Boston Bankruptcy Lawyer Blog

When personal bankruptcy attorneys are retained, their responsibility includes informing the client of the law, drafting the Petition and Schedules, filing the documents with the Court, and attending the Creditor's Meeting, or §341 Meeting. In a recent case handed down by the United States Bankruptcy Court, a Boston attorney failed to appear at the Creditor's Meeting for five different clients.

In fact, he sent his legal assistant, who was not an attorney. "The debtors [clients] were right to be indignant," the Court stated. "The 341 Meeting is most often a debtor's first exposure to the public face of the bankruptcy process and to the adversarial forces potentially arrayed against her...[the attorney] abandoned his clients at the moment they needed him most." In addition, this attorney was aiding his assistant in what is called "unauthorized practice of the law" which is against both federal and state rules.

The case, In Re: Otero, Heather M. et al, was decided by Judge Hoffman on June 18, 2010.

The numbers for the first half of the year are in and our Massachusetts personal bankruptcy clients will understand: chapter 7 personal bankruptcies are up 17.6% over that period. Chapter 13 reorganizations are up 62%! While these numbers are grim, the good news is that bankruptcies tend to be a lagging economic indicator; they rise after a great fall in income and following the worst part of recessions.

"A total of 11,847 filers statewide sought protection under Chapter 7, Chapter 13, and Chapter 11 of the U.S. bankruptcy code in the first two quarters, up from 9,461 a year earlier," according to the Warren Group. "The number of filings was also 13.7 percent higher than the previous two quarters, when there were 10,419 filings."

A client called us the other day and reported that now that he was 18 months post bankruptcy, his FICO credit score was 640, he was getting better and better rates on his credit cards, and that he was "overjoyed" at how "easy this was" once he was given the relief that the "fresh start" the law promises. Apparently he has been following the simple rules that improve credit scores.

We have written about this on prior occasions and we are pleased that the information is helping clients. The following is adapted from our website about reestablishing credit after bankruptcy.

1. Live within your means. Your payments on consumer debt should equal no more than 20% of your expendable income after costs for housing and a vehicle. 2. Pay your reaffirmed, pre-bankruptcy debts on time; 35% of your score is based on payment history. 3. Pay your utility bills and rent on time; these folks report to credit agencies. 30% of your score is based on amount and type of outstanding debt. 4. Open a checking or savings account. Lenders may look at this to determine if you can responsibly handle money. Use a debit card and then apply for a credit card from that bank. 15% of your credit score is based on length of credit history. 5. Apply for store and gas credit cards where you would normally pay cash. Use but pay timely. Don't do this too many times as 10% of your credit score is based on the numer of new accounts. 6. Apply for a secured card where you deposit cash and charge against it. Pay advances back over two months so that they will be reflected as positive marks on your credit report. 7. Find a friend or relative to cosign for you on a loan and pay it on time. 8. Look for car dealers and mortgage brokers that attest to be "bankruptcy friendly." 9. Stay away from payday loans that are at high interest rates and are a "bad credit" trap. 10% of your credit score is based on the mix of types of credit. 10. Write a letter to each credit reporting agency explaining any unusual circumstances that lead to you filing.

Clients often ask their consumer attorney how to teach their college bound kids about credit and finance. At the intersection of when their income is low and needs are high, these enthusiastic young folks need clear instruction on how to manage their financial life. A wonderful approach to dealing with offspring and their finances is in Michael Stopler's book, Wealth: An Owner's Manual. The simple approach is to open a bank account which Suzie, or both of you, has access to, have her put her earnings in and you put a monthly, or quarterly, allowance in. The account can have a checking and debit card and Suzie is responsible for managing the account. Another approach is to give Suzie a credit card that you are responsible for.

Unfortunately, we see a lot of these credit card bills, one, two or 10 years later. Suzie had some problems and now the parents are in bankruptcy, partially because of these debts. If the credit card was in the parent's name, the parent is responsible. On the other hand, this does allow Suzie to build up some credit, and for the parents to monitor the expenses and to teach responsibility from time to time.

Now that Congress has passed the 2010 Consumer Financial Protection Act, our consumer clients ask how it will affect them, who will lead the agency, and when. Daily media reports indicate that while Harvard's Elizabeth Warren, the consumer champion, is still in the running, no decision has been by the Obama administration. While we agree that Warren's relentless push for consumers entitles her to full consideration, our desire is that the ultimate results of "reform" are consumer focused, and not, as in the prior 2005 Act, bank focused.

A quick review may be in order. In 1994, the National Bankruptcy Review Commission was established. The author of its report in 1997 was Elizabeth Warren. Ms. Warren's findings clearly indicated that mortgage lenders, and others, needed tighter regulation. Unfortunately, Congress rejected the proposals of the Commission and passed the 2005 Bankruptcy Abuse Prevention and consumer Protection Act. This law was written by and for the lenders and banks. Sure, it has reduced a few consumer bankruptcies. However, mostly it has increased costs to consumers: costs and interest rates to consumers went up, lending became looser, the financial crisis occurred, bankruptcies and foreclosures skyrocketed.

We are watching and waiting to see what the administration will do, what the new agency will do, and, most significantly, what the results will be.

Elizabeth Warren, Harvard Law School Professor and the champion of the Consumer Financial Protection Bureau law, passed by Congress and signed into law by President Obama, may be on the short list to lead the new agency. Warren was the Chairperson of the Federal Oversight Committee making recommendations to Congress Regardless of the president's final choice; Warren has been a champion for consumers like our clients who are filing bankruptcy in record numbers. The new law will have multiple consequences for consumers. We intend to write several articles to review the law.

In a ruling by the Federal District Court in Massachusetts, Judge Young held that when a consumer wins a Consumer Protection claim (93A case) and the Court orders that the defendant pay the consumer his or her attorney fees, interest on the attorney fees begins to accrue when the original judgment enters. In Massachusetts Courts court, the interest rate is one percent per month from the time suit is filed http://www.ncsconline.org/WC/Publications/KIS_PreCivPJIPub.pdf , however the federal court rate is 5.22% from the judgment date. This one reason why our clients appreciate having their consumer protection cases heard in state courts.

In this case, the plaintiffs were awarded a victory on the case and had to await some time before attorney fees were calculates. Apparently, the issue became when to start accruing the interest on the attorney fee portion of the judgment: from the time of the initial victory, or from the later time when Judge Young actually made his attorney fee finding. The Court decided that while the First Circuit has not made a determination, other Federal Circuit Courts have, and they go back to the date of the initial judgment.

Our personal bankruptcy clients have many questions regarding their _blank">credit scores. We have written numerous times on this topic. Today we want to remind clients that while having a top credit score is nice, having an average credit score means paying more interest on loans. On the other hand, having a score below 650 begins to mean trouble. According to a FICO report released this week, 35% of all consumers have credit scores below 650 which makes them unworthy for prime loans for credit cards or other loans. 25.5% scored below 600.

The reasons for this mainly include a run up in credit card debt and, of course, defaults. There are many simple ways to attack this problem, mostly focusing on: reducing debt!

While we help clients with personal bankruptcies, we also help clients with budgeting, prioritizing, and often with negotiating one or more of their debts.

In a recent study economists found a "large and statistically significant negative correlation" between financial literacy and subprime mortgage defaults. In our opinion, the ramifications run deeper than putting a new agency under the Federal Reserve Bank, the so called Financial Reform Act. Our clients, more and more, are asked to manage their retirement accounts (401k, 403b, IRA, etc.), and to make non-retirement savings decisions. Indeed, the economists stated: "Of even greater concern however, is that differences in financial literacy are correlated with consumption and savings decisions."

The study is replete with statistics and interesting findings. For example, the folks at the bottom 25% of calculation skills, 20% had been foreclosed on; whereas, only there were only 5% of foreclosures in the folks who scored in the top 25%. The work was published by the Federal Reserve Bank of Atlanta (with research from the Boston Federal Reserve Bank).

In February 2010, the second phase of the Credit Card Accountability Responsibility and Disclosure (CARD) Act significantly changed the terms consumers were held to by credit card companies. The CARD Act generally made credit card terms more friendly to consumers, since all credit card companies are now held to the same standards.

There is more good news for consumers, especially those consumers who are in the process of rebuilding credit after bankruptcy. The third phase of the CARD Act will come into action in August 2010 and incorporate the following updates:

1. If the borrower makes a payment 60 days late and suffers an increased interest rate, six months of on-time payments will cause the interest rate to return to the original rate.

2. Gift cards will not expire before five years and will not be subject to inactivity fees.

Although this is good news, consumers should still be cautious. Credit card companies may create new rules or change the existing terms of your credit card agreement to counteract these mandatory changes. Read any changes carefully, and don't forget to keep an eye on your overall credit by requesting your free annual credit report.

In February 2010, the second phase of the Credit Card Accountability Responsibility and Disclosure (CARD) Act significantly changed the terms consumers were held to by credit card companies. The CARD Act generally made credit card terms more friendly to consumers, since all credit card companies are now held to the same standards.

There is more good news for consumers, especially those consumers who are in the process of rebuilding credit after bankruptcy. The third phase of the CARD Act will come into action in August 2010 and incorporate the following updates:

1. If the borrower makes a payment 60 days late and suffers an increased interest rate, six months of on-time payments will cause the interest rate to return to the original rate.

2. Gift cards will not expire before five years and will not be subject to inactivity fees.

Although this is good news, consumers should still be cautious. Credit card companies may create new rules or change the existing terms of your credit card agreement to counteract these mandatory changes. Read any changes carefully, and don't forget to keep an eye on your overall credit by requesting your free annual credit report.

With the end of the second quarter imminent, Massachusetts consumers continue to file personal bankruptcy at a rate higher than the national average. The rate for this quarter will not be known for a while, but the numbers for the first quarter, 272,048 Chapter Seven filings, and 373,551 total filings. Those numbers indicate that over 72% of the filings are Chapter Seven. In Massachusetts, the percentage is higher: 22,249 total filings with 17,714 Chapter 7 personal bankruptcies: almost 80% Chapter Seven personal bankruptcies.

Nationally, the rate of personal bankruptcies has reached close to 7,000 per day. The federal court statistics analyzed by AACER, noted that the numbers were higher than before the October 2005 bankruptcy law change, and that bankruptcies typically peak between 6 and 18 and months after the bust in an economic cycle.

Many of our Chapter 7 personal bankruptcy clients are living on Social Security. When their family members come in to our office, or to court, supporting them, they ask: will Social Security still be around when they need it...next year, in twenty years? We don't know, but we intend to provide significant information when we can. In a clear and concise analysis, Bob LeClaire in his Finance and Markets Newsletter for the week ending June 12, 2010 came up with a host of recommended solutions and the percentage reduction of the Social Security deficit. For example, increasing the contribution rate from the current 6.2% to 7.3%, would reduce the future Social Security deficit 100%.

The chart below gives us other ideas.

In our bankruptcy blog, we try to inform our clients of an array of consumer issues that will have an impact on their finances and investments. Many of our Boston area clients, in and around Boston, have homes; many of those homes are their largest investment. With the economy precarious, and the job situation bleak, we hear some of our clients talking about voting against Proposition 2 ½ overrides. A new study by Northeastern Professor Barry Bluestone, Dean of the School of Public Policy and Urban Affairs, clearly indicates that, in the long run, voting in favor of overrides, notwithstanding the increased taxes, has a direct correlation to enhancing home, therefore investment, value.

The study compares 176 towns in the Commonwealth using SAT scores and per pupil spending on the one hand and housing values on the other. In Hull, for example, the proposed tax increase would have cost the average household $506 per year, or $2,530 over five years; however, the home value, according to the statistics metric, would have increased $9,970.

The study, undertaken with Ph.D. candidate Anna Gartsman, indicates that consumers, and especially homeowners, need to look at the long term consequences of these important decisions. In Massachusetts, there have been 389 override votes, with 165 rejected.

According to data released recently nationwide more people than ever are not paying their mortgages. Nationwide there are more than 650,000 households that are over 18 months Email This Post

Posted In: Random Consumer Issues