And the only remedies being discussed seem to offer no real, concrete help for you, the consumer stuck in the middle of this mess.

I’ve seen a substantial increase in calls to my office seeking bankruptcy consultations in the last three or four weeks. I don’t know about Dana’s experience, but since she’s been noticeably quieter on the bankruptcy law list to which we both belong, I’m guessing her experience has been similar to mine. Solos don’t have the luxury of pawning off work to their associates! When business picks up, our hours at home simply decrease. (Or in my case - my hours at home, in another part of the house from where the fun stuff usually happens, since my office is in my home.)

It struck me that this is a really good time to write about who is most helped by bankruptcy - and perhaps even more importantly, who is not.

I can conclude then that a lot of consumers are contemplating a solution they’ve perhaps never considered before, or are finally acting on an option that, for whatever reason, they had not previously acted upon: bankruptcy. It struck me that this is a really good time to write about who is most helped by bankruptcy - and perhaps even more importantly, who is not.

Who Should Consider Filing For Bankruptcy?

It might sound strange but there’s no test for going into bankruptcy, as a general prerequisite. You don’t have to have a certain amount of debts (though having more than a specified amount of secured or unsecured debt might keep you out of Chapter 13). You don’t have to make less than a certain amount of money. Heck, you don’t even have to be behind in your payments to your creditors.

Bankruptcy is not a “flow chart” kind of choice. You can’t just tick off a few boxes on a questionnaire and scan the answer key for the right interpretation. It’s a personal choice, to be sure, and it’s one that must rest on several factors:

1. Are you in economic distress — i.e., you’re having trouble making your minimum payments to the credit card companies, you’re barely making ends meet and keeping the essentials (food, clothing, shelter), you’re robbing Peter to pay Paul, etc. ?
2. Do you live paycheck to paycheck, and just one moderate health problem away from crisis?
3. Are you facing a significant judgment for some personal injury that was not willfully caused or occasioned by drunk driving, and your assets are at risk?
4. Are you judgment proof? In other words, do you have no assets at all that can be seized and sold to pay back your financial obligations? If so, you may not need to file for bankruptcy. (On the other hand, judgments stick around for awhile - the exact amount of time varies by state - and so even if things are bad now, but might improve in the future, you could be facing seizure of those future assets. A lawyer can help you suss this one out.)
5. Are you being harassed by creditors and collection agencies? Bankruptcy can stop that. Of course, so can a well-timed FDCPA or state-law-based lawsuit. But if it’s a rampant issue, and you are also in economic distress (i.e., can’t pay your bills, even the minimum due, when due), bankruptcy might be better option.
6. Last, but by no means least, are you facing foreclosure? Chapter 13 is a very effective way to stop a foreclosure, allow the homeowner to restructure other debts, and pay off the mortgage arrears over time.

Who Won’t Be Helped By Bankruptcy?

In a nutshell, bankruptcy won’t put more income in your life. If your problem is really one of not making enough money to support the lifestyle you lead, then bankruptcy isn’t going to help with that. You’ll have to either ratchet down your spending (lower grocery bills, move to cheaper housing, sell new cars in exchange for cheaper used vehicles or public transportation); increase your income (second job, new job, overtime, whatever); or both.

Bankruptcy also won’t help if your primary problem is a non-dischargeable debt. What’s non-dischargeable is prescribed by the bankruptcy laws - specifically, section 523 of Title 11.

Here’s a quick and non-exhaustive list:

• Recent taxes and government penalties
• Child support
• Criminal fines or restitution ordered by a court
• Personal injury awards where the debtor was intoxicated at the time of the incident
• Debts that weren’t listed in the bankruptcy filing (or “scheduled”)
• Student loans (unless repayment would constitute a substantial and undue hardship - note that this is a very hard “test” to pass and so the vast majority of student loans are nondischargeable)
• Debts that were part of a prior bankruptcy case but where debtor did not get a discharge

(Note that this is for Chapter 7. In Chapter 13, debtors get a slightly broader discharge. However, the biggies - child support, student loans - are still nondischargeable.)

Answering the Question for Yourself

It’s not an easy decision to make. Trust me. I DO know.  You have to bring all of yourself to the table on this issue: your emotions, your rational mind, your upbringing, your religious/spiritual beliefs, your values and morals.

I recommend you take a reasoned and balanced approach:

1. Do your research. Find out all you can about bankruptcy - especially as it really is in your state. (For more on bankruptcy in South Carolina, see “What to Expect in an SC Consumer Bankruptcy Case.”)
2. But do it on reputable sites. There is a great deal of inaccurate, old, or just flat-out wrong-headed information floating around out there on the web. Stick with attorney-written sites, and preferably ones written by attorneys who practice in this field regularly in your state of residence. Another excellent source for general bankruptcy information is the SC Bankruptcy Court website.
3. Think about the future. Try to envision how you’ll feel once the case is over, and try to envision the same time frame (about 6-12 months out) if you don’t file. How will you feel about yourself and your choice in each scenario - filing, and not-filing?
4. Shop around for the right lawyer for you, but consider making your final decision on something other than price. It’s tempting, in a financial crisis, to go with whoever’s cheapest. But consider another approach: interview the lawyers. Why not? They’ll be working for YOU. Shouldn’t you be as careful choosing a lawyer as you’d be selecting an employee to care for your kids? Make sure it’s a good “fit” - that you understanding and approve of their general approach, that you know who you’ll be dealing with (hint: it’s not always the lawyer who speaks with you), and that you feel positive about working with these people. Above all, don’t settle for someone who makes you feel less than good about yourself, or from whom you sense judgment and disapproval.

Finally, a word about morality: anyone who says it isn’t a moral decision is kidding themselves - of course it is. You do have to make the decision that’s right for you and your family.

But consider this: is it more moral to continue to fight losing battles, to put your family’s assets and futures at risk, to subject yourself to debilitating, crippling stress, all in order to pay off old debts, or to admit that you tried, that it didn’t work, and that you need a fresh start, and thereby be able to devote your time and energy to more positive actions?

I can’t answer that for you - but you can. Take your time, make the right decision for you and your family, and then, once you’ve done that, have faith in the decision you make.

In the immortal words of Little Richard: Good Golly, Miss Molly.  What the bejeebers is going on with this economy?!

Well, we pick up with where we left off last week. At the week’s close, we were debating the bailout and what to include. Despite the best efforts of some of the smartest and most dedicated consumer advocates I know (and know of), the big-biz-friendly Congress “declined” to actually help out the consumers whose foreclosure cases lie at the heart of this meltdown: there is no provision for bankruptcy cramdown in Chapter 13 within the proposed bailout legislation.

Then, on Friday came news of a troubling overnight development: the collapse of consumer finance giant WaMu and its subsequent asset seizure by the feds. Friday night, of course, Republican presidential candidate John McCain changed his mind and went to the debates, and never mentioned the middle class.

And over the weekend, the rumblings we heard last week about the proposed bailout became loud roars of protest. Judging from some of the mailbag entries at this MSNBC.com page, there are a boatload of angry taxpayers out there who do not think this bailout is such a good idea at all.

I confess, I remain committed to my initial thoughts - that the bailout was a regrettable necessity. But how it’s been pursued - and most importantly, what it includes and even more telling, what it does not include - these issues leave a very sour taste in the mouth of many, and I’m no different.

And then today we get the news that consumer spending has slowed.

In other news, water is wet. Ice, we hear, is also cold, but these reports have yet to be confirmed.

News isn’t encouraging this morning. After Senator Obama sold us out changed his mind and stated his belief that the mortgage reform angle was “probably something we shouldn’t try to do in this piece of legislation” predictably the rest of the party followed suit and declared the issue a “nonstarter.” Gee, thanks, Barack.

Why is it a nonstarter? What on earth is the justification for treating the greed-soaked monsters who created this mortgage nightmare and set us on the path to national fiscal crisis better than we treat the victims of the crisis who are most in danger of losing their homes?

Tell you what: I’ll even agree to put aside the “victim” lingo for a bit. Let’s assume (solely for the sake of argument) that the homeowners are just as much “bad actors” as the corporations getting bailed out for their bad choices. Apples and apples, then - and why are we helping one and not helping the other, especially when it’s SO easy to do?

This isn’t a case of “either/or” — it’s perfectly plausible to enable mortgage modification AND bail out the financial giants. One does not preclude the other. So what could possibly be the justification for this blatant nose-thumbing directed towards the working class homeowners who are struggling to stay in those homes?

Answer: nothing but politics, I fear. Big business = good. Middle class = bad. Very, very bad.

As a constituent and bankruptcy attorney working to help families in our community save their home from foreclosure, I urge you to include court-supervised mortgage restructuring for financially distressed American homeowners in any package you approve to bail out Wall Street.  Why do I support this approach?

• The rapid deterioration of the financial sector has been fueled by the steep rise in delinquencies and foreclosures of risky mortgages.
• These mortgages have been sliced up and sold in complex financial instruments that now sit as “toxic assets” on the balance sheets of our largest banks.
• Every financial expert, including Treasury Secretary Paulson and Federal Reserve Chairman Bernanke, agree that we will not stabilize our financial markets until we stabilize the housing markets.
• The housing market will not stabilize absent a solution to the tide of foreclosures.
• Simply giving a government entity the authority to purchase the “toxic assets? of troubled financial institutions will not result in fewer foreclosures.    This is complicated, but the basic problem is that the government will not be buying mortgages …those mortgages have been carved up and sold to investors all over the world.  The government essentially would have to put all the pieces back together to modify the loan, which just is unrealistic.
• Court-supervised mortgage modification in Chapter 13 bankruptcy is perhaps the most effective tool for ending the foreclosure crisis.
• Court -supervised mortgage modification will not cost the U.S. taxpayer one penny, but will keep families on Main Street in their homes.   It deserves your support as you consider a taxpayer funded bailout of Wall Street.

This is much more nuanced and persuasive than my admittedly off-the-cuff attempt! Feel free to pull and use at will — omitting, of course, the language about being a bankruptcy attorney, unless of course you are one! — as I’m sure NACBA* just wants the message sent, and doesn’t care who sends it!

* Earlier versions of this post mistakenly referred to the group in question as NACA or the National Association for Consumer Advocates. The SC Bankruptcy & Consumer Law Blog regrets the error.

The seminar had an engaged, if light, turnout, and I was really impressed with the level of knowledge demonstrated by some of the questions asked. These legal clinics - which are completely free of charge, by the way - are designed to help the public understand critical areas of the law, and give them a better foundation in the subject so that they can better make their own legal choices.

If you’re in the Grand Strand area, or don’t mind driving there, I’ll be repeating the “performance” at the North Myrtle Beach library on 2nd Ave. North, just one stoplight north of Main Street, on Thursday, September 25, 2008, at 6:30 PM. The program lasts an hour and a half, and will include some time for a question & answer session, too. This one, like the last, is free of charge to the public, and it’s a great way to get some of your questions answered in person by a real live bankruptcy lawyer.

Fair warning, though: I’m pretty passionate about what I do, and have been told I get very “animated” when I get into certain topics, like restrictions on collection efforts for instance!

The Story So Far: Bailout Pending for the Big Guys Only

I read today in my email inbox that one of the professional groups I belong to that’s concerned with consumer bankruptcy issues has been communicating with Congressional staffers about the upcoming bailout (more on that in a subsequent post). The proposed bailout, make no mistake, is concerned only with helping Wall Street and the investment community - not homeowners, not consumers.

President Bush and his administration’s supporters are even now calling for a “clean bill” to pass quickly. What’s that mean? In Congressional code-speak, it means “Pass it fast and NO AMENDMENTS, buckos!” In short: Don’t even think about trying to help out the little guy. Just bail out our finance industry contributors, and then back away from the table slowly.

The Suggestion: Mortgage Modification for Chapter 13 Debtors

Hmm. I have a different idea. And so does NACBA, the afore-mentioned group: why not use this opportunity to help stabilize the economy AND help out the little guy? Surely we can all agree on that as a useful and productive thing for our legislators to do?

Here’s the idea: Pass bankruptcy reform legislation that’s been languishing for awhile now that will allow bankruptcy judges to modify residential mortgages as they do other forms of secured debt and thus allow Chapter 13 debtors some honest-to-goodness relief.

Bear in mind the modification of secured debt isn’t some new concept. It’s been around for awhile. It can’t be used for residences, however, and homeowners hoping to use bankruptcy to keep their homes can only do so at the often-inflated values at which they bought the property. In other words - no real relief at all, except for forcing a payment plan, albeit at the same terms. While that’s helpful to a degree, why not treat homes at least as well as we do the five-year-old upside down family car loan?

The Call to Action: What YOU Can Do

So here’s the kicker: we need to act NOW.  My sources tell me that if calls and emails will be helpful at all, they have to be made Monday and Tuesday - that’s 9/22 and 9/23.

So, do these things:

1. Go to Congress.org’s website. In the upper left corner of the page displayed, you’ll see a small text box that reads: “Find and contact your federal, state, and local officials.”
2. Enter your zip code into the text box below that sentence. Click “GO” - you’ll be taken to a new page where you can either add more information about your address or add your “zip + 4″ digits (this eliminates possibility of confusion in the event of split districts).
3. You’ll be taken to a results page where the President, VP, Congressional representatives, senators and key state officials are listed with links anchored to their names that will take you to their personal pages.
4. Click on those personal pages links and you’ll be given several options in a tabbed box - “Bio/Contact/etc…” What you want is “Contact.”

This takes less than one minute, maybe up to two if you’re a slow typist. Now, you can send your message to your representatives. Put it in your own words, or you can feel free to copy and paste the language below as a template. In any case, I do urge you to put your own unique thoughts into it. Tell them what you think! They NEED to hear it.

Suggested Letter to Elected Representatives on Bankruptcy Reform

Feel free to copy and paste the following, and add your own thoughts as you see fit:

I am your constituent. My peers and I sent you to Washington to protect not only the interests of big business and finance, but our own interests as well.  I urge you to think twice before rewarding the finance industry players who created this economic disaster without also helping those of us struggling to keep our homes in the midst of that disaster. To that end, I urge you to support legislation that would, along with the bailout, permit mortgage modification in Chapter 13 bankruptcies. It is only fair that homeowners be given some consideration simultaneously with those whose lax lending and underwriting practices helped put those homeowners in danger of losing their homes. Thank you for your consideration.

Here’s the backstory on Derrick Todd Lee, aka “The Baton Rouge Serial Killer” (I guess the acronymic and descriptive monikers well was running dry?).

On one of the bankruptcy law listservs I subscribe, one of our Louisiana colleagues mentioned that the convicted killer’s chapter 7 trustee this week filed what we call an “AP” — an “adversarial proceeding”– to revoke Lee’s discharge, and another AP claiming rights to the “story” of how the killer committed the crimes.

I think this is overreaching. We may morally and philosophically abhor allowing a convicted murderer to profit from his story — and frankly, I do (that’s the reasoning behind so-called “Son of Sam” laws that prohibit such activities and/or turn the profits over to victim restitution funds or other interests). But no story’s been written — so any funds from the sale of such a story have to be postpetition. If that’s the case, then they’re not part of the bankruptcy estate. And if that’s true, then the trustee has no right to those funds.

All that said, I haven’t read the complaints yet — so this is based purely on secondhand information and my own idle musings on a Tuesday morning. Still, one can’t deny that it’s a fascinating issue and that doesn’t always happen in Bankruptcy Law-land!

“We needed it to be more in line with modern times,” said George Cauthen, a bankruptcy attorney who primarily represents lenders. “The whole idea behind exemptions is to leave every individual … to leave them with a little dignity and the basics of getting by in life.

The new law applies in bankruptcy, to protect a certain amount of property from a bankruptcy trustee. But it also applies outside of bankruptcy, to protect property from judgment creditors. It increases the exemption in cash (in lieu of a homestead exemption) from $1,000 to $5,000, in a vehicle from $1,200 to $5,000, in household goods from $2,500 to $4,000, and in tools of a trade from $750 to $1,500. The new statute also adds a $5,000 “wildcard” exemption, which can protect assets not otherwise exempt, if you don’t use all of your other exemptions. Those amounts are per person; for a married couple, the amounts will double. These amounts are in addition to the $50,000 homestead exemption that the Legislature gave us two years ago. Click here for more on how exemptions work.

In practical terms, this change in the law means that if you need to file bankruptcy but your 1998Toyota Camry is paid for, you don’t have to worry about losing it. If you’ve managed to save a couple thousand bucks to pay for your kid’s braces, you don’t have to worry about losing that either. If you inherited your grandmother’s Shaker sideboard, you don’t have to give it up. If you are entitled to a tax refund, you won’t have to give that up either. This statute provides meaningful relief to those in financial distress, and reflects the actual cost of supporting a family in today’s economy. Another bit of good news is that the new statute contains a cost-of-living adjustment, so we won’t have to deal with the statute becoming so outdated in the future.

This change is the law is largely due to the tireless efforts of a few dedicated consumer advocates, especially Sue Berkowitz of Appleseed Legal Justice, consumer lawyers, and ordinary people who wrote, called and e-mailed their elected representatives. I also have to put my native cynicism aside for a moment to say that I have been impressed at the sincere efforts so many of our state legislators put into this legislation. They listened and responded with genuine concern for their constituents.

This should surprise no one. The elderly among us are often a bellwether of sorts for financial issues, as they are frequently recipients of fixed income and therefore changes in their financial position come from external forces. Health care costs, in particular, are much greater problems for seniors, who typically must take medication for health problems associated with aging and have many more physician visits than most of us as a result.

Our senior citizens shouldn’t have to file for bankruptcy just to be able to afford their medications, but I’m glad that they at least have the option to alleviate some of the terrible toll that financial distress exacts.

Call your representatives today, please, and express your support for this law, asking them to override the governor’s veto. This is urgent.

And remember this, when you make your decision about who should next hold the governor’s position.