Consumers Blamed for Corporate Greed

Although consumer advocates tried to warn Congress at the time, only now is it becoming apparent that the 2005 Bankruptcy Reform Legislation (BAPCPA) was an attempt to blame falling corporate revenues on consumers. Mortgage and credit card companies blamed their lack of revenue on consumer bankruptcies while continuing to dole out unsafe and impossible loans to consumers and punishing them with foreclosures and rate increases if they couldn't keep up the payments.

clipped from articles.moneycentral.msn.com Furthermore, lenders, not consumers, are the ones that seem to be abusing the system these days. According to U.S. Senate testimony, bankruptcy trustees are seeing "systemic problems" with mortgage servicers that: Tack on exorbitant fees. Miscalculate how much is owed. Refuse to communicate with borrowers or the court. Force homeowners into foreclosure without authority to do so, usually because the servicers can't figure out or prove who actually owns a mortgage, which has typically been chopped up and sold to investors. If you missed the irony, I'll spell it out. Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 because lenders had alleged that consumers were abusing the bankruptcy system.

Florida Bankruptcy Court denies 523 complaint

A Florida bankruptcy judge recently took up a 523(a)(2) complaint but denied that the debt in question was a fraud exception to discharge.

In Loud v. Richie, 2007 WL 4644663, Bankr.M.D.Fla (December, 2007), an unscheduled judgment creditor failed to prove by a preponderance of the evidence that the Chapter 7 debtor, from whom they had purchased their 70-year- old home prepetition, made any misrepresentation regarding the condition of the home with the intent to deceive them. Therefore, the judgment debt was not of a kind specified in 11 U.S.C.A. 523(a)(2)(A), the discharge exception for actual fraud, and it did not fall within 523(a)(3)(B), the discharge exception for unlisted or unscheduled debts. Although the judgment creditors presented evidence that the home's original porch had deteriorated, that tie- backs should be installed to stabilize the basement walls, that groundwater had intruded into the basement, and that permits were not obtained for all contracting jobs completed on the property, they failed to show that the debtor was aware of the conditions at the time of the sale, and that he misrepresented or actively concealed them with the intent to deceive the judgment creditors.

House Committee Passes Mortgage Reform Act

The House Judiciary Committee has passed limited mortgage reform legislation. The bill, H.R. 3609, the Emergency Home Ownership and Mortgage Equity Protection Act, is the first step to giving homeowners with sub-prime mortgages a much needed break.

Maureen Thompson, Legislative Director for the National Association of Consumer Bankruptcy Attorneys, states:

"Though the bill is more limited than we hoped, it nonetheless will provide a bankruptcy remedy for many hundreds of thousands of homeowners where none exists today."

The bill is expected to come before the full House as early as February and even in its watered down form is expected to meet stiff opposition.

Some of the highlights of the bill are:

1. The bill covers only existing loans made after 1/1/2000 and will have no effect on new loans.
2. Covers nontraditional loans and subprime loans only.
3. Applies only to loans where there is a notice of foreclosure.
4. Sunsets after 7 years.
5. Provides guidance to judges so they cannot cramdown value below fair market value and cannot reduce interest rate below conventional mortgage rate.

The Senate Judiciary Committee also is expected to take up S. 2136, Senator Durbin's bill, in February.

Foreclosures in Your Neighborhood May Affect Your Home Value

As the housing market crash drags on, foreclosures are on the rise due to adjustable rate mortgage payments increasing beyond home owner's budget. Obviously, the foreclosure will affect the home owner's credit report and the ability to purchase another home in the future but what about the home owner's neighbors? Analysts state that 44.5 million homeowners living near foreclosed properties will see a decrease in their home value of up to $5,000 in the coming months. Eric Stein of the nonprofit research group Center for Responsible Lending, estimates that 44.5 million homeowners living near foreclosed properties will see home values drop by an average of $5,000, as foreclosures surge. "The impact of foreclosures on local communities are far worse than any impact these bills would have on the mortgage market." Lower home values mean more trouble for an already doomed home mortgage industry. Less equity in properties makes it more difficult to refinance and cash out equity. That in turn means less money for consumer spending. All this adds up to a very lean holiday season for consumer spending.

See the full article in the Washington Post about pending bankruptcy legislation to help homeowners.

Top 5 Things to Do If You Are Considering Bankruptcy

Every day I counsel with debtors from all walks of life about their remedies under the Bankruptcy code. The biggest hurdles that most debtors face is meeting the document requirements of the new Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). Below are the Top 5 things that I would recommend to consumers who may be considering bankruptcy now or possibly in the future.

1. Keep all your paystubs. You will need to show six months of paystubs to your attorney. If you haven't been keeping paystubs, start keeping them now and get a report from your employer of the missing stubs.
2. Always keep a copy of any tax returns you file. Too often people rely upon the tax preparer to keep a copy of the return and are disappointed when they realize the preparer has closed up shop until next year. If you don't have copies of the last four years returns, contact the IRS now and request a transcript.
3. Keep track of your household expenses. If possible, keep receipts for household bills such as vehicle expenses, utilities and charitable contributions.
4. Stop getting credit. Sounds like a no-brainer but you would be surprised at the people who continue apply for credit even up until the day they file.
5. Stop using credit cards now. Period. No explanation necessary on that one.

Junk Fees in Mortgage Foreclosures Only Increase Burden on Consumer

As a consumer bankruptcy attorney I often marvel at the amount of mysterious fees that mortgage companies charge consumers. For instance, I routinely see claims charging hundreds of dollars for inspections fees and appraisals. Recently I requested copies of the so-called inspections and appraisals for which the lender had charged my debtor. I am still waiting for the documents, by the way and question if they even exist. Even still, I find it unconscionable that mortgage companies would charge for payoff statements and fax fees. Only recently has this practice come to the attention of the mainstream media and consumer advocates. Consider a recent article in the New York Times which claims the fees aren't chump change. Countrywide alone raked in $285 million in late fees from customers, a 20% rise from 2005 figures. The article states:

Bankruptcy specialists say lenders and loan servicers often do not comply with even the most basic legal requirements, like correctly computing the amount a borrower owes on a foreclosed loan or providing proof of holding the mortgage note in question.

“Regulators need to look beyond their current, myopic focus on loan origination and consider how servicers’ calculation and collection practices leave families vulnerable to foreclosure,” said Katherine M. Porter, associate professor of law at the University of Iowa.

Mmmm. How do you keep a failing lender from going bankrupt? One late fee at a time.

Alabama House Speaker Creates Task Force to Study Poverty

House Speaker Seth Hammett has formed a task force to study poverty in Alabama. The House Task Force on Poverty intends to identify conditions that create or worsen poverty and to propose legislation or public policy initiatives to reduce or eliminate poverty. Sorry, Mr. Speaker, but you don't need a task force to figure out why people are poor and getting poorer.
Every day I represent people who can't afford to pay their bills and are forced to file bankruptcy. Of those people that I represent, I would say that 95% are unable to pay their bills due to circumstances beyond their control including divorce, job layoffs and high medical expenses for debtors who are uninsured. Combine that with a state that allows corporations to hide behind "at will" laws and payday lenders to take advantage of the consumers who are most vulnerable. Add in the subprime market fiasco which continues to raise the debtor's house payments and higher prices for necessities such as gas and groceries and you have a recipe for poverty. It's not rocket science Mr. Hammett.