California Bankruptcy Attorney Blog

This month, our Rancho Cucamonga bankruptcy lawyers wrote about the apparent increase in political candidates who are willing to openly discuss their bankruptcies, or even make the bankruptcy experience a part of their pitches to voters. As it turns out, we have another such candidate right here in Southern California -- a challenger running for a state Assembly seat in the high desert, which includes the cities of Palmdale, Victorville and Adelanto. According to an Aug. 23 article in the Redlands Daily Facts, candidate Linda Jones, a Democrat, is under fire in some quarters because she and her husband filed for bankruptcy in February of 2010. The article notes that she lent her campaign $3,000 in March of this year and paid $2,650 in filing fees, even though she owes $5,856 in state and federal taxes for the 2008 tax year. Jones called the comparison misleading, but the article suggested that voters are generally unsympathetic to candidates with tax problems.

Jones ran against incumbent Republican Steve Knight of Palmdale in 2008 and nearly won, suggesting that this race could also be tight. The news of the bankruptcy came from the Flash Report, a conservative blog run by California GOP vice chairman Jon Fleischman. Fleischman criticized Jones for failing to pay off her back taxes before she paid a nearly identical amount to her campaign, and some Inland Empire Republicans echoed that criticism. Jack Pitney, a Claremont-McKenna College political science professor, said voters might be sympathetic about the bankruptcy itself. The region is suffering financially because of high foreclosure and unemployment rates, and some voters may emphasize with a bankruptcy. But if Jones is perceived as dodging her taxes, he said, voters may be less sympathetic. Jones said the comparison was misleading and that she was current on all of her financial obligations.

As Brea bankruptcy attorneys, we'd like to discuss taxes and bankruptcy, something that the article did not explicitly do. Federal law does allow bankruptcy filers to discharge tax debts, but only under certain circumstances. Jones does not meet one of those circumstances -- her tax debt was not incurred at least three years before her bankruptcy. Thus, regardless of what you might think of this bankruptcy, it would be incorrect to accuse Jones of evading her taxes through it. The tax debts and assets are now owned by the bankruptcy estate, a separate legal entity from the Joneses as individuals, and the taxes will be paid when the Chapter 7 liquidation process has taken place. In fact, since Fleischman posted the Joneses' bankruptcy filing online, we can see that the tax debt is the only priority claim -- meaning that the tax debts will be the first debts to be paid off through their bankruptcy. We can only assume that the campaign money came from assets that were exempted from the bankruptcy, as some assets are in every bankruptcy.

Continue reading "Candidate's Bankruptcy Becomes Political Issue in Redlands State Assembly Campaign" »

Our Moreno Valley consumer bankruptcy attorneys follow media reports about bankruptcy, of course. Like other observers, we have repeatedly read that the financial crisis has triggered so many bankruptcies that they have set a record for filings after the 2005 bankruptcy reform law. That's why we were very interested to see an Aug.18 post from the Credit Slips blog, which focuses on bankruptcy, credit and consumer finance from the perspectives of nine academics. This post was written by guest contributor Alan White, an associate professor at Valparaiso University School of Law in Indiana who teaches bankruptcy, consumer law and contracts, among other things. He posed a question no mainstream newspaper has asked: Given all their debts and defaults, why haven't more consumers filed for bankruptcy?

According to the post, U.S. households' mortgage debt grew by 300 percent in the 11 years between 1996 and 2007, while median income grew by only 40 percent. Unsecured debts such as credit cards also increased, but less dramatically -- possibly because some people used home equity loans to pay off credit cards. When the mortgage crisis arrived and credit was suddenly unavailable, a lot of those borrowers defaulted on their obligations. Credit card "charge-offs" are at 10 percent, up from 3 to 5 percent, White wrote; combined foreclosures and 90-day delinquencies was nearly 10 percent in the first quarter, up from less than 2 percent in other eras. Meanwhile, the Treasury Department estimates that 1.6 million people are eligible for the federal loan modification program. Yet this year's bankruptcy numbers are on track for only about 400,000 people to file for Chapter 13 bankruptcy, he notes, saying this raises the question of when they will file for bankruptcy.

As Santa Ana personal bankruptcy lawyers, we suspect there's not just one reason why more individuals and couples are not choosing bankruptcy -- there rarely is. But we can think of several reasons, thanks to our experience working with bankrupt people. The sad truth is that Chapter 13 bankruptcy does not help everyone who is trying to keep a home. For one thing, a Chapter 13 bankruptcy will not allow a judge to reduce the principal owed, or "cram down" the loan, on a first home. This makes Chapter 13 less likely to help underwater homeowners. Second, debtors must have a steady income in order to make their payments under Chapter 13, and unemployment is increasingly the driving force in mortgage defaults. Such people might still go into bankruptcy, but the lack of steady income may put them in Chapter 7 instead. Finally, many people feel so strongly that bankruptcy is a moral or personal failing that they are delaying a seemingly inevitable bankruptcy with harmful financial moves like draining their bankruptcy-exempt retirement accounts.

Continue reading "Law Professor Asks Why More Bankruptcies Have Not Been Filed During Housing Crisis" »

As Upland consumer bankruptcy attorneys, we follow bankruptcy filing news. So we weren't surprised to see an Aug. 18 item on MSN Money confirming what other news sources have already reported: Bankruptcies have reached their highest point in five years. The new data comes from the Administrative Office of the U.S. Courts, which was reporting on bankruptcy filings for the 12 months ending June 30. During that time, overall filings rose by 20 percent, with a total of 1.57 million cases filed, jumping from the 1.3 million seen in the previous year. According to the article, this is the highest rate of bankruptcy filings seen since 2005, when a new bankruptcy law drove a record number of filings.

The 2005 Bankruptcy Abuse Prevention Act put up more barriers for consumers seeking to file for bankruptcy. As a result, many people rushed to file before the law officially took affect that year, spiking bankruptcy filings. Directly afterward, filings dropped below pre-reform levels. But the article said the bad economy over the past two years has pushed them back up. Filings for the most common individual bankruptcies, Chapter 7 and Chapter 13, rose by 21 percent, or 1.51 million. Of those two bankruptcy types, Chapter 7 -- which is more difficult to qualify for under the new law --was up by 25 percent, while Chapter 13 was up by 10 percent. Business bankruptcies also saw a gain, but a much less dramatic one, with an eight percent increase totaling 59,608 filings. The article suggested that the economic recovery "has yet to find much traction."

You don't need to be an Orange County individual bankruptcy lawyer to know that. Observers of the financial news have predicted record-high bankruptcies for months, thanks to the recession, high unemployment and high rates of foreclosure. News reports have been touting good news for the economy for a while, but that news tends to focus on what Wall Street is doing. Because we work directly with individuals and couples far from the financial industry, we can see that any Wall Street recovery is not translating into a recovery for ordinary people. We hope that this is just a matter of time, and that unemployment and foreclosures will start to drop again, driving down bankruptcies. But in the meantime, individuals with substantial amounts of debt and other pressing financial problems should probably not assume that good news from the financial industry will be good news for them in the short term.

Continue reading "Court System Confirms That Personal Bankruptcies Have Reached Five-Year Peak" »

As Fontana personal bankruptcy attorneys, we have been interested to note several recent articles about Congressional candidates around the country who are openly discussing past bankruptcies. In Arkansas, Republican Rick Crawford is running for the House of Representatives, in part on a platform of fiscal restraint that he says he learned from a 1994 bankruptcy. In Vermont, another Republican running for the House, Paul Beaudry, says he wants to apply the lessons he learned from a 1997 bankruptcy to the fiscal problems facing national government today. And a third Republican in Florida, Florida House incumbent Peter Nehr, says his 2009 bankruptcy filing should not affect his ability to do a good job for people in his Tampa-area district. Opponents in all three cases are arguing that the bankruptcies make them poor financial decision-makers, but the candidates openly disagree.

Crawford, the Arkansas candidate, filed for bankruptcy in 1994. News reports don't give the background of this decision, but they have noted that he owed more than $12,000, including $4,200 in medical bills and $7,500 in credit card debt. He has told the media that he thinks his experience going through a Chapter 7 bankruptcy could help to avoid a similar problem on a national level. This was echoed by Vermont talk radio host Paul Beaudry, who declared bankruptcy in 1997 after leaving active duty in the Army, which dropped his income by more than 50%. He told the Bennington Banner that he learned from the mistakes he made 13 years ago and believes the federal government is making the same mistakes. Nehr, the Florida Congressman, has a slightly different story. He owned a flag shop for 18 years, but closed it last year and filed for bankruptcy. The situation was complicated by his divorce this April. He didn't comment on how this might affect his financial choices for the state, but noted that he currently lives just fine on his $30,000 salary as a state legislator.

Our Seal Beach consumer bankruptcy lawyers gathered all of these stories because we believe they teach an important lesson: bankruptcy is not necessarily something to be ashamed of. Some of these candidates have said they are not proud of having been in bankruptcy or that they made mistakes earlier in life, but they are talking openly about their bankruptcies and using them as a way to discuss broader fiscal responsibility issues. By contrast, we are sorry to say that many of our clients are ashamed to come to us for help with a bankruptcy, even when they know intellectually that this is their best financial choice. In fact, many bankruptcy filers wait far too long to make that choice because they are ashamed, even though this can mean running through assets that they could have kept if they had filed earlier. We strongly believe that filing for bankruptcy doesn't have to be a failure -- sometimes, it's the smartest way to deal with overwhelming debts.

Continue reading "Political Candidates Increasingly Candid About Their Past Experiences With Bankruptcy" »

After three straight months of declining bankruptcy filings, the Wall Street Journal reported August 5 that July saw a fairly big increase. As Ontario personal bankruptcy attorneys, we're sorry to see more families suffering financial problems, but we're not surprised to see a reversal. According to the article, July saw an increase in consumer bankruptcy filings of 9% compared to July of 2009, and also 9% compared to June. The source of the numbers, the American Bankruptcy Institute, says there have been 908,000 filings so far this year, up from about 802,000 at the same point last year. The ABI says filings are on track to top 1. 6 million this year, which would set a new record. Last year, there were 1.4 million consumer bankruptcy filings, which itself was a record high for filings since Congress passed the bankruptcy reform law in 2005.

As with all of the high-filing months in 2010, observers said July's numbers suggested problems with the 2005 reform act. That law was intended to reduce bankruptcies by making it harder to file for Chapter 7 bankruptcy and requiring certain extra steps, such as credit counseling. Instead, bankruptcy filings have risen as the economy has declined, the article noted. A law professor noted in the article that people living on the edge or with high debts typically can't borrow anymore during a recession, as lenders tighten their credit standards. Interestingly, an accompanying blog post noted, one major trouble spot appears to be the Atlanta suburbs, which contained six of the top 10 counties for number of filings. Others were Riverside and San Bernardino Counties here in California, as well as Clark County, Nevada (Las Vegas) and Shelby County in Tennessee.

As Corona individual bankruptcy lawyers, we wouldn't be surprised to find out that those six Georgia counties have unemployment and housing problems similar to those faced by Californians in the Inland Empire. As we have noted many times before, bankruptcy filings tend to cluster in areas where there are other economic problems, including high rates of unemployment, severe drops in real estate value and a high number of foreclosures. All of these apply to Riverside and San Bernardino Counties at the moment, unfortunately, although observers seem optimistic about a real estate recovery. In suburban Atlanta, the blog post notes, delinquency rates are higher than the national average on mortgages, bank cards and auto loans. The article also notes that other areas of the South had below-average bankruptcy rates, leading one professor to suggest that their weaker connection to the financial industry has helped them bounce back faster.

Continue reading "Personal Bankruptcy Filings Rise Again in July After Three Months of Declines" »

Our Perris personal bankruptcy attorneys also work with homeowners who are seeking to avoid preventable foreclosures, so we were very interested in a recent CNNMoney.com article on using bankruptcy to stop a foreclosure. The July 21 article explained that it's true that bankruptcy can allow some people to keep their homes. And even if a bankruptcy can't save the home, the article noted, it may be able to prevent a huge tax bill if the home is foreclosed and the remaining debt is forgiven. But bankruptcy won't allow everyone facing foreclosure to keep their homes, the article said -- only those who have a steady income with which to make payments.

Anyone who files for bankruptcy gets an automatic legal order stopping collection on all debts, including foreclosure for non-payment of a mortgage. However, the article said, it's important to have a steady income if you wish to keep the home, because bankruptcy can't stop mortgage payments for good. Typically, homeowners file for Chapter 13 bankruptcy, which rearranges their debts and puts them on a long-term payment plan, rather than Chapter 7, in which filers sell most of their assets. The article noted that bankruptcy judges can't "cram down" the mortgage to the current value of the home, but they can remove second mortgages if the home's value is below the amount owed on the first mortgage, which can shrink the total owed significantly. And because the IRS considers forgiven debt a form of income, bankruptcy can protect homeowners from owing taxes on the "income" from a mortgage debt that was written off after walking away.

As Fullerton individual bankruptcy lawyers, we're glad to see major news outlets discussing these issues in detail, because we know more and more homeowners are having to think seriously about them. The article notes that bankruptcy has major disadvantages, including a black mark on your credit for ten years as well as sale of your assets or handing over control of your finances to a trustee. We believe the advantages for people with serious financial problems may outweigh the disadvantages -- but this is a very personal decision, based on each person's individual financial circumstances as well as personal feelings. Individuals and married couples who are considering a bankruptcy as a way to avoid foreclosure should speak with an experienced attorney who can explain their options before taking any legal actions.

Continue reading "Homeowners Considering Walking Away May Be Better Off Choosing Bankruptcy" »

Last fall, we wrote about the Medical Bankruptcy Fairness Act, a bill in Congress that would change how the bankruptcy courts treat people who are driven into bankruptcy by high medical bills. Our Ontario personal bankruptcy attorneys were pleased to see that the bill is getting some attention, at least in the House of Representatives. According to a July 15 post to The Hill's Healthwatch blog, experts testified before the House Judiciary Committee's Commercial and Administrative Law subpanel that day about the desirability of such a change. The subpanel heard from U.S. Bankruptcy Judge Cecelia Morris and Professor Peter Wright of the Franklin Pierce Law Center in New Hampshire, who disagreed strongly with another speaker, Aparna Mathur of the American Enterprise Institute.

The House version of the bill was introduced by Rep. Carol Shea-Porter, a Democrat from New Hampshire, and five co-sponsors. It would create different rules for bankruptcy filers who paid more than $10,000 or 25% of their income in medical bills for any year in the three years before filing, or who lost a substantial amount of income because of a medical problem. These "medically distressed" debtors would be able to protect up to $250,000 more in real estate property from the bankruptcy, and would have a better chance of qualifying for Chapter 7 bankruptcy. At the hearing, Morris, the bankruptcy judge, said debtors with medical problems get into credit card debt because it's more important for them to get needed care than to worry about money. Mathur, from the American Enterprise Institute, said the bill is so broad that debtors can claim any credit card debt as medical debt.

Mathur also argued that the problem of medical debt driving bankruptcy is overstated, citing his own study saying that just 2.4% of filers reported any medical debt once medical debt was clearly separated from credit card debt. Our Whittier consumer bankruptcy lawyers believe this is a false distinction. Bankruptcy is not fun, financially or emotionally, and in our experience, the vast majority of filers do everything they can to avoid it. In the case of medical debt, that means families will use credit cards or home equity lines of credit and drain their investments to pay their medical bills, even when it's clear that they still won't have enough to pay all for the care they need. That's why other kinds of debt are impossible to separate from medical debt without interviews with debtors. The only studies we know of that used interviews to examine medical bankruptcy are from Harvard University, which in 2005 found that medical debt was cited in about half of bankruptcies -- not 2.4%.

Continue reading "Congress Hears Mixed Testimony on Need for Medical Bankruptcy Legislation" »

As Ontario consumer bankruptcy attorneys, we were very interested to read about a Supreme Court ruling that affects bankruptcy filers' rights. As the Wisconsin Law Journal reported July 1, the U.S. Supreme Court ruled recently that personal property exempted by the bankruptcy filer can be brought back into the bankruptcy assets, even after the deadline to object has passed. The case, Schwab v. Reilly (PDF), concerned a woman who exempted assets from her catering business from a Chapter 7 bankruptcy. That debtor lost at the Supreme Court, which means she must turn over the assets for sale to her trustee. But because the 6-3 ruling also provides clear guidance on how to exempt assets, some commentators said it might actually benefit debtors.

Nadejda Reilly estimated the value kitchen equipment for her catering business at $10,718. Her Chapter 7 bankruptcy trustee did not object. Later, however, an appraisal showed that the equipment could be worth as much as $17,200, and the trustee filed a motion to sell the property. The bankruptcy court, district court and Third Circuit Court of Appeals all ruled against the trustee, saying Reilly had indicated her intent to exempt the full value of the assets. But the Supreme Court reversed them, ruling that the trustee had no duty to object because the estimated value Reilly gave her equipment was within the bankruptcy code's guidelines. Significantly, the court included guidelines for similar future disputes in its ruling, saying debtors can show that they intend to exempt full market value of the asset by claiming "full fair market value" or using similar language.

The article included commentary by attorneys in the bankruptcy field, many of whom said the ruling was good news for bankruptcy filers. Thanks to the court's guidelines, they said, debtors have clear guidance on how to exempt the full value of their assets. One exception was brought up in the dissent by Justices Ginsburg, Roberts and Breyer, who objected that self-represented debtors won't know how to use this information. Another criticism raised in the article said the ruling will mean more work for trustees and bankruptcy courts, because trustees will now have to routinely object to exemptions.

As Covina individual bankruptcy lawyers, we have mixed feelings about this ruling. The clear language provided by this ruling allows debtors to be very clear in their filings, which in turn means there's less risk of those exemptions being successfully challenged. This is generally good news for debtors and bankruptcy attorneys like us. However, we are not so pleased with the Supreme Court's decision as to Reilly herself, which went against all of the lower court rulings. By allowing trustees to challenge exemptions after a deadline for doing so has passed, the decision helps to render that deadline meaningless. This in turn takes away confidence and, arguably, rights from bankruptcy filers. As the article noted, it also gives trustees and filers more reason to fight over exemptions in courts, dragging out the process and costs for everyone.

Continue reading "Supreme Court Ruling Against Bankruptcy Debtor May Benefit Debtors and Attorneys" »

Our Upland personal bankruptcy lawyers have been tracking bankruptcy filings throughout the recession. Experts in those articles have consistently predicted filing rates that meet or exceed the record spike in filings seen in 2005, just before the bankruptcy reform laws took effect. So we weren't surprised to see a report that bankruptcy filings are at their highest point since that 2005 peak, as the Wall Street Journal's Real Time Economics blog reported July 2. Through the first six months of 2010, there were 770,117 filings in the United States, an increase of 14 percent over the numbers for the first half of 2009. The American Bankruptcy Institute, the source of those numbers, predicted a total of 1.6 million filings in 2010.

According to the blog post, June actually saw a decrease in filings from the month before. In fact, it was the third consecutive month that saw a decrease. However, the Journal noted, filings in June were still 8 percent higher than they were in June of 2009. The highest filing rates were in the southeast and southwest of the United States, with Nevada seeing 15,000 filings per million households -- more than double the national average of 6,800 filings per million households. That information comes from a study by Columbia Law School professor Ronald Mann. The lowest filing rates come from South Carolina, Alaska and Washington, D.C. In fact, while the southeast generally has a high amount of filings, some Southern states, including Alabama and Tennessee, have actually seen reductions in their filings.

No information specific to California was reported in this piece, but as Fountain Valley consumer bankruptcy attorneys, we suspect that California remains relatively high. Unfortunately, our state has one of the highest unemployment rates in the nation, and many regions -- including the Inland Empire here in southern California -- have also been hit hard by the foreclosure crisis. Both of these drive bankruptcy filings and are likely to be factors in Nevada's high filing rate. In fact, the San Francisco Chronicle recently reported that bankruptcy filings have hit record levels in California, and a spokesman for the ABI noted that the states with high filing rates tend to be the same as those with severe housing crises. That article examined whether the 2005 reform law has failed to stop bankruptcy filings. It came to no conclusion on that question, but did conclude that the law increased the cost of filing by about 50 percent.

Continue reading "Bankruptcy Filings in First Half of 2010 Reach Highest Point Since 2005" »

In a case with extremely interesting implications for San Bernardino County bankruptcy attorneys like us, a federal appeals court has ruled that bankruptcies may be pursued as class actions. Class actions are lawsuits that bring together a large number of people with the same complaint against the same defendant. They are frequently used in consumer rights lawsuits, such as when many people bought the same defective product, but courts disagree on whether they can be used in bankruptcy court. As the National Law Journal reported June 22, the Fifth U.S. Circuit Court of Appeals in New Orleans has ruled that they can, establishing that right for courts in that circuit. However, the Fifth found that the class in this particular case was improperly certified.

In In the matter of Wilborn et al., the U.S. Bankruptcy Court for the Southern District of Texas sought to certify a class of 1,236 individuals or married couples who had filed for Chapter 13 bankruptcy and had mortgages that were owned or serviced by Wells Fargo Bank. They had filed an adversary action against Wells Fargo, claiming that the bank had charged unreasonable fees and costs for services related to the bankruptcy, such as title searches, ranging from $1,200 to $4,000. Wells Fargo did not disclose those fees to the court, they said, and as a result, many had debts that were not covered by their repayment plans. The Fifth Circuit found that the bankruptcy judge may properly certify a class of debtors in an adversity proceeding. However, it added that this class was inappropriate because individual issues, especially varying fees, predominated over issues common to the class.

As Villa Park personal bankruptcy lawyers, we believe this has implications for our practice in loan modification and foreclosure prevention as well as in bankruptcy. If the description of the inflated fees sounds familiar, it could be because Bank of America settled very similar claims this month brought by homeowners who had mortgages through the now-defunct Countrywide Financial Corp. Like many of the Countrywide borrowers, the Wells Fargo borrowers were already in bankruptcy, making the inflated fees particularly exploitive, greedy and inappropriate. If this turns out to be an industry-wide practice, more lawsuits or adversary claims by people in bankruptcy may be on their way -- and the bankruptcy courts may have more opportunities to certify class actions. Finding common concerns across a very large group of debtors might be hard, but a class action would certainly be more effective if thousands of borrowers truly have been exploited in this way.

Continue reading "Federal Appeals Court Rules Bankruptcy Judges May Certify Classes of Debtors" »

One criticism of the 2005 bankruptcy reform law is its requirement that bankruptcy filers attend mandatory credit counseling before being allowed to fie, and complete a financial education course at the end, before they discharge their debts. Our Fontana individual bankruptcy lawyers have heard criticisms arguing that this is patronizing; adds unnecessary administrative obstacles; and unfairly targets filers who may be in financial trouble through no fault of their own, such as those with medical debts. To assess whether these and other criticisms are true, Professor Angela Lyons of the University of Illinois and two colleagues launched a multi-part study looking at the effectiveness of the counseling requirements. The results of the first phase were recently published by Money Management International, the university announced June 15.

Lyons and her colleagues are tracking people who filed for bankruptcy throughout the bankruptcy process, then plan to follow up three to six months after the bankruptcy is over. The newest publication (PDF) focuses only on the educational value of the initial credit counseling session, which is 60 to 90 minutes and must be completed before the bankruptcy can be filed. During that session, potential filers learn basic personal finance; take stock of their own finances, including debts and assets; and look for ways to improve their finances by adding income or cutting expenses. The researchers then surveyed participants to gauge how they felt about the counseling. More than 99 percent said the counseling was helpful and improved their knowledge, future intentions and attitudes. Not surprisingly, researchers also found that most filers had multiple reasons for going into bankruptcy, but that filers with all types of problems found the counseling helpful.

As Yorba Linda personal bankruptcy attorneys, we're happy to hear that the counseling is helping the majority of filers. We opposed the 2005 reform law and continue to have significant misgivings about its effects, including the increased administrative hurdles it requires. But if this law ends up benefiting bankruptcy filers by helping them make good financial choices, we're happy to celebrate that aspect of it. In our experience, bankruptcy is not a decision that most people make lightly or without an emotional struggle. This makes us concerned about the mandatory credit counseling, which could implicitly or explicitly tell filers they should be ashamed of being in bankruptcy, or of the actions that led them there. Unfortunately, shame keeps a lot of filers from seeking help before the damage to their financial lives becomes large or irreversible. We'd prefer official bankruptcy rules that do not discourage people who need help from seeking it.

Continue reading "Study Suggests Mandatory Financial Counseling During Bankruptcy May Help" »

As San Bernardino consumer bankruptcy lawyers, we are closely following the unprecedented growth in bankruptcy filings for individuals and couples. The American Bankruptcy Institute predicts a record number of filings this year, enough to break last year's record for number of filings since the 2005 bankruptcy reform law. But according to a June 9 article from USA Today, bankruptcy filings might be even higher if bankruptcy were an option for more people. Experts in the article say that because bankruptcy doesn't allow the discharge of all kinds of debts, some get no benefit from filing. Other people in financial distress don't file because they cannot afford it. In either case, the article said, some experts believe such people have gone into "informal bankruptcy" without the legal protections of a proper bankruptcy.

The article describes several groups who can't benefit from filing for bankruptcy. One is people with a large amount of student loan debt, especially debt on private rather than federal student loans. Student loans are not dischargeable in bankruptcy unless the filer can show "undue hardship." This rule once applied only to government loans, but was changed to include all student loans -- including unregulated, high-interest private loans -- during the 2005 bankruptcy reform. Proving undue hardship requires an extra trial and lots of extra expense with no guarantee of success. Congress is considering making private student loans once again dischargeable, with predictable blowback from the financial industry.

Another group is simply too financially strapped to pay for bankruptcy filing. According to the article, the 2005 law added more requirements that drive up costs, and attorney and filing fees have also risen. According to one academic paper, these costs keep all but a fraction of potential filers from pursuing a bankruptcy. Unfortunately, delaying a bankruptcy can create even more financial problems for debtors and rob them of resources they need to make a fresh start. Free legal services and fee waivers are out there, but the recession has made both harder to get than they already were.

Finally, the article notes that bankruptcy filing also cannot usually save a home that is threatened by foreclosure. Since the 1970s, bankruptcy law has allowed judges to reduce the principal on any loan but the loan on a primary home -- including loans for vacation homes, boats and other luxury items. An attempt to change the law back failed in Congress last year. A new federal rule forbids lenders from turning down loan modification requests solely because the borrower has also filed for bankruptcy, but borrowers in trouble still cannot turn to bankruptcy to keep their homes.

We are pleased that this article is calling attention to some of the major flaws of bankruptcy law. As Fullerton individual bankruptcy attorneys, we see those flaws firsthand because we work with bankruptcy law and bankruptcy clients every day. The 2005 law was ostensibly intended to reform the bankruptcy process to curb abuses of the system, but many observers believed that the real goal was to discourage bankruptcies, by making effective ones harder to get and more expensive. This article suggests that at least to some extent, those critics were right -- bankruptcies are out of reach for some people who are in real financial trouble. That's a shame and a missed opportunity for our legal system to do some good for vulnerable Americans.

Continue reading "Experts Concerned That Bankruptcy Is Unavailable to Some in Financial Distress" »

As Chino consumer bankruptcy attorneys, we were interested to see an early report on the number of bankruptcies filed in May by individuals and married couples. The Wall Street Journal's Real Time Economics blog reported June 2 that the number of personal bankruptcy filings fell in May, for the second month in a row. May saw 136,142 bankruptcy filings, which was down 6% from April. April also saw a decline from March's numbers, but previous filing numbers had been trending upward for at least a year, tracking the economic decline. The numbers come from the American Bankruptcy Institute, a trade group including consumer bankruptcy attorneys as well as accountants and other financial professionals.

Samuel Gerdano, the executive director of ABI, told the blog he didn't think the two-month downward trend reflected what bankruptcies will do overall in 2010. Gerdano said the overall trend is upward, in his opinion, and filings will continue to rise. The blog noted that despite the two-month respite, personal bankruptcies are still currently 9% higher than they were at this time last year, and 15% higher than they were in the first five months of 2009. And of course, Americans are still struggling with all the same problems that drive bankruptcies higher, including high unemployment and limited access to credit. Perhaps for those reasons, Gerdano predicted that personal filings could go as high as 1.6 million for all of 2010, which would top 2009's 1.4 million and set a new record for bankruptcy filings after the 2005 bankruptcy reform.

Our Lakewood personal bankruptcy lawyers continue to see these trends reflected in our own work helping individuals, couples and small businesses handle serious financial problems in the most advantageous way possible. It's no surprise that bankruptcies (not to mention foreclosures) would continue to be high as long as other signs of economic problems for real people -- not just Wall Street -- are present. We cannot explain the drop in the bankruptcy filing rate in recent months, but we suspect Gerdano is right that it's a temporary blip. And as the blog post points out, the ongoing oil spill in the Gulf of Mexico could push numbers even higher in the surrounding Gulf states, as owners of small fishing and tourist businesses lose their ability to make a living. Delays in that effect mean those numbers could jump later this year.

Continue reading "Bankruptcies Down in May, But Trade Group Predicts Continued Upward Trend" »

As San Bernardino personal bankruptcy attorneys, we were interested to see a recent study of indebtedness in major U.S. metropolitan areas. A report by Experian, one of the big three credit reporting agencies, found that Los Angeles metro area residents carry the least amount of personal debt of any of the cities studied. A May 13 article from U.S. News and World Report reported the study's findings, which used Experian's own data to calculate average debt per consumer in the top 20 major metro areas in the United States. The agency did not take mortgage debt into account. The resulting list is topped by Seattle, with $26,646 in debt per consumer, and bottoms out with Los Angeles, at $24,009 per consumer.

The national average for debt per consumer is around $24,775, the report said. Of the top cities on that list, 14 had higher averages than that. After Seattle, the top five included Dallas, Denver, Atlanta and Phoenix, in that order. The bottom five were Cleveland, New York, San Francisco, Miami and LA. In addition to San Francisco and Los Angeles, the list included a third California region -- the Sacramento metropolitan area. That area ranked slightly above the national average, with an average per-consumer debt of $24,826. A spokesperson for Experian cautioned readers that the amount of debt doesn't necessarily tell the whole story about how creditworthy cities and individuals may be. For example, she said, Seattleites may have high debt, but data shows that they typically make their payments on time and don't max out their credit cards.

Our Los Angeles County individual bankruptcy lawyers agree strongly that debt amount alone is not the whole story. A consumer with the "typical Seattle" features would likely have a higher credit score than someone with a much lower amount of debt, but who consistently made payments late. Furthermore, debt is not automatically bad. Without any debt, your credit score will also suffer, because credit reporters simply don't have information to work with. However, a large amount of debt certainly can be bad, when it exceeds or nearly exceeds the consumer's ability to pay it back. When we take a new client who is considering filing for bankruptcy, one of the first things we do, if the client has not already done it, is calculate the client's total debt. This helps us decide whether the client has a realistic chance of repaying it without a bankruptcy filing.

Continue reading "Los Angeles Ranks Lowest on Credit Agency's List of Cities' Debt Per Consumer" »

As Upland bankruptcy lawyers, we were interested to see a pair of recent postings on the Wall Street Journal's Real Time Economics blog. The first of the posts said consumer bankruptcies were actually lower in April than they had been in March, suggesting a slowdown in the record pace of bankruptcies in 2009 and 2010. Perhaps even more interesting was the second post, however, which pointed out especially high rates of bankruptcy in Western states including California, Arizona and Nevada. Not surprisingly, the post pointed out that many of these states are the same states that have taken particularly hard hits in the housing downturn.

The bankruptcy rate information comes from the American Bankruptcy Institute, which said there wee 144,490 personal bankruptcy filings in April. That's down 3% from the number of filings in March of 2010 -- but it's still up 15% from April of 2009. That year set new records for its amount of bankruptcy filings, which were the highest since the bankruptcy reform law passed in 2005, and an ABI spokesman predicted similar or higher numbers in 2010. Thus far, bankruptcies in the first four months of 2010 are 17% higher than the same period in 2009. The states with the highest rates of bankruptcy filings were California, Arizona and Wyoming; the second-highest tier included Nevada, Florida, Maryland and Massachusetts. Surprisingly, the Journal reported that Tennessee, Alabama and South Carolina actually saw drops from April 2009's bankruptcy filings.

Our Fountain Valley bankruptcy attorneys are disappointed by this information, but not necessarily surprised. The correlation between states with troubled housing markets and states with high bankruptcy filings is not exact, but it's close enough to suggest that bankruptcies and mortgages are connected. In our work, we are sorry to say that we sometimes see clients whose mortgage problems led to other financial problems, as they overextended themselves to keep making unreasonably sized mortgage payments. More and more these days, we're also finding the opposite to be true: financial problems such as a layoff or loss of business are leading more and more people to trouble making mortgage payments.

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