb as weeks pass. How far is the question.

Counselors see lots of traffic

Sam Gerdano, head of the nonpartisan American Bankruptcy Institute, said he wouldn't be surprised if filings remain extremely low at least through the first half of the year.

"We could be seeing records in the other direction," Gerdano said, "with filing numbers we haven't seen since the 1980s."

But some believe the respite will be shorter than lenders hope.

"There was a real lull for awhile, but we're starting to pick up again," said Los Angeles bankruptcy attorney Leon Bayer. "We're getting back to normal now."

Credit counselors report a similar uptick. Demand for pre-bankruptcy counseling, which is now required before consumers can file, has been unexpectedly strong at the 71 agencies affiliated with the National Foundation for Credit Counseling that have been approved by the Department of Justice to provide such services, said foundation President Susan Keating.

"The volume is significantly higher than their original projections," Keating said. "We originally expected our client volume of 1 million to double in 2006 (because of the new requirement). Now we're thinking we may be looking at even more."

Few able to repay

Bankruptcy attorneys and many consumer advocates worry the counseling requirement will allow agencies to divert potential filers into debt repayment plans that the debtors can ill afford. But Keating said her agencies, which currently represent 80% of the counselors approved by the Justice Department, aren't seeing many clients who have the ability to repay their debts.

"The conversion rate of customers who are eligible to go into an alternative, a debt-management plan, has been very, very low," Keating said. "These customers are really in serious financial trouble and have no alternative other than filing for bankruptcy."

That's certainly been true at Riverside, Calif.-based Springboard, which counseled 2,200 pre-bankrupts between Oct. 17 and Nov. 28, 2005, said President Dianne Wilkman. Wilkman said her counselors, who mostly talk with customers by phone, sometimes have to strain to average the 90 minutes the Justice Department requires of pre-bankruptcy counseling sessions because their clients' situations are so cut and dried.

"After 45 minutes you're left with saying, 'So, what about those Dodgers?'," Wilkman said. "But then with other clients with more complex situations, you use much more than 90 minutes."

The bottom line?

Even if filings don't return to previous levels, the reform law may not contribute much to lenders' bottom lines. Fitch and Barclay Capital have predicted charge-off rates will "normalize" to usual levels, but won't drop.

"If a consumer can't pay their bills, they might not file for bankruptcy" but their accounts will still be charged off, Fitch's Ullrich said.

Lenders may recoup some money from filers who are forced into Chapter 13 repayment plans rather than being allowed to erase their debt in Chapter 7 bankruptcy. But the dollar amount recovered may not be significant, given the small number of bankrupts that will be diverted to Chapter 13 -- less than 3%, by Gerdano's estimate -- and the high number of Chapter 13 plans that fail. Under the old law, about two-thirds of Chapter 13 cases never completed their repayment plans; that percentage isn't expected to change much under the new law, Gerdano said.

"The official word is that (lenders are) still confident the law will have its desired impact" of reducing bankruptcy filings and increasing repayments, Gerdano said. "But it may take a year before you know who really won and who really lost."

Chapter 7 Filing Boom Turns to Bust
By STEVEN SLOAN
DOW JONES NEWSWIRES
January 3, 2006 9:49 p.m.

WASHINGTON -- The Oct. 17 change in bankruptcy law generated a short-term boom for personal-bankruptcy attorneys, spurring 600,000 Americans to file Chapter 7 petitions in the two weeks before the tough new law took effect. But business has been a bust ever since, lawyers say.

By the week of Dec. 12, the volume of weekly Chapter 7 filings -- which averaged 30,000 a month before the law took effect -- had dwindled to 1,951, according to Lundquist Consulting, a California research firm that tracks the data. Some lawyers, convinced the golden days are over, have begun to look for other work.

"This law actually punishes lawyers," said Nathalie Martin, a resident scholar at the American Bankruptcy Institute.

The change in the law forced consumers to attend credit counseling and made lawyers accountable for their client's courtroom statements. Consumers rushed to court to extinguish their debts before the new law took effect, causing lawyers' caseload to double or triple in the weeks before Oct. 17

"It was pandemonium," said Nina Parker, a bankruptcy attorney in Winchester, Mass. Her office swarmed with people seeking to file in the weeks leading up to Oct. 17. She filed 88 cases in the first two weeks of October -- nearly three times her normal caseload -- and turned away nearly 100 others.

Marc Sterns normally files three to five personal bankruptcies a month from his Seattle law firm. In October, ahead of the deadline, he filed 20 bankruptcies. Since then, he has only filed one. "I don't think we gained anything," he said.

Richard Weltman is in a similar situation. He practices bankruptcy law in New York and hasn't filed a single bankruptcy case since the new law began. But he is somewhat shielded from the filing drought by also working in several other legal areas.

A dropoff in the number of filings after Oct. 17 was widely expected. But lawyers say the magnitude of the decline took them by surprise. Many fret that, when the dip ends, bankruptcy may not be a lucrative area of practice anymore.

Among the many changes the law creates, it's now harder for consumers to completely wipe out their debt. It also ups the ante for bankruptcy lawyers because it makes them liable for their client's disclosure statements. Now, if a client fails to mention some of their assets or doesn't tell the full truth in court documents, their attorney can be in trouble too.

"Attorneys can't take their client's word anymore," Ms. Martin said.

The goal of the new liability standard isn't to punish lawyers, said Jeff Tassey, a Washington lobbyist who strongly supported the law. Instead, he said the liability standard creates a level of equality among lawyers. "All the bill does is apply to bankruptcy attorneys who file documents with the court the same standard applied to lawyers in every other field of practice," he said.
"You need to be more careful now and document everything," Mr. Sterns said. "I didn't do retainer agreements before this law. Now, I have them for everything. It's made bankruptcy law much more defensive and it doubles the amount of time you spend on a case now." Mr. Sterns said his client conferences are much longer now, going over "nitpicky numbers and calculations."

The more time attorneys spend on a case, the more they can charge their clients. But that won't help lawyers see a profit because their costs have gone up too, the ABI's Ms. Martin said. "It's not clear to me that there will be an increase in profit here," she said. "The increase in costs is being passed on but I don't think there's a markup in fees."

The hope of some lawyers is for bankruptcy filings to reach pre-Oct. 17 rates. But whether that will happen, and when, is subject to debate. Mr. Sterns estimates business may return to normal as early as February while Ms. Martin said she isn't sure whether that will ever happen.
The tougher liability standards, combined with the increased costs, are resulting in lawyers leaving their bankruptcy practice, Ms. Parker said.

"A lot of people are dropping out. I know a good practitioner and this was all he did. But he's giving up his practice and his girlfriend is too. (Lawyers leaving bankruptcy) is more pervasive than you might think," the Massachusetts lawyer said.

That is a problem the American Bar Association said it
predicted when it opposed the liability standard before the law was passed. It pointed to a letter it sent to Senate Judiciary Committee Chair Arlen Specter in September.

The law "will create a harsh new liability standard for debtors" attorneys who don't conduct a lengthy investigation and appraisal of the client's assets...These provisions "will drive many debtors" bankruptcy attorneys from the practice altogether, leaving many thousands of debtors without any legal representation at all," the letter said.

[THEUPMAN]

until I looked at your homepage
????

This is all that is on my home page.

And might I remind you, you went to look, I didn't put that image in front of you.

Another classic liberal ploy ... just ignore the real issues and throw up straw men.

Again I say ... this is part of the problem. We have liberals who call themselves conservatives, perhaps even really believe that they are.

You sir are a liberal , and I use that term with it's socialist reflection.
You would probably be happier if you would just admit that to yourself .

[RGSpincich]

The Basics Bankruptcy law backfires on credit card issuers

More like, impending tough law roots out thinly disguised deadbeats.

[HiTech RedNeck]

The law creates a perverse incentive to get into debt as deep as possible before filing, to make sure a debt repayment plan is hopeless.

emblazon that on your forehead, sir

[cva66snipe]

This is all that is on my home page,

Speaks plenty about you doesn't it? A picture says a thousand words?

And might I remind you, you went to look, I didn't put that image in front of you.

Yea right the web fairy linked it then. LIAR

You sir are a liberal , and I use that term with it's socialist reflection. You would probably be happier if you would just admit that to yourself .

As for you? You seem to know some scripture but your heart rejects it.

It’s like this: When I was a child, I spoke and thought and reasoned as a child does. But when I grew up, I put away childish things

Your home page is about the most childish thing I've seen. As for me? I know the truths of myself and my failings which are many. But as for being a liberal or socialist? No. In that case Christanity would be all about liberalism and socialism then. Learn the difference in the principles. When I said I have let debts go that would be far more than what I bankrupted {which really was not that much} I was not lying. Two very justifable and winable lawsuits were never filed. I chose to deal with the person instead. I had chance at least twice to receive likely millions but rejected it based on my principles. How could I ask my debt be forgiven the demand someone else pay me or else? What should I expect in return? If you know scripture you know the answer. Good Day.

[The Red Zone]

And might I remind you, you went to look, I didn't put that image in front of you.

You just did, right over top of your comment. Isn't it funny how the <img> works in HTML?

[THEUPMAN]

I just wanted anyone who might be casually watching to know what sort of terrible thing he saw on my home page(user profile page)that would cause him to run from the conversation.
sad days

[THEUPMAN]

And just to keep the record straight and get back on topic ...
this is what I asked..
I asked ..
It is morally right to excuse such types of debt?
Doesn't that just transfer your bad fortune to someone else?
Or do you think everyone in "the village" should suffer a little rather then you suffer a lot?
It may be morally right to excuse the debt but is it morally right to FORCE the lender to be morally right?
So now we come to the issue ... is everyone "entitled" to the best health care ( food, housing, big screen tv,fill in item here, child care, education, ..)that money can buy ... EVEN IF THEY DON'T HAVE THE MONEY?

This is the real problem , everyone is a conservative when it comes to other peoples pork, but when the pig is in your pen ... it's a real worth while civic program.

The questions where not addressed.

[Labyrinthos]

Alfonso Sosa says he had trouble making his $700-a-month mortgage payments because his painting business had slowed down. Last summer, he missed four payments in a row, prompting his lien holder, a Fredericksburg woman who sold him the trailer, to move for foreclosure. Sosa and his wife had other debts. Their new bankruptcy filing lists $8,935 that he owes a paint supply store and three recent county court-at-law judgments against him. One is for writing a bad check.

No mention of how he and his wife each took second jobs in an effort to make ends meet.

[Labyrinthos]

The fellow should resign from the bench and run for the legislature, since he seems to prefer legislating to interpreting the law. Of course the bench is full of such people; more of a problem than the bankruptcy laws.

He did follow the law. He complained about it and criticised it, but he also followed it.

[bvw]

I don't know about the constitutionality and would be interested to hear your reasons for saying that, but they are bastard law, and will bring on by themselves a hobbling of the economey and the young -- many of whom have college debt plus overpriced house purchase debt.