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Thursday, March 18th, 2010

Debt Collectors Behaving Badly (And How to Make Them Stop)

Debt collectors in certain areas of the country have begun contacting debtors in more and more harassing ways, according to a recent article from WNEP in Pennsylvania.

This situation is troublesome not only because it can cause fear and embarrassment for debt collectors’ victims, but also because such techniques are illegal.

The Slimy Tactics Reported by Victims

While repeated phone calls from a bill collector may be irritating, some of the actions that are being attributed to collectors are downright appalling:

  • Threats of jail time: Some debtors have reportedly been threatened with arrest—even with arrest at their place of employment.
  • Insults: Sources indicate that some collectors have taken to belittling debtors about their level of education and their work ethic.
  • Cruel suggestions: Apparently, some debt collectors have gone so far as to suggest debtors commit suicide as a way to remedy their inability to repay their debts.
  • Neighbor contacts: It seems some collectors have even ducked as low as contacting a person’s neighbors about debts owed.

Clearly, something is wrong here. Debt collectors are not legally allowed to get away with such actions, but unfortunately many consumers aren’t aware that they have rights protected by federal law.

Your Rights and Options

So what exactly are creditors forbidden from doing? Here’s a summary of what actions are prohibited by the Fair Debt Collection Practices Act:

  • Harassing a debtor, her family or her friends
  • Failing to follow up a phone call with written details about a debt within five days
  • Contacting anyone besides the debtor or his lawyer about a debt
  • Physically or verbally threatening a debtor
  • Suggesting or implying that a debtor can be arrested when she legally cannot
  • Lying about the amount of the debt owed
  • Contacting the debtor directly when he has known legal representation
  • Ignoring a debtor’s written denial of a debt

The collectors mentioned in the story above were breaking the law—but unless the debtors are aware of the laws protecting them, they’re not likely to take any action.

Halt Creditors with the Automatic Stay

If you’re facing aggressive behavior from a creditor, it may be time to consider working with a legal professional. One option for stopping creditor contacts is filing for bankruptcy, which will trigger an automatic stay that blocks all contact from creditors.

Additional Resources

Fair Debt Collection Practices Act (PDF)

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Posted in Bankruptcy and the Economy | 6 Comments »

Tuesday, March 16th, 2010

Extended Stay Hopes to Pull Itself out of Bankruptcy

The hotel chain Extended Stay has been in the news lately, as its senior lenders and several financial firms attempt to pull it out of bankruptcy later in the year.

A $450 million injection of money into the company will, backers hope, be a sufficient component of a proposed plan to exit bankruptcy protection, the Wall Street Journal is reporting. Court papers in the bankruptcy case call on Paulson & Co. and Centerbridge Partners to provide the funds.

Paulson & Co. and Centerbridge Partners will invest $225 million into Extended Stay. This would represent a 22.5 percent stake in the struggling company. Additional money would come from a plan for Extended Stay to raise money via a rights offering. In this offering, the mortgage lenders that hold $4.1 billion in Extended Stay debt will have the chance, according to the Wall Street Journal, “to buy all the shares for an additional 22.5 percent stake plus warrants.”

These holders of Extended Stay mortgage debts will get new mortgage notes valued at $2.5 billion, and they will get a 55 percent stake in the company in the form of stock.

The details of this plan have come to light recently, following the investment agreements that Extended Stay made with the private firms.
Extended Stay filed for bankruptcy last June, following dropping occupancy in their hotels as a result of the difficult economy. The South Carolina-based company owns and maintains over 600 hotels, which are targeted at business travelers and mid-range hotel customers.

Two years ago, the Lightstone Group bought out the company from Blackstone Group LP for $8 billion. Under the new agreement, the entity that manages Extended Stay’s hotels will resign for these duties, in exchange for $30 million.

Following announcements of Extended Stay’s plan to get out of bankruptcy, a rival investor group made the announcement that its own plan would have been a better option than the one chosen.

Starwood Capital had been in the bidding to become the group investing the money in Extended Stay, though Paulson & Co. and Centerbridge Partners were chosen instead.

Now, the group is saying in court that it offered what it called a "binding offer" to sponsor the reorganization plan that Extended Stay will put in place. According to Starwood, it claims that its offer would provide "substantially greater" value to Extended Stay creditors, and that Extended Stay would have access to more cash than it will under the current plan.

Specific details of the Starwood offer were not filed in court. They did present their plan to object to Extended Stay’s current plan.

In January, Starwood claimed that it was being frozen out of the bid process. It said also that they were not getting the information that they needed to make a competitive bid, and that Centerbridge and Paulson were.

Starwood Capital led the restructuring and expansion of Starwood Hotels and Resorts Worldwide back in the 1990s. They cited this experience in the hotel management business to support their claim to investment rights in court.

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Posted in Bankruptcy and the Economy | 1 Comment »

Friday, January 22nd, 2010

Consumer Price Data Paints Bleary Picture of 2009

The U.S. Labor Department released its monthly Consumer Price Index data, and the numbers confirm what most Americans can already sense: the recession continues to exact its toll. Here's a look at the numbers for the whole of 2009.

Overall: Consumer Prices Up 2.7 Percent

During 2009, consumer prices rose a collective 2.7 percent, a jump that, according to the Labor Department, was led largely by increased energy prices. In other areas, prices actually fell over the last 12 months:

  • Food: In 2009, food prices dropped by 0.5 percent, with food consumed at home dropping 2.4 percent and food away from home actually rising 1.9 percent.
  • Energy: Here’s where the biggest jump occurs. Energy costs increased 18.2 percent, with a 53.5 percent increase in the cost of gasoline and a 6.5 increase in the price of fuel oil.
  • Everything Else: The umbrella category that includes all consumer goods but the two above saw a 1.8 percent rise during 2009, with increases in everything from clothing to cars to medical services.

So how does the overall 2.7 percent increase in prices compare to recent years? Not too well, it seems. In 2008, prices rose a scant 0.1 percent – though both last year’s change and 2008’s were heavily influenced by fluctuating energy prices.

The core inflation rate, which adjusts price rises with changes in income levels, rose 1.8 percent in 2009, the same figure as that for 2008, and a relatively small number.

Weekly Wages Fall

In addition to prices inching up, Americans saw their weekly wages dip by 1.6 percent in 2009, meaning their buying power has shrunk considerably since a year ago. Last year’s drop was the largest since 1990.

While the picture overall is still pretty bleak, there’s a spot of light in all the clouds: commentators note that because inflation has remained modest, the Federal Reserve will likely keep key interest rates low to stimulate borrowing and help the economy pick up vigor.

The drop is purchasing power also points to the 1.44 million consumer bankruptcy cases filed in 2009.

Additional Resources

Department of Labor January 2010 Consumer Price Index Report (PDF)

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Posted in Bankruptcy and the Economy | 7 Comments »

Saturday, December 12th, 2009

Personal Finance News Roundup: 12/12/2009

This week, many November numbers about money and credit were released, with some surprising findings. Here’s a summary of a few important figures.

November Consumer Bankruptcy Filings Down 18 Percent

The American Bankruptcy Institute (ABI) reports that personal bankruptcy filings decreased 18 percent last month, compared to October’s numbers. Specifically:

  • Total filings: 112,152 consumers filed for bankruptcy in November 2009, compared with 135,913 in October.
  • Increase from 2008: A year ago, in November 2008, 99,925 consumers filed for bankruptcy. This year’s figure represents a 12 percent jump.
  • Chapter 13 filings: Only 29 percent of consumers who filed for bankruptcy did so under Chapter 13 of the U.S. Bankruptcy code last month, a rate unchanged from October.
  • Yearly estimate: Sources predict that total bankruptcies in 2009 will total more than 1.4 million.
  • Rate of cyber fraud: Of all online sales, 1.2 percent were found to be fraudulent in 2009, the lowest figure recorded in the 11 years CyberSource has been keeping track.
  • Online revenue lost: This year, $3.3 billion was lost to cyber fraud, compared to $4.0 billion last year and $3.7 billion in 2007.
  • Some areas still problematic: Online sales of electronics still have fraud rates approximately double those of other retailers.

Retail Sales Drop Surprise 0.3 Percent in November

However, this figure is not considered comprehensive, and will be reevaluated after the government releases its sales data on December 11th. Still, the initial figure has some retailers worried that this year’s holiday shopping season will mirror last year’s, when many Americans were holding onto their money after the tumult of the stock market’s crash.

The retail figures, quoted in this msnbc.com article, apparently don’t include online sales, sales from electronics chains or sales from Wal-Mart Stores, Inc., three groups the government’s figures will cover.

Report: Online Fraud Down Overall

In a survey out this month on online scams, the security company CyberSource reports that web fraud has decreased by about 18 percent in the United States in Canada since 2008. Here’s a closer look at the findings:

  • Rate of cyber fraud: Of all online sales, 1.2 percent were found to be fraudulent in 2009, the lowest figure recorded in the 11 years CyberSource has been keeping track.
  • Online revenue lost: This year, $3.3 billion was lost to cyber fraud, compared to $4.0 billion last year and $3.7 billion in 2007.
  • Some areas still problematic: Online sales of electronics still have fraud rates approximately double those of other retailers.

The dip in fraud doesn’t mean you should be any less vigilant when shopping online, though. Be sure to guard your credit card numbers carefully and only shop on secure web sites!

Additional Resources

2009 Online Fraud Report (PDF)

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Posted in Bankruptcy and the Economy | 53 Comments »

Friday, December 11th, 2009

Federal Reserve Proposes New Limits on Store Credit Cards

According to the Wall Street Journal, the Federal Reserve has proposed new regulations that would restrict retailers' ability to issue store-specific credit cards. Many major retailers, it seems, are not happy about the prospect.

Prove You Can Pay

The new proposal, if adopted, would require store-card applicants to prove their ability to pay their bills when they apply for their cards. Many commentators believe this would amount to presenting a pay stub before being able to fill out a form.

  • Based on the Credit CARD Act: One provision of the Credit CARD Act of 2009, set to take full effect in February 2010, requires lenders to verify that borrowers are capable of repaying loans before lending money. The proof of income requirement for in-store cards is, apparently, an application of this provision.
  • Displeasure from retailers: Perhaps unsurprisingly, retailers are less than thrilled about the potential for this rule to change the way they operate. Many retailers currently offer tempting incentives to shoppers to open store cards, including one-time discounts and rewards programs.
  • Support form consumer advocates: On the other side of the coin, though, those concerned primarily with consumer rights have hailed the proposed measure as an important move toward limiting too-easy credit.

How Well Do We Pay?

So how likely are Americans to default on their store-specific cards? Sources indicate that store-branded (also called private-label) cards tend to be higher than general purpose plastic.

This makes sense: if you’re struggling financially and only able to make payments on some of your cards, it’s smarter to stay current on cards that can be used at a variety of locations rather than on one that’s only good at a single retailer.

But, it seems, even this less-than-stellar track record doesn’t make retailers eager for a change. Here’s why:

  • Sales volume: WSJ reports that Macy’s, one major retailer that issues a store card, saw more than half of all its sales bought on store cards in Q3 of this year.
  • Salary is a private matter, and few Americans are likely to be comfortable with handing evidence of their income to a stranger behind a register, no matter how much they make.

The Federal Reserve has not yet announced when this proposed rule will be completed.

Additional Resources

Credit CARD Act of 2009 (PDF)

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Posted in Bankruptcy and the Economy | 3 Comments »

Wednesday, December 9th, 2009

Retirement Home Bankruptcy Filings on the Rise

A recent report from Newsweek explores the troubling trend of financial distress among retirement communities which is causing many to file for bankruptcy. If you or someone you care about is either living in or considering moving into such a facility, be sure to read the article. Here’s the shorthand of what you need to know.

High Costs, Tight Budgets

The article indicates that both retirement community chains (like Sunrise Senior Living Inc.) and smaller, independent communities have been hit hard by the recession, partly because of the following:

  • Expensive care: Between medical care, insurance costs, equipment and other miscellaneous costs, catering to the elderly tends to be a high-cost endeavor.
  • Medicaid restrictions: The budgets allocated by this government health plan are often difficult to work around for institutions.
  • Fixed income: Retirees no longer receiving significant paychecks can be reluctant to pay large sums for their living arrangements. These big costs can strain their tight budgets.

Because of these and other factors, many retirement communities have apparently had to raise their fees, sell out to large chains or close their doors altogether – all of which can be disruptive to residents.

Protecting Your Money

Many residential retirement facilities charge monthly fees in addition to a sort of “down payment” due at the beginning of a person’s stay – usually, this payment is refundable at the time of a resident’s death or decision to leave. But, according to Newsweek, if such a facility filing bankruptcy is the right course, for bankruptcy, those deposits can be used to pay off creditors instead, which can be terrible news for residents.

So what can you do to prevent serious financial loss from a failed retirement home?

  • Contact a lawyer: Before signing any documents, consider enlisting the help of an attorney, who will know what clauses to look for in a contract. Review this checklist  of questions to consider before signing onto a retirement home.
  • Research the facility: Moving into a retirement home requires a bit of legwork anyway, so taking the extra time to delve into a facility’s financial history shouldn’t be too taxing. Check out these suggestions for choosing a retirement facility from the Department of Health and Human Services.

Unfortunately, some financial disasters are well concealed until they erupt. Remember: knowledge and preparation are your best defenses against financial turmoil in any area of life.

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Monday, November 30th, 2009

Bankruptcy Filings Rise 33 Percent in Third Quarter

The number of bankruptcy filings in the third quarter of 2009 reached their highest point since 2005, and soared 33% above the total from the previous year, according to statistics from the American Bankruptcy Institute.

Consumer and business bankruptcies filed between August and October reached 388,485 compared to 292,291 for Q3 2008. Total filings between January and October, 2009, reached 1,100,035 compared to 841,496 in the same period in 2008, and close to the total 1,117,771 bankruptcies filed in 2008.

October saw the most personal bankruptcy filings since October, 2005, when more than 600,000 consumers filed to meet the deadline before the new bankruptcy law took effect.

"The spike in bankruptcy filings for both consumers and businesses reflect the continuing effects of today's weak economy," said Samuel Gerdano, ABI executive director.

"With unemployment surpassing 10% and credit to businesses remaining tight, consumers and businesses are increasingly turning to the financial relief of bankruptcy."

Bankruptcy filings are expected to exceed 1.4 million in 2009.

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Tuesday, November 17th, 2009

Florida Residents Join to Keep Island Resort Afloat in Bankruptcy

On Amelia Island, a coastal community off of Florida's Atlantic coast, a group of local investors have joined up to save a prominent resort from going under.

Amelia Island Plantation is a 30-year-old destination resort for vacationers and conference-goers. Recently, the resort fell on hard financial times, as many businesses have during the recession.

Wages for employees were cut, and other local businesses who depended on resort customers saw their business dwindle.

But rather than watch a local landmark and business stimulant disappear, a group of 22 local investors signed an agreement to keep Amelia Island Plantation financially viable. The investor group is called Red Maple Investors. Every member of the group is also a homeowner on the island.

Structured Bankruptcy Protection

The agreement states that the Plantation resort will seek Chapter 11 bankruptcy protection, and restructure its debts and liabilities. During this process, the resort will continue to operate normally.

Red Maple Investors will provide financial and strategic support to help Amelia Island Plantation through this Chapter 11 restructuring process.

The group's members are hardly amateur investors, however. John Griswold, for example, is the president of Harbor Hotels, and has accrued more than 30 years of experience operating high-class hotels.

"Our investors believe in the potential for the long-term success of Amelia Island Plantation," Red Maple Investors founding member Robert C. Smith told First Coast News. "All of us in RMI want to protect this little paradise we have come to love. And, we are willing to put up our own money to assure its success far into the future."

Community Finances Tied Together

As would be expected on an island of that size, the financial impact of the resort extends to other community businesses as well. The 700 employees and the 240,000 yearly visitors to the resort help many area businesses.

One such business, Dub Mullis’s fruit stand up the road from the resort, struggled along with Amelia Island Plantation.

"My customers are a lot of people from the resort. A lot of workers, people who live there and also visitors to the island," Mullis said.

A decline in corporate bookings at the resort were one of the main reasons for its struggles. The drop in large-scale events meant millions of dollars in lost revenue as companies tightened their belts.

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Monday, November 9th, 2009

How Health Care Affects Filing Bankruptcy

Health care costs and filing bankruptcy rates are more closely related than you might think. Check out this chart that shows the skyrocketing costs of health. These costs could be driving many people to file bankruptcy.

Filing bankruptcy and the influence of medical care costs

Filing bankruptcy and the influence of medical care costs

Skyrocketing health care costs have many people considering filing bankruptcy.

Add this infographic to your site:

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Thursday, November 5th, 2009

Senate Passes Unemployment Extension Bill

Unemployed Americans will receive up to 20 additional weeks of unemployment benefits under a bill passed by the Senate this week, according to CNN.

The Senate voted 98-0 Wednesday to provide continued relief to the estimated 15 million Americans currently drawing unemployment benefits. The bill provides at least 14 additional weeks of benefits, and 20 weeks in those states where unemployment is 8.5% or greater.

The bill now moves to the House, which passed a similar bill in September providing up to 13 additional weeks of benefits. President Obama has shown support for extending unemployment benefits, and is expected to sign the bill.

In the Senate bill, benefits would be extended to those who exhaust their current benefits before December 31. Those whose benefits have already run out could reapply for additional benefits.

The additional unemployment would be funded by a supplemental unemployment tax on employers that would run through June 30, 2011.

7,000 Unemployed Lose Benefits each Day

CNN reports that 7,000 unemployed workers exhaust their benefits every day. And with just 3 million jobs for 15 million unemployed (a figure that doesn't include under-employed or those who've given up on looking), that rate isn't expected to slow soon—without help.

In September, the unemployment rate reached a 26-year high at 9.8%. October's unemployment rate, due out tomorrow, isn't expected to decline. Most experts expect unemployment to crest above 10% in 2010.

Unemployment and Bankruptcy

Unemployment is also closely tied with the bankruptcy filing rate. Personal bankruptcy filings reached a four-year high in October, with 135,914 consumer filings, according to the American Bankruptcy Institute. That total is the highest since the new bankruptcy law went into effect in October, 2005.

Update: The House passed the Senate's unemployment benefit extension bill Thursday afternoon with a vote of 403-12. President Obama is expected to sign the bill Friday.

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