1. June Reyno of San Diego, California, has chained herself to her house to prevent a pending foreclosure. Yes, you read that correctly. Desperate times, etc.
2. “Good Samaritan” Marilyn Mock saved a total stranger’s home for her at a recent foreclosure sale in Pottsboro, Texas. The homeowner, Tracey Orr, had come to the sale to watch her beloved home slip away for good. She was stunned when Mock bid on the home, won it for $30,000, then turned around and said “This is for you.”

The Sheriff’s Office just sent out this email to those who, like me, wrote to the sheriff congratulating him on his bold action to raise awareness on this critical issue - thought others might be interested in it:

I would like to thank you for your email concerning the moratorium on evictions I instituted last week in Cook County, IL. The attention our office received helped to spark awareness of a matter affecting families across America. Here in Cook County, we have been overwhelmed by the effects of predatory mortgages and the resulting economic crisis, and already, the number of foreclosures has hit a record high.

Should our deputies again identify patterns of abuse, we will bring it to the attention of the judiciary and I will not hesitate to halt evictions again if necessary. Thank you for your support.

“My job here as sheriff is not just to follow orders … it is to make sure justice is done.  We shouldn’t be going about destroying people’s lives by winging it. ” - Sheriff Tom Dart

Sheriff Tom Dart of Cook County, Illinois is making headlines this week with his refusal to evict innocent tenants from foreclosed rental properties. His beef? The mortgage companies seeking the foreclosures in many cases aren’t giving appropriate notice to the tenants, who often get surprised by their belongings on the front lawn when they get home from work.

Yet they’re all up in arms over this, as you can imagine. A representative from the Illinois Bankers Association had this to say: “The reality is that by ignoring the law and his legal responsibilities, he is carrying out ‘vigilantism’ at the highest level of an elected official,” it said. “The Illinois banking industry is working hard to help troubled homeowners in many ways, but Sheriff Dart’s declaration of ‘martial law’ should not be tolerated.”

Sheriff Dart begs to differ. He sees it this way: “The people we’re interacting with are, many times, oblivious to the financial straits their landlord might be in. They are the innocent victims here, and they are the ones all of us must step up and find some way to protect.”  His officers are the ones who actually carry out those eviction orders and they’re seeing tenants who are completely taken by surprise by their arrival.

This is bold action, and there is in fact some legal exposure Sheriff Dart is facing for this move. Sometimes, acting against one’s own interests while standing up for what one sees as the greater good - justice, really -  will, in fact, bring negative consequences.

Knowing that, and doing it anyway? That’s the stuff of which heroes are made. Sheriff Dart’s decision will add to the national discussion on this crisis, and for that, I’m calling him a Consumer Advocate Hero.

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.

“[N]ow that we’re in the role of lender, and you’re in the role of borrower, we’re sure that you’ll find these same terms fair.”

Dear Wall Street,

Hi, this is the lobbyist for a group called The Taxpayers, Debtors, and Insured People of the United States. Now that we’ve rejected the first bailout plan, I’m sure that in the spirit of tough, free market capitalism, and spirited negotiations, you’ll consider our second offer. Here are some terms that I’m SURE you will find reasonable:

1) We are willing to loan you money at a very low, introductory rate of 8.9%. If you are even one nanosecond late on your payment, your rate will go from 8.9% to 32.9% instantly. You will have no right to appeal this. The interest rate increase will be retroactive. None of this “but I mailed it out Friday” nonsense. We must get it, and the check must clear, for your payment to count. A reminder: transactions that occur after 2pm are not credited until the next business day, so be sure to make your payments before then.

2) If you are late on any of your other payments to your other creditors, your rate will also be spiked to 32.9%. I know it has nothing to do with us, but if you are late paying someone else, then OBVIOUSLY you are a bigger credit risk to us.

3) We will send you onerous terms and conditions 148,000,000 pages long in 6 point font. Of course, those terms can change on a whim, at any time, so we’ll be sending you hourly updates to the contract, which we expect you to read and keep up with. Sorry, we will be the only ones that can amend the contract; you cannot.

4) You will have a predetermined credit line, and if you go over it by even $1, your interest rate will spike to 44.9%. Sorry, it’s in the contract on page 109,209,392.

5) The bankruptcy laws have now changed. If you get into a bind, I’m afraid you won’t find much sympathy; no more silly excuses will be accepted. We are going to have the titles to all of your buildings and physical assets put in our name, so when the inevitable time comes and you trip up, we’ll simply take everything from you. There will be no court hearing.

6) We’ll be conducting a background check, driving records check, drug test, and disease risk check of all of the top executives of your firm. After all, you’re a riskier loan if you have any of those afflictions, aren’t you? Well, if we find ANYTHING wrong, your interest rate will skyrocket, instantly, and without notice.

7) If your business is located in a “bad neighborhood”, or a “poor city”, or a “hurricane zone”, or “flood plane”, or “terrorist targeted city”, as defined by us, we can raise your interest rates at any time, to any rate we choose.

For the last quarter century or so, you’ve imposed these terms, or some variation of them on us, when loaning us money or insuring us… arguing every single time that it’s “necessary” and that these sorts of changes “will result in more profitable companies that will pass the savings along to consumers”. Well, now that we’re in the role of lender, and you’re in the role of borrower, we’re sure that you’ll find these same terms fair.

Wall Street, prove the cynics wrong and accept our new plan. Prove to everyone that you’re not the hypocrites that everyone thinks you are.

Best regards,

THE TAXPAYERS, DEBTORS, AND INSURED PEOPLES OF THE USA

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.