Two law professors recently published an article discussing their research on the following question:  Why do so few consumers actually file for bankruptcy when so many more would benefit from filing? See Ronald Mann and Katherine Porter, Saving Up For Bankruptcy, 98 Geo L.J. 289 (2010).  Mann and Porter acknowledge that the current raw numbers indicate a near record number of filings.  But they maintain that this record number still represents just a sliver of those in severe financial distress who could benefit from filing.

The two professors discussed a variety of interesting issues related to their topic. But I focus here on one point: The authors assert that the underuse of the bankruptcy system is explained, in part, by the high cost of filing. They cite data that “strongly suggest[s] a group of debtors for whom the decision to file bankruptcy is deferred due to a lack of funds.” p. 336. continue reading »

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Welcome to the first post of my new bankruptcy blog. I’m glad to see you here.

My purpose with this blog is to provide useful information relating to consumer bankruptcy. In the months ahead I will offer comments on significant bankruptcy cases, tips and suggestions on how to navigate the bankruptcy filing process, and observations on current bankruptcy-related topics. Please subscribe to this blog so that you can receive the latest posts.

The topic for this first post is a report on the Capitol Hill Meeting that NACBA sponsored on January 26 and 27 in Washington, DC. Each year NACBA sponsors this event where its members meet with members of Congress and their staff to discuss pressing legislation or other bankruptcy related issues. I attended this year along with more than 80 NACBA members and staff from 20 states. The unofficial slogan of the event was: “Bankruptcy is not a four letter word, but bank is.”

The two-day event started with training where we received guidance on how to have an effective meeting with a member of Congress and how to articulate NACBA’s legislative objectives. On the second day we divided into groups and fanned out across the Capitol to attend our meetings with legislators that NACBA had arranged.

Because no major bankruptcy legislation is currently pending, the focus of this year’s event was to cultivate relationships, educate legislators about bankruptcy, and discuss issues that may come up as part of NACBA’s future legislative agenda.

Two issues in particular were raised in these meetings. First, we discussed a growing problem with improper fees being added to mortgages while a debtor is making payments in a chapter 13. Mortgage creditors will often miscalculate or deliberately inflate fees and charges, and misapply chapter 13 payments. This results in a long catalogue of late charges and other fees that are “due” when the plan is complete. Debtors find that even after the chapter 13 payment plan has been completed, the mortgage creditor is once again demanding thousands of dollars in new, unexpected charges, and again threatening foreclosure. Such practices in many cases render chapter 13 an illusory and ineffectual method of preventing foreclosure.

One potential solution to this problem that was discussed in the meetings is to require mortgage creditors to fully disclose at the beginning of the chapter 13 case all the fees they intend to charge. That way the debtor has an opportunity to pay off these fees gradually as part of the plan payment.
The second issue discussed in the meetings was the need for a uniform, national floor on the homestead exemption, especially for seniors. Quite often seniors own modest homes outright after decades of mortgage payments. They might have $50,000 or $75,000 in equity. These seniors will then suffer a medical problem and face substantial medical bills. Seniors in this situation often find that they are unable to file for bankruptcy because their state’s homestead exemption is inadequate and if they file to discharge the medical debt they will then lose their homes. In many states, the exemption for home equity does not exceed $25,000. Some states have no homestead exemption at all.

NACBA’s recommended solution to this problem is to enact a uniform floor to the homestead exemption of $100,000 nationwide for debtors over the age of 55.

The legislators and staff member we met about these issues were interested and open minded. I can definitely see how such meetings can make a real difference in laying the groundwork for consumer-friendly bankruptcy legislation in the future.

Thanks again for stopping by to read the first post of my new blog. I look forward to seeing you here again.

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