Boston Bankruptcy Lawyer Blog

Down the street from the Boston Bankruptcy Court is the giant Borders Books bookstore at the historical intersection of Washington Street and School Street. This is two blocks from our Boston bankruptcy law office. Borders Group, http://www.borders.com/online/store/Home Inc. filed for bankruptcy protection in New York, and will be liquidated shortly. However, there is a large effect for consumers here in Boston. A Boston bankruptcy lawyer's perspective:

The Borders Chapter 11 bankruptcy case was filed on February 16, 2011. At the time there were 17,500 employees. Borders started in 1971 as a used bookstore in Ann Arbor, Michigan, by two brothers, Tom and Louis Borders. It is still based there. In 1992, they sold their growing company to Kmart, which packaged it with Waldenbooks and sold it off in 1995.

According to the Bankruptcy Court filings, the Borders Group listed debts of $1.29 billion. Sales are lower and lower and, without textbook sales, the Borders numbers look bad. And textbooks are moving towards multiple online venders. Of the 642 stores nationwide, 200 have already been closed, with eight stores of 23 stores closed in Massachusetts; the stores in Braintree and Shrewsbury closed in May, 2011. Experts claim that Borders failed to keep up with technology changes in the industry and lost significant market share, resulting in the bankruptcy. Also a factor may be the 2001 sale to Amazon of their internet operations. It is hard to imagine, now, how any retail business such as a bookstore could survive on a large scale absent an internet presence.

Bids by Najafi for Borders were insufficient, and were rejected by the Borders creditors' committee. Bidders have until July 18, 2011. There were signs that the Boston company Gordon Brothers will be making a bid for the assets of Borders, however, a local issue is what will happen to the 40,000 square foot store? The owner of the Washington Street building, Clarendon Group USA, Inc., will have to find another tenant. Clarendon bought the building in 2006, before the economic downturn, however, Borders had been there since 2000. The lease to Borders is up next January, however, the market for such showcase space is not clear.

At the outset of the Chapter 11 case, Borders secured with a $505 million loan from GE Capital. This was called a debtor in possession financing, and was approved by the bankruptcy court to allow the debtor, Borders, to remain in possession of their stores and inventory, in an attempt to reorganize.

The next scheduled hearing in Bankruptcy Court is July 21, 2011. The motions on that day, as presently listed by the Court Docket, are for terminating lease agreements, sales of mortgage notes, amending the agreement regarding payment to creditors, and the sale of various leases. Boston readers should consider a trip to the Washington Street Borders before the case is wrapped up, the assets sold, and the lease turned over to another entity. There may even be a few books on personal bankruptcy worth purchasing.

There is only one main bookstore chain left in Massachusetts, Barnes & Noble. Located in the Prudential Center, the megastore may or may not thrive as a result of the loss of their competitor.

President Obama is expected to reject interim director and Harvard Law professor Elizabeth Warren and appoint Richard Cordray, former Ohio attorney general, to be the director of the Consumer Financial Protection Bureau, according to reports learned by Boston bankruptcy lawyer Neil Burns. The CFPB officially opens July 21. Nevertheless, coming up with the idea for the agency, lobbying for it during the Gramm-Dodd leglislation, and laying the groundwork by "directing" it since its inception, Massachusetts' Elizabeth Warren and her team have undertaken numerous alliances and endeavors in advance of the opening. Boston bankruptcy lawyers who represent consumers are looking carefully at the regulators to determine what new rules and programs we can pass on to our Massachusetts consumer clients. So far, we have gleaned the following:

On July 12, 2011, Professor Warren announced the CFPB approach to examining large banks, with over $10 billion, with respect to the financial protection and disclosure to consumers. Using examiners formally from the FDIC, other federal and state regulatory agencies, the CFPB will examine local practices, and educate to enforce compliance. The monies in these banks comprise more than 80% of banking industry assets.

In an alliance with the military Offices of the Judge Advocate Generals, the CFPB entered into an agreement to protect members of the armed services regarding consumer financial products and services. Noting that military personnel are too often "targeted by predatory lenders" and become "victims of unfair financial practices," the parties agreed to work together to educate the military personnel, enforce consumer laws and study financial products and practices to determine how to protect consumers.

The CFPB has drafted new CFPB mortgage disclosure forms to protect consumers. The goal is to remove critical items from the preverbal fine print. With a mandate from the Dodge-Frank Act, which brought about the birth of CFPB, the agency was instructed to integrate the "truth-in-lending" form and the "good faith estimate" form in a way that will be simpler, less complicated, and not duplicative. CFPB floated two proposed forms and sought comments on each. The responses were focused on "cautions," "key terms," and "summary." The projected payments sections presented the next most comments. According to CFPB, comments were critical in revising the mortgage disclosure forms.
Massachusetts student loans are another consumer area the CFPB seems intent on working on (well, their focus is national!). In their initial CFPB student loan postings, the CFPB is merely providing information. They note that the average college graduate has over $23,000 in student loans. They differentiate between the publicly backed student loans and private student loans. However, as the CFPB points out, discharging student loans in bankruptcy is very difficult.

The CFPB website allows for inquiries of myriad consumer financial questions, including loan modification, foreclosures, equity loans, credit card issues, payday loans, cash advance rules, motor vehicle loans, tax refund loans, credit counseling, credit reports, travelers checks and money orders, wire transfer, etc.

With respect to the drama in Washington over Elizabeth Warren's nomination, Massachusetts consumers will have to stay tuned. One side of the aisle wants her out, the other side in, and advocates are hoping that the debt ceiling crisis will be resolved so Congress can go into recess and the president can name Ms. Warren in a stealth interim nomination, avoiding Senate confirmation. As Professor Warren recently said "Every day, somebody's got a plan to undercut this agency, to knock it down," so her job description, before her job even starts, has been to defend the agency she advocated for and that Congress put into place.

Boston bankruptcy lawyer Neil Burns reports good news: the rate of personal bankruptcies was lower in the first half of 2011 than the first half of the prior year. According to the American Bankruptcy Institute statistics, personal bankruptcies were down about 8% for the first half of the year. The numbers are as follows: there were 709,303 personal bankruptcies filed between January 1 and June 30; this is down from 770,117 filed the previous year. Personal bankruptcies were down in June 2011 verses June 2010; 119,768 filings in June this year and 126,270 filed one year earlier, in June 2010. This is a 5% decrease.

Further, ABI finds that during the month of May, personal bankruptcies were down 16% from May 2010; and, ABI reported in early May that bankruptcies were down 7% verses the prior year's April.

Last year, 2010, when the Boston bankruptcy lawyer blog reported on the first half of the year's statistics, unfortunately, bankruptcies were up 35%! Thus, this year's news is a huge step in the right direction. Bankruptcy filings often correlate with fluctuations in unemployment, according to David Leibowitz, a bankruptcy lawyer in Chicago, and on the of the American Bankruptcy Institute's consumer committee. We are not economists here, but the reduction in the rate in Boston bankruptcies seems to be a positive economic indicator.

At the end of the first quarter, the ABI found the following states to have the highest rate of personal bankruptcies: Nevada, Georgia, Tennessee, California, Indiana, Alabama, Utah, Michigan, Arizona and Colorado. Massachusetts, no where near the bottom of the list, enjoys an employment rate of 13th highest; and Massachusetts has the 13th highest Gross State Product according to the Bureau of Labor Statistics and the US Census Bureau. While there is room for improvement, Massachusetts consumer lawyers see these statistics as promising.

If you look at Massachusetts specifically, the first quarter results are published by the Massachusetts Bankruptcy Court. They indicate that there were 3,737 Chapter 7 filings in the first quarter of 2011. There were 1,097 Chapter 13 personal bankruptcy filings for that quarter, and 4,884 total filings, which include Chapter 11 (45) and Chapter 12 (5). The first quarter in 2010 resulted in 5,847 total filings in Massachusetts; with 23,618 for the year in 2010. Going back one more year, to 2009, the first quarter Massachusetts residents filed 4,567 total bankruptcies for the first quarter; there were 20,966 for the year 2009. In 2008, the number was 2,973 in Massachusetts bankruptcies in the first quarter, with 16,538 for the year in 2008. In 2007 there were 13,705 total bankruptcies in Massachusetts, while in 2006 there were 8,400 Massachusetts bankruptcies. Note that in 2005 there were 26,714 bankruptcies: this was the year that the law changed and many folks filed in advance of the October 2005 deadline.

Excesses, like the $150 hamburger on Wall Street are being squeezed out of the system: in the notorious Wall Street Burger Shoppe Chapter 7 case, the 30 Wall Street bistro reported $50,000 in assets and $500,000 in debts. While we know this would never happen in Boston, the trend seems to be our friend.

Boston bankruptcy clients have been asking us about applying for credit cards under the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit Card Act of 2009). One "new" aspect of The Card Act, which goes into effect in October, 2011, is regulation regarding consumers who don't have their own income. In fact, a new ruling by the Federal Reserve forbids banks and credit card issuers from issuing credit cards to folks by using "household" rather than personal, income. Household income is too vague, they say. This may adversely affect clients who have filed for a Massachusetts bankruptcy in that it will make it harder to get credit after the bankruptcy discharge. (See our Life After Bankruptcy article for more detailed information.)

The regulation does not prevent applicants from using household assets, such as savings, checking and brokerage accounts. Further, an allowance by one spouse to the other, of shown consistent and reliable, would be counted as income. Another fair way around this regulation is for a married couple to apply for a joint credit card account and have the non working spouse build up a positive credit record. Once you have the good credit record you can apply for your own card.

Other aspects of the Card Act of 2009, signed into law on May 20, 2009 by President Obama, added protections to credit card consumers. First, credit card companies must give 45 days notice before raising the interest rates on consumers. They must give the same notice for any other significant change to the policy. The issuers must inform consumers that they have the right to cancel upon being notified of the changes; if the consumer does cancel his credit card, the increases cannot be applied to the unpaid balance. Second, consumers must be given at least 21 days notice of a payment due.

There are a multitude of protections. Consumers who are subject to a rate increase because of late payments, and subsequently pay on time for six consecutive months, are entitled to have their rate reduced to the prior rate.

Another significant attribute of the Card Act of 2009 is that any payment must be applied to the highest interest rate portion of an account first. For example, if the cash advance portion of the bill has a higher interest rate, a payment must be applied toward that portion of the account before any is applied to the credit portion.

New accounts cannot be subjected to increased rates in the first year, with a few exceptions. Under the law, all statements must include information on how to secure a payoff amount, such as phone number and internet address for payoffs. And, in the law, the bill must have a font size that is adequate!

On the bill, credit card companies must provide information on how long the payoff would be if the consumer made a monthly minimum payment.

Consumers have the right to limit their credit; that is, when the credit card company seeks to increase your credit limit, you have the right to limit the debt ceiling. This goes counter to the traditional more is better attitude, however, it enables consumers to have control over their credit limit. Further, fees cannot be charged for going over the limit as a way of inducing such spending.

Boston college students may be sad to learn that free pizza and other prizes are outlawed as promotional tools for credit card companies on college campuses!

Technically, the Credit Card Act was an amendment to the Truth in Lending Act along with other laws to provide for fair and open practices for consumers with credit cards and other such open ended consumer credit accounts.