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Tuesday, May 31st, 2011

Bankruptcy Filings Dropped in April

Recently released numbers on personal bankruptcy filings show that April’s numbers were down from both March 2011 and April 2010, more or less following the trends that experts have predicted for the remainder of this year. Here’s a closer look at the specifics, and what this means for you.

Breakdown of April Bankruptcy Figures

  • The 21 business days in April saw 130,000 total bankruptcy filings, which comes to 6,177 filings per business day.
  • The number of filings shows a decline of 2.9 percent from March, and 7.1 percent from April 2010.
  • So far this year, filings have decreased each month at a rate somewhere between 5.6 percent and 8.2 percent compared to 2010 numbers.
  • In the past 12 months, 4.9 in 1,000 people have filed bankruptcy petitions. The number in 2004 (before the new bankruptcy law was passed) was 5.5 per thousand.

According to these statistics, April 2011 bankruptcy numbers suggest a decline in bankruptcy filings both compared to recent months and to last year. Bankruptcy filing rates, though not as popularly cited as unemployment numbers, can be used to offer at least a partial picture of economic recovery.

Projected Bankruptcy Filings for 2011

Based on the numbers for April and 2011 so far, predictions for total bankruptcy filings this year include the following:

  • 1.475 million bankruptcy filings if Americans continue filing at the daily average rate (5,876) for the first four months of 2011 combined;
  • 1.525 million bankruptcy filings if we continue at April’s daily average rate (6,177); or
  • 1.499 million bankruptcy filings if the last eight months of the year make up the same proportion of filings as they did in the last two years.

How does that compare with the recent past? In 2010, the country had 1.56 million total filings; in 2009, the total was 1.474 million; and in 2008, 1.118 million. If filings stay on track, then, it looks like 2010 might have been the peak year for bankruptcy filings and 2011 will be the beginning of a decline.

There is no guarantee, however, that bankruptcies will steadily decrease. After all, the housing market is still glutted with foreclosure properties and home prices don’t seem to be rising. As a new wave of foreclosures begins to affect homeowners, combined with sluggish growth in the jobs sector, the need for bankruptcy protection could climb or remain constant for a few years to come.

Bankruptcy Filings and the “New” Law

If nothing else, these latest bankruptcy numbers suggest (once again) that the Bankruptcy Abuse Prevention and Consumer Protection Act passed in 2005 had little real effect on bankruptcy filing totals.

Those truly in need of the financial relief and protection bankruptcy offers are still largely able to get that help from the bankruptcy court, despite the tightened restrictions the law introduced.

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Posted in Economic News: How Are We Doing?, Year in Bankruptcy | Comments Off

Wednesday, May 25th, 2011

Bankruptcy Contempt Case Highlights Important Rules

A recent news article from LoanSafe.org tells the story of a woman who broke some important bankruptcy laws and ended up with almost $48,000 in fines to pay, on top of a five-year probation period. If that doesn’t sound like a good deal to you, read on to find out what she did wrong.

According to sources, the woman’s case worked like this:

  • In 2005, the woman in question filed for Chapter 7 bankruptcy. Chapter 7 is designed to help filers eliminate certain unsecured debts without making creditor payments through a repayment plan (that only comes into play in Chapter 13 bankruptcy).
  • As bankruptcy law requires, the woman testified to the completeness and accuracy of the information in her bankruptcy petitions as part of the Chapter 7 process.
  • Before filing her bankruptcy petition, the woman apparently transferred a piece of property (worth more than $47,000) to her son. She did not mention this transfer in her bankruptcy documents.
  • After the Chapter 7 case ended, the woman reportedly sold the “transferred” property and used the money to buy a home in a different state without reporting the proceeds of the sale.

Avoiding Bankruptcy Fraud

The woman’s crime was that she improperly transferred property with the intention of shielding it from the bankruptcy court. Had she proceeded lawfully without transferring the property, it would have been considered part of the bankruptcy estate.

Depending on the specifics of the woman’s case, the property might have been sold to raise money to repay her creditors in part; however, lying about the property ended up costing her in the long run.

One reason most insiders recommend that potential bankruptcy filers work with a bankruptcy lawyer is to help them avoid bankruptcy fraud, which includes all of the following.

  • Reporting incorrect or incomplete information: While the bankruptcy court may excuse honest mistakes on paperwork, more serious “mistakes” will likely lead to some legal action.
  • Attempting to repay a favored creditor before filing: Singling out one creditor (say, a family member or friend who lent you money) to repay before discharging other debts in bankruptcy is not allowed. Those who attempt to do so could face charges of bankruptcy fraud.
  • Improperly concealing or transferring property: This could be considered a branch of the “complete and accurate” rule, but it deserves its own section. Attempting to hide or pretending to give away assets to shield them from bankruptcy is not permitted.
  • Omitting known future income: Whether you’re expecting a tax refund or a hefty inheritance, it’s important to include it in bankruptcy petitions. Otherwise, you risk being charged with bankruptcy fraud.

As the story above illustrates, bankruptcy fraud is serious business: fines can get as high as $500,000 and those convicted may face jail time. Neither of those options sounds like a good way to get back on your feet financially.

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Posted in The Law and Your Money | 2 Comments »

Monday, May 23rd, 2011

Study: Bankruptcy Considered or Filed by One in Eight Americans

A study recently published by the web site Find Law indicates that a considerable percentage of the U.S. population (one in eight survey respondents, or nearly 13 percent) has either considered filing for bankruptcy or actually done so.

That figure may seem high, but in a nation of consumer debt, depreciating home values and a limited job market, perhaps it’s no wonder that so many of us are in need of serious the serious financial protection and debt relief that bankruptcy can offer.

Who Is Considering Bankruptcy?

The study breaks down potential bankruptcy filers in part by age:

  • Americans between 35 and 54 are reportedly the group most likely to consider bankruptcy as an option.
  • Americans 18 – 34 and 55 and older are, according to sources, half as likely as the middle age group to consider or actually file for bankruptcy.
  • Senior citizens (those 65 and older) are apparently the least likely group to consider bankruptcy as a debt relief option, at only seven percent.

How Have Bankruptcy Filing Numbers Changed in Recent Years?

Sources indicate that in 2010, 1.5 million Americans actually filed for bankruptcy protection. This number marks the highest annual total since 2005, when the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) took effect and tightened the standards for those interested in bankruptcy protection.

Why Do So Many People Need Bankruptcy Protection?

While no two bankruptcy cases are alike, bankruptcy filers often note common triggers that led them to seek the protection of the bankruptcy court. These include:

  • Unexpected medical expenses: Illness and injury can both cause serious medical bills to build up, particularly for those people who are uninsured or underinsured. And even an otherwise happy event, like the birth of a child, can prove very expensive.
  • Change in family makeup: Divorce and death are difficult to deal with on their own, but are often compounded by the financial troubles they cause. Many families are forced to face unpleasant financial realities after divorce or death carries off a primary breadwinner.
  • Job loss or reduction: Even good employees are at risk of losing their jobs in the current economic climate, and even though layoffs have slowed in recent months, the unemployment rate remains high. It’s no secret that this type of financial burden can lead a household to seek bankruptcy protection.
  • Fear of foreclosure: Even those with good health and steady jobs may find themselves unable to keep up with their mortgage, and some families opt to file for bankruptcy in hopes of fending off mortgage foreclosure.

Considering the many factors that can contribute to a household’s decision to file for bankruptcy protection, it may be a wonder that only one in eight Americans has thought about personal bankruptcy!

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Posted in Bankruptcy News and Events, The Truth about Bankruptcy | Comments Off

Wednesday, May 18th, 2011

Bankruptcy Lawyers Help Homeowners Erase Second Mortgages

Many Americans currently considering bankruptcy are in financial trouble partly because of the struggling housing market. Underwater mortgages (those in which the homeowner owes more than the home’s current value) are a reality for as many as 28 percent of American homeowners.

Even though bankruptcy law prohibits the court from modifying the terms of a primary mortgage, some bankruptcy lawyers have found a legal way to help their clients stay in their home and avoid foreclosure.

Unsecured Second Mortgages

Here’s the process some bankruptcy petitioners are following to help ease their mortgage debt:

  • File for Chapter 13 bankruptcy: Entering a Chapter 13 case means that the filer agrees to a three- to five-year repayment plan in which she will catch up on past-due debts.
  • Petition the court to declare a second mortgage unsecured debt: Filers who have second mortgages that, combined with their primary mortgages, exceed the value of their home’s current value, may be able to make this move. A bankruptcy lawyer can explain in more detail how the move works and whether it might be possible in any individual’s case.
  • Make payments according to the repayment plan: If the court accepts the petition, the filer must continue making payments according to her repayment plan for the duration of the bankruptcy case. At the end of the case, the remaining unsecured debt (including that from the second mortgage) may be excused by the court.
  • Avoid foreclosure: In many cases, reclassifying a second mortgage as unsecured debt allows filers to make mortgage payments and remain in their homes.

The Winners and the Losers

Naturally, this legal maneuver is good news for struggling homeowners and potential bankruptcy filers. But banks and other lenders are apparently less than thrilled about the development – after all, they’re the ones who lose out on mortgage payments when debts are excused in court.

But, as one news outlet reminds us, the only way to change the law is an act of Congress. Given the current state of the American housing market and level of financial difficulty many Americans are facing, a move of that sort seems unlikely: what politician would want to be responsible for taking away a tool for avoiding foreclosure?

Can You Save Your Home from Foreclosure?

In order to take advantage of this legal protection, your financial situation must meet a number of criteria:

  • Sufficient income to make payments: In order to benefit from Chapter 13, you have to be able to make monthly payments according to a repayment plan, which means you have to have a steady source of income.
  • Two (or more) mortgages: Again, primary mortgages cannot be modified in bankruptcy court.
  • An underwater home: Finally, you can only have debt declared unsecured if there is no property to secure it (that is, if your loan is worth more than your home). If your home value exceeds the amount of your primary mortgage, then at least a portion of the second mortgage is secured by the home, and cannot be excused by the court.

If you’re ready to find out whether this might work for you, connect with a bankruptcy lawyer today.

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Posted in Economic News: How Are We Doing?, Home Foreclosure | 1 Comment »

Monday, May 16th, 2011

Study: Minorities File for Chapter 13 More than Whites

A recent study released by the Woodstock Institute of Chicago shows some strange numbers about bankruptcy filings and race. Specifically, the study shows that African American bankruptcy filers choose Chapter 13 bankruptcy more frequently than their white peers.

The implications of this finding are interesting and instructive to anyone considering bankruptcy as a way of easing debt.

Chapter 13 vs. Chapter 7: What’s the Difference?

In order to understand why this study’s findings matter, it’s essential to understand the key differences between Chapter 7 and Chapter 13 bankruptcy.

  • Chapter 7 bankruptcy is designed to offer filers a full discharge of eligible unsecured debt. In order to qualify, filers must pass a means test showing that they do not have sufficient income to make regular payments according to a Chapter 13 repayment plan. Chapter 7 often works well for low-income filers who don’t have very much non-exempt property.
  • Chapter 13 bankruptcy is designed to help those with a regular income repay a portion of their debts. Chapter 13 filers follow a three- to five-year repayment plan in order to catch up on money they owe. At the end of this period, remaining unsecured debts may be discharged by the court.

Choosing the Right Chapter Matters

The study apparently found that blacks and whites of equal income levels were choosing bankruptcy chapters in different proportions. Specifically, sources indicate that in predominately black areas, about 47.9 percent of filers choose Chapter 13 bankruptcy and in predominately white areas, only 22.5 percent of filers do. Nationwide, the rate is 32.8 percent.

Some sources suggest the difference may have been caused in part by overly aggressive advertising by certain bankruptcy firms who were targeting filers in specific areas. These firms, it seems, may have earned more money by leading filers toward Chapter 13 even when they could have filed for Chapter 7.

And the consequences for filing for Chapter 13 when you qualify for Chapter 7 could be serious:

  • Strained finances: Those who qualify for Chapter 7 protection may just barely make enough money to make payments in the Chapter 13 repayment plan, which could harm their ability to save money for emergencies.
  • Prolonged debt: Rather than moving through a quick, four- to six-month Chapter 7 case and ending with a debt discharge, Chapter 13 filers must wait for several years before their debts are cleared. In that time, missing a payment could cause the court to remove its protection.
  • Few benefits: Those who do not have significant non-exempt property may have little or nothing to gain from filing for Chapter 13 when they qualify for Chapter 7.

Deciding which type of bankruptcy makes the most sense for your situation can make a huge difference to your financial future. If you’re considering a bankruptcy filing, be sure to consult with a bankruptcy lawyer about your options.

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Posted in Bankruptcy News and Events | 1 Comment »

Wednesday, May 11th, 2011

Lawsuit Alleges Mortgage Fraud by Deutsche Bank

News reports this week announce that the U.S. Department of Justice has initiated a lawsuit against Deutsche Bank, one of the world’s largest, claiming that the institution lied to federal regulators in order to secure taxpayer-funded insurance for less-than-secure mortgages.

Here’s a look at the details and some of the underlying issues.

The Charges against Deutsche Bank

According to the lawsuit, Deutsche Bank and its subsidiary MortgageIT:

  • Initiated risky mortgage loans to homebuyers. Some of these loans may have been subprime, and since their initiation, sources indicate, about a third have defaulted.
  • Lied to federal regulators. While the loans themselves may have been a bad move financially, what interests prosecutors is what happens next: that Deutsche Bank allegedly lied to officials with the Federal Housing Authority (FHA) in order to secure insurance for the shoddy loans.
  • Got taxpayer-backed insurance for questionable loans. Because of its reportedly false claims that it was evaluating its mortgages for default risk, Deutsche Bank managed to secure FHA funding (which comes from tax dollars) for the questionable loans.
  • Required money from the government when the loans defaulted. Now, as many as 12,500 of Deutsche Bank’s loans have apparently defaulted (meaning that the homes have gone into foreclosure), leaving the government responsible for covering the losses. The money goes to those investors who own the mortgage debt. Sources note that, to date, defaulted Deutsche Bank loans have cost the government more than $386 million.

Because of all these allegations, the Justice Department is reportedly suing the bank for $1 billion, an amount that represents the dollar amount lost plus individual penalties for each mortgage that went into default.

What Mortgage Lending Rules Were Broken?

The government’s lawsuit charges that Deutsche Bank and MortgageIT failed to follow the rules required of anyone interested in federal mortgage insurance. These rules require lenders to:

  • Annually verify various records of mortgage borrowers, including credit reports, incomes and record of employment. This measure is to make sure borrowers are not at risk of defaulting.
  • Examine any loan that goes into default shortly after being originated in an effort to prevent and eliminate careless lending techniques.
  • Act in the government’s best interest, because any money needed to guarantee loans that defaulted would come directly from taxpayers’ pockets.

The lawsuit claims that Deutsche Bank did none of these things and so is both on the hook for the money lost by the government and responsible for paying penalties for breaking the rules of engagement for obtaining federal insurance.

Some sources suggest that the Deutsche Bank lawsuit could be the first of many; after all, reckless lending techniques were fairly common during the housing boom that touched off the current recession.

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Posted in Home Foreclosure, Predatory Lending | Comments Off

Monday, May 9th, 2011

Study: More Drug Manufacturers Cutting Deals to Keep Prices High

The Federal Trade Commission announced this week that according to a recent study, there has been an increase in the number of drug companies engaging in pay-to-delay deals with generic drug producers.

The FTC has denounced the actions, and with good reason: medical costs are one major contributor to many personal bankruptcy filings of U.S. citizens. So how might these types of deals affect you and your family?

  • Background information: Once a drug company patents a certain drug, generic producers of drugs of similar chemical composition may file a challenge to the patent, with the goal of being able to produce a chemically similar (or identical) version to sell more cheaply.
  • How the deals work: If these challenges went to court, it’s possible that they would result in judges ruling in favor of the generic producers. In order to avoid that outcome (and thus secure the market for themselves for a longer period of time), some brand-name drug manufacturers settle out of court with generic drug producers.
  • Who makes money: Most settlements include an agreement that the generic manufacturer will not produce the generic version of the drug until a certain date; some settlements include a financial incentive from the brand-name manufacturer to lengthen the delay period (i.e. the brand-name manufacturer pays the generic manufacturer to delay its release of its cheaper product). The FTC found that in cases involving a payment, generic drug release waiting periods increased by an average of 17 months.
  • Who loses money: The FTC notes that in 2010, 22 name-brand drugs were targeted in pay-to-delay deals. The total number of such deals reportedly jumped from 19 in 2009 to 31 in 2010 (an increase of more than 60 percent).
  • What it costs us: The total dollar toll these deals have taken on Americans comes to $3.5 billion per year, according to FTC estimates. The difference comes from the fact that generic drugs can cost anywhere from 20 to 90 percent less than their name-brand counterparts. That’s a lot of money people could be putting toward paying down mortgages or credit card debt.

Are Generic Drug-Delay Deals Legal?

Anyone familiar with antitrust laws may wonder whether deals to delay competitive drugs are even legal in the U.S. The answer is a little murky. It seems that the FTC has filed a number of lawsuits against pay-to-delay agreements and has demonstrated its support of bills in Congress designed to eliminate such activity among drug manufacturers.

How can you take action? While there may not be much you can do about the problem of pay-for-delay agreements, if you’re worried about paying your medical bills, you can (and should) ask your physician whether generic versions are available any time you need medicine.

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Posted in Finance 101: Secure Your Future, The Law and Your Money | 1 Comment »

Wednesday, May 4th, 2011

Be Wary of Credit Repair & Debt Settlement Promises

To consumers struggling to make ends meet, advertisements for credit repair or debt settlement may sound like the perfect solution to their financial woes. But in some cases, these services do little or nothing for consumers’ debt problems and instead sap their finances and leave them in need of bankruptcy protection.

Before you sign up for any service that promises to improve your credit, make sure you understand the potential risks involved in such offers.

Credit Repair Scams

Credit repair offers (which are often scams) generally advertise their ability to “wipe out negative information” on a credit report or provide a “quick and legal” way to improve your credit. But the truth is this:

  • You can remove negative information yourself…if it’s false: You don’t need to hire an outside company to remove mistakes from your credit report. Rather, visit annualcreditreport.com and request a free copy of your report. If you see any information that doesn’t belong, simply follow the site’s instructions for contesting the information and the responsible parties will take steps to remove it.
  • Only time can erase true negative information: On the other hand, if your credit report contains damaging information that is correct (e.g. that you’ve missed payments, defaulted on a loan, or something similar), only time (and positive credit behavior) will ease the information’s impact.
  • A blank credit report isn’t good news: Even if a credit repair company managed to erase all negative information from your credit report, having a blank credit report might be a disadvantage for you. Why? Because without any credit history at all, potential lenders are unable to make an assessment about whether or not to lend you money.

Debt Settlement (Scams)

Another commonly advertised financial service is debt settlement. While some debt settlers are legitimate and can be helpful to those in financial need, others are less scrupulous and simply take customers’ money without helping them much in exchange. Here’s the truth:

  • You can settle your own debts: If you’re struggling to keep up with or have fallen behind on some bills, your creditors may be willing to negotiate with you. Why? Because in many cases, creditors stand to make more money from settling a debt (say, for an amount less than the total owed or for a lowered interest rate) than from a customer’s bankruptcy filing.
  • You shouldn’t have to pay upfront fees: Recently passed rules from the FTC mandate that debt settlement firms cannot charge upfront fees for their services in most cases. Some debt settlers, it seems, were taking payments from customers but putting little or nothing toward actual creditor payments.
  • You have a legal obligation to pay your debts: Part of the agreement you have with any lender is that you will pay the bill for any debt you incur – that’s why you have to sign a contract before anyone will loan you money. If a debt settlement company suggests that you will face no legal repercussions from withholding payment from your creditors, be suspicious: in many cases, that’s simply not true.
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Posted in Your Credit Score | 1 Comment »

Monday, May 2nd, 2011

Strategic Default and Foreclosure: What’s the Difference?

With the housing market headed for what some analysts are calling a double-dip downturn, there’s been a lot in the news lately about homeowners who strategically default on their mortgages. Here’s a look at what that means, how strategic default relates to foreclosure and what you need to know if you’ve got a mortgage you can’t afford.

What Is a Strategic Default?

The mortgage manipulation known as the strategic default works like this:

  • A homeowner reassesses her debt situation: This can be spurred by a number of things, and in the current economic climate common triggers include having difficulty paying bills (though not necessarily making mortgage payments) and realizing that a home is now worth less than the amount of the mortgage loan.
  • A homeowner decides not to make mortgage payments: After a month or two of missed mortgage payments, the mortgage loan will be in default (or, said another way, the borrower will have defaulted on the loan). The decision is usually considered “strategic” because those who choose this path opt to meet other financial obligations in lieu of paying their mortgages.
  • The home goes into foreclosure: Because the homeowner stops making mortgage payments, the mortgage lender begins the foreclosure process and takes back the home.
  • The homeowner deals with the credit consequences: In addition to finding new housing, strategic defaulters must also face serious financial consequences. Strategically defaulting on a mortgage can seriously damage a credit score, and many lenders (of all kinds) may refuse to issue loans to those with strategic defaults on their record. Fannie Mae, for instance, has announced that strategic defaulters are banned from Fannie Mae mortgage loans for seven years after defaulting.

How Is Strategic Default Different from “Regular” Foreclosure?

A strategic default is a conscious choice on the part of a homeowner to stop making mortgage payments, even if those payments are still affordable. Those who choose to strategically default often indicate that they are no longer willing to pay for a loan worth more than their house.

“Regular” foreclosure happens when a homeowner can no longer afford a mortgage loan and so has no choice but to stop making payments. In both cases, the homeowner loses the house to the lender; in strategic defaults, doing so is a conscious decision on the part of the homeowner.

What Are Other Options for Struggling Homeowners?

Because of the serious credit consequences and questionable ethical nature of strategically defaulting, many homeowners are not willing to do it, even if their loan is bigger than they’d like. Alternatives include:

  • Applying for a mortgage modification: Some banks (assisted by federal programs) offer mortgage modification programs. To find out whether you might qualify, contact your bank as soon as possible.
  • Filing for Chapter 13 bankruptcy: Some homeowners are able to at least delay (and possibly prevent) mortgage foreclosure by filing for Chapter 13. If you’re interested in learning whether you qualify, contact a bankruptcy lawyer in your state.
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Posted in Economic News: How Are We Doing?, Home Foreclosure | 1 Comment »