Published Monday, March 15, 2010 @ 6:27 pm

Exacerbated by the recent “Great Recession,” small business owners everywhere are not only facing high employee health care costs and lagging consumer and commercial spending, but also fewer credit options. While loans have always been the lifeblood of the small business, all across our great nation, mom and pop endeavors with even the most solid credit histories face tremendous obstacles in qualifying for much-needed capital.

In a recent McClatchy article entitled “Too small to succeed? Firms still can’t get loans they need,” small businees owners—from California to the Carolinas—share their personal struggles behind the credit crunch.

“Jim Collins, co-owner with his wife Arlene of Quantum Energy Solutions, has been in business in Sacramento, California, since 1974. He has a $50,000 line of credit, backed by the U.S. Small Business Administration, through US Bank, owned by US Bancorp. He has a solid credit history and $30,000 in untapped credit. Yet when Collins approached the bank about borrowing at least $500,000 to expand his 12-employee firm — which retrofits buildings with energy efficient technologies — he was rebuffed, told that his company lacks resources and collateral. US Bancorp declined comment. Collins, 70, can’t get the money he needs to hire five additional workers and ramp up marketing, even as the Obama administration promotes the “green jobs” of the future. ‘The credit crunch is still there. It really impedes our ability to grow,” he said. “I’d put five more people to work tomorrow.’”

Because small business accounts for some 65% of employment in a nation already facing off-the-charts job losses, any squeeze on small firms is a serious matter—with last year’s disconcerting lending figures illustrating just how serious—for the long haul.

According to the Federal Deposit Insurance Corp, the United States economy made 7.4 percent fewer loans in 2009, the largest lending drop since 1942 and marking an estimated $1.5 trillion lending deficit. As McClatchy reports, “corporations are issuing bonds again, and large companies have access to bank loans, but it’s still an uphill climb for the little guy. ‘There’s a big gap in access to credit for small firms now, and it’s a huge problem,’ Karen Mills, the head of the Small Business Administration, told McClatchy. ‘We have a sense that the banks are not back to lending the way that they need to be, going forward.’”

Another victim of the credit crunch—this time on the East Coast—is North Carolina’s Bob Kingery, co-founder of Southern Energy Management in Morrisville, NC. While Kingery’s firm normally makes a good living installing solar photovoltaic panels for businesses throughout the Southeast, “in the past two years, about 15 projects have been scratched or delayed indefinitely as customers scramble for financing options. The tight credit market has tied up about $30 million in business, Kingery calculates.”

Based on last year’s anemic lending figures and the continuing trend of evaporating loans for small business, many mom and pop endeavors are seeking shelter through the benefits of bankruptcy.

The truth remains, if you are no longer able to sustain or expand your business in your current financial situation, filing for bankruptcy may be your best bet. And, in this case, the best move a beleaguered small business owner can make is to consult an experienced bankruptcy attorney who specializes in small business cases. Skilled bankruptcy attorneys like those at The Law Offices of John T. Orcutt can get to work early, navigate any uncertain waters of bankruptcy court and work in your best interests during the duration of your small business bankruptcy. The attorneys at The Law Offices of John T. Orcutt offer a totally FREE debt consultation and now, more than ever, it’s time to take them up on their offer. Just call toll free to 1-800-899-1414, or during the off hours, you can make your own appointment right online at www.billsbills.com. Simply click on the yellow “FREE Consultation Now” button.

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Published Saturday, March 6, 2010 @ 1:05 pm

While lack of confidence in the recent economic recovery led employers to shed an unanticipated 85,000 jobs in December 2009—even as many long-time unemployed Americans gave up looking for work to keep the unemployment rate held steady at 10 percent—the qualification dates for existing tiers of unemployment benefits were extended for an additional two months.

But that two-month bump in benefits will expire at the end of February 2010, leaving millions of average Americans bewildered and without any money coming in their coffers.  Now, without Congressional action to extend these benefits, this latest look at the state of unemployment means an unprecedented number of jobless workers will lose their benefits and be ineligible to get more by June 2010.

In fact, the National Employment Law Project (NELP) released a new report last week about this very long-term unemployment crisis, revealing that:

“1.2 million jobless workers will become ineligible for federal unemployment benefits in March unless Congress extends the unemployment safety net programs from the American Recovery and Reinvestment Act (ARRA). By June, this number will swell to nearly 5 million unemployed workers nationally who will be left without any jobless benefits….Currently, 5.6 million people are accessing one of the federal extensions (34-53 weeks of Emergency Unemployment Compensation; 13-20 weeks of Extended Benefits, a program normally funded 50 percent by the states).”

Of the nearly 1.2 million workers facing a cut off of benefits in March alone: “380,000 workers will exhaust their 26 weeks of state benefits without accessing the temporary EUC extension program or the permanent federal program of Extended Benefits. Another 814,000 workers will not be eligible to continue receiving EUC past their current tier of benefits.”

“’Congress must swiftly act to maintain the lifeline for millions of jobless Americans caught in the
undertow of record long-term unemployment in this ongoing downturn,’ said Christine Owens, Executive Director of the National Employment Law Project. ‘At the end of last year, Congress wisely agreed that our hardest hit workers and our economy were not yet out of the woods, and reauthorized the jobless benefits and health care subsidies from the ARRA. It is critical for Congress to renew these unemployment provisions through the end of the year before its Presidents Day recess for the millions workers again facing the end of the line—and to avoid missing the boat on this timely and effective economic jolt.’”

Under intense pressure from the public, Congress is currently considering a qualifying unemployment benefits extension period of another three months.  But for many, remaining jobless, even with an added lineup of benefits, is no consolation. As one in 10 Americans remain unable to find work and President Obama has established job creation as his “number one focus” this year, according to some economists, the legislative proposals being seriously discussed in Washington don’t even come close to addressing the problem.

As a result, many are taking things into their own hands to address their financial woes and take back their fiscal freedoms to make a fresh start through bankruptcy.

In fact, knowing a qualified bankruptcy attorney can also help any unemployment person to conquer your creditors and face their financial fears, yielding the right kinds of support, information and insights—at a low cost— for a viable and secure future.  The bankruptcy experts at the Law Offices of John T. Orcutt offer a totally FREE debt consultation and now, more than ever, it’s time to take them up on their offer. Just call toll free to 1-800-899-1414, or during the off hours, you can make your own appointment right online at www.billsbills.com. Simply click on the yellow “FREE Consultation Now” button.

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Published Saturday, March 6, 2010 @ 8:59 am

Just when the credit card industry thought it was safe in Washington, Uncle Sam has decided to keep them over his knee for a few last good swats of discipline in the form of tighter regulations on late fees.

For many who struggle with credit cards, the problem is not always uncontrollable spending—it’s the fees. Late fees, annual fees and over the limit fees can pile up faster than Feburary snow in Minnesota, pushing customers over the edge into an avalanche of additional credit problems.

However, earlier this week the Federal Reserve proposed new limits on how credit card companies apply penalty fees for things like missing a deadline or going over the limit.

The proposal suggests that these new restrictions go into effect in late summer 2010. Earlier provisions in the credit card bill began last May and were phased in over time. The introduction of this latest component of the bill may signal to the credit card companies that they are now an ongoing target in the sights of pro-consumer members of the House and Senate.

The Fed is concerned with the fact that a $5 surpassing of one’s credit limit triggers a charge of $40. The new law is recommending that the penalty be more closely aligned with the dollar amount in question. More clearly, if you spend $5 over the limit, that will be your penalty.

One thing to consider is what impact this will have on those who consistently teeter on the edge of their limit. By lessening the consequences, is there a risk more people will no longer fear the penalties? A penalty needs to send a message.

Other facets of the proposed action include a limit on late payment penalties to only the amount of the cardholder’s current minimum payment. Thus, the $39 late fee average that so many of us see from month to month would be a thing of the past.

One of the more important components addresses multiple fees for a single action. For example, if you are late and over your limit, you can only be assessed one fee. The beauty in this part is that it will include the fees that some banks are now charging for not using your card, called an inactivity fee.

Still, there are some aspects of the bill that may warrant additional debate. It does not prohibit the application of a $39 late fee for someone who has a $70 minimum payment. The new laws that just became active include six month interest rate increase reviews that require banks to review, six months after they increased your interest rate, if the reason for the increase is still valid. However, they can also consider current market conditions, which may lead to reasoning on why the rate should remain higher.

A lot of our readers struggle with credit card debt, which has carved out a deep niche in the financial struggles of us Americans. Thankfully, some of these laws may lessen the credit card companies’ role in our financial problems. The rest of it though, is up to us.

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Published Wednesday, March 3, 2010 @ 7:25 pm

If you’re reading this, odds are you’re considering bankruptcy. As such, you have a lot on your plate. Yet, what might make you feel a bit better about being bankruptcy bound is the knowledge that you’re not alone. Millions of average Americans just like you are facing desperate circumstances as they struggle to stay afloat in the wake of this decade’s Great Recession—facing foreclosure, job insecurity, rising costs and, of course, insolvency.

In the series, Our Great Recession 2.0, we’ll delve into some of the more unique stories of this decade’s unprecedented economic downturn, allowing you to see familiar faces and dire places people are going in order to handle the financial meltdown head-on.

In part one of this ongoing series, we meet GM autoworker Michael Hanley.

Hanley, who recently shared his plight with The Huffington Post’s Sharon Cohen, is known to commute 530 miles in a day, from his home in the rolling hills of Wisconsin to his job in Kansas—all to keep a paycheck rolling in. As Cohen reminds us, “It’s one heck of a haul:” more than 1,000 miles roundtrip, 16-plus hours of driving, every week. “I like to say I gave up an eight-minute commute for an eight-hour commute,” he tells Cohen wearily.

Hanley’s commute is representative of not only one man’s tough choices in a tougher job market, it reveals the near-death of the American auto industry as a whole.

After his GM plant shut down a little over a year ago, Hanley could’ve chosen to stay close to home, and his family and search for an autoworker’s salary ($28 an hour) in his Wisconsin county “where more than 40 percent of its manufacturing jobs disappeared from 2006 to 2009.”  Instead the 23-year veteran of the auto industry chose to hang on to a better GM paycheck and his family’s health insurance, following the job to Fairfax, Kansas.

Even before his factory went idle, Hanley took steps to make himself a stronger candidate in a shrinking employment market, getting the college credits he needed to complete his accounting degree. But when Kansas came calling, along with the health insurance to keep his wife on chemotherapy, Hanley “didn’t hesitate. Auto work these days is like playing musical chairs. You grab an opening where you can.”

“There’s no way I could possibly go through one treatment without him having insurance,” Hanley’s wife told HuffPost.

Balancing his family’s financial security at his coveted job and the lonely existence of being away from home is hopefully a temporary sacrifice for Hanley. He plans to commute for an additional 18 months, at which point he turns 50 and hopes there will be a retirement package waiting.

“There are those people who worked there who have lost something they thought would be around forever and provided them with a real good lifestyle,” he adds.

For Hanley, it’s all about riding out his own Great Recession.

If you’ve been driven out of your job and are in serious debt, knowing a qualified bankruptcy attorney can also help you to conquer your creditors and face your financial fears, yielding the right kinds of support, information and insights—at a low cost— for a viable and secure future beyond our own “Great Recession.”  The bankruptcy experts at the Law Offices of John T. Orcutt offer a totally FREE debt consultation and now, more than ever, it’s time to take them up on their offer. Just call toll free to 1-800-899-1414, or during the off hours, you can make your own appointment right online at www.billsbills.com. Simply click on the yellow “FREE Consultation Now” button.

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Published Wednesday, March 3, 2010 @ 12:24 pm

Are you angry at banks that are supposedly too big to fail? But you haven’t withdrawn your money because you think your account is too small to matter?

Well, one media matriarch has some alternative advice. 

Started by Arianna Huffington, The Huffington Post is an American news website and aggregator for a host of blogs, columns, stories and moderated comments. The site, through its founder, is now taking a stand against America’s oversized financial institutions—from JP Morgan to Bank of America—and urging you to do the same.

HuffPost’s “Move Your Money” campaign urges you—the bank customer—to withdraw your money out of the big banks and into smaller community-oriented ones.  The reason is simple: a post-recessionary payback of another color. Huffington argues that following their bailout these same big banks have done nothing to help small business or to drive lending to the average American. As a result, the economy can’t thrive nor begin producing the much-needed jobs so many taxpayers—who footed the bill for said bailout—so desperately need. And she’s hoping we’re not going to take it anymore.

And she’s not alone in her gripes with the banking industry.

Robert Johnson of the progressive think tank the Roosevelt Institute helped craft the “Move Your Money” campaign. “All of us collectively do have money and when we move our money, we’re voting with a different currency, and one that businesses pay attention to,” he said to CBS News’s Jim Axelrod.

By entering your zip code into the Move Your Money website, a list of nearby small banks pops up all of which have received a rating of ‘B” or better by independent reviewers.

According to the Independent Community Bankers of America, community banks “focus attention on the needs of local families, businesses, and farmers” and “channel most of their loans to the neighborhoods where their depositors live and work, helping to keep local communities vibrant and growing.”

While many of these smaller banks provide a more personal touch to your banking experience, they too have fallen victim to this decade’s Great Recession, with hundreds closing in the past several years. As such, any movement of money should come with some research that your new, smaller bank has some staying power.

Move Your Money recommends that you stop in and see what they’re about. Talk to an employee to see what services they offer and how they treat you. For some tips and questions to ask visit Solari or see this article from the Dallas Morning News. You can also use FindABetterBank to calculate annual fees based on how you bank (note: their list of banks is incomplete).

If you truly are without any money to move—and your assets, in the bank or otherwise, are less than your debts—your gripe may be with your creditors, which, in many cases, are the same bailed-out banks targeted in the Move Your Money campaign.

Well, you too have the power to take back your money.

In fact, knowing a qualified bankruptcy attorney can help you conquer these creditors and wipe away your debts, yielding the right kinds of support, information and insights—at a low cost— for a viable and secure future.  The bankruptcy experts at the Law Offices of John T. Orcutt offer a totally FREE debt consultation and now, more than ever, it’s time to take them up on their offer. Just call toll free to 1-800-899-1414, or during the off hours, you can make your own appointment right online at www.billsbills.com. Simply click on the yellow “FREE Consultation Now” button.

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Published Wednesday, March 3, 2010 @ 8:10 am

As all American’s attempt to make their way out of their own Great Recessions, there is an old joke about the difference between a recession and a depression that goes something like this: “A recession is when your neighbor is out of work. A depression is when you are out of work.”

Well, the unemployed just got a whole new reason to feel depressed post-national recession.

Now, potential employers throughout the country are beginning to hold credit histories against already underworked and overwrought applicants. In fact, according to a recent survey by the Society for Human Resources Management, some sixty percent of employers said they run credit checks on at least some job applicants, compared with fewer than 42 percent in 2006.

While employers say these types of credit checks provide invaluable information about a job applicant’s “honesty and sense of responsibility,” according to The Huffington Post, lawmakers in at least 16 states—from South Carolina to Oregon—have proposed “outlawing most credit checks, saying the practice traps people in debt because their past financial problems prevent them from finding work.”

One such anti-credit check lawmaker is Wisconsin Rep. Kim Hixson. He drafted a bill in his state shortly after hearing from constituents who have continually struggled to find work. “If somebody is trying to get a job as a truck driver or a trainer in a gym, what does your credit history have to do with your ability to do that job?” Hixson told HuffPost.

Under federal law, these same prospective employers must actually get written permission from applicants in order to run their credit check. Unfortunately, even with these protections in place, many desperate job seekers don’t feel they are in any position to refuse a potential employer’s requests.

Most of the state bills being proposed in 2010 prevent employers from using credit reports when hiring for most positions. According to The Huffington Post’s Kathleen Miller, “The laws contain exceptions in cases where such information could be relevant to the job – for example, if the person is applying to work in a bank or an accounts-payable office.”

Based on a 2008 survey by the Association of Certified Fraud Examiners (ACFE), employers and other credit check advocates argue that the two most common red flags for employees who commit workplace fraud are “living beyond their means and having difficulty meeting financial obligations.” The ACFE report also estimated that U.S. employers lost $994 billion to workplace fraud in 2008.

But in these tough financial times, many believe the economy can’t afford the credit checks.

“We are in the great recession and this creates a vicious cycle,” said Maryland Delegate Kirill Reznik, who drafted a similar bill being considered in his state.  “People lose their jobs, that naturally precipitates them getting behind on bills, their credit scores go down, they are trying to find a job to pay off the bills, and employers won’t hire them because of their credit score.”

In the meantime, consumer advocacy groups are showing their support for legislative bans on these types of credit checks, pointing out that credit reports can also contain inaccurate information.

A qualified bankruptcy attorney can assist jobless citizens with even the worst credit histories to conquer their fears of losing it all.  Specifically, the bankruptcy attorneys at the Law Offices of John T. Orcutt offer a totally FREE debt consultation and now, more than ever, it’s time to take them up on their offer. Just call toll free to 1-800-899-1414, or during the off hours, you can make your own appointment right online at www.billsbills.com. Simply click on the yellow “FREE Consultation Now” button.

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Published Tuesday, March 2, 2010 @ 11:52 am

As we’re all aware, this decade’s Great Recession has dealt, and continues to deal, a significant blow to the budgets of many American families, leaving millions in debt, underwater in their mortgages, and looking for any means necessary to get back on a financially-healthy course.  Now, we’re finding that tax time is also yielding it’s own set of challenges for some cash-strapped citizens.

In his recent New York Times article, “Paying the Price for Survival Tactics,” Charles Delafuente reports on how the I.R.S. treats many kinds of written-off debts, some distressed home sales, and many emergency withdrawals from retirement accounts as taxable income.

Debt Forgiven By A Lender
In his timely piece, Delafuente introduces the concept of “phantom income:” an amount a lender forgives but for which the debtor still owes tax. In your case, this taxable amount becomes essentially the difference between what the lender would have received from you and what it will receive under your new agreement. As Delafuente explains, “These taxes are imposed even if only the interest rate, not the amount of principal, is reduced. That happens, for example, to consumers who renegotiate credit card debt. A lender is supposed to issue a 1099-C form reporting forgiven debt, but that doesn’t always happen if the principal is not reduced.”

As is normally true in the tax world, there are exceptions to the forgiven-debt rule. Keep in mind, forgiven debt is not taxable income if it is discharged by bankruptcy, or if you are considered insolvent—whereby your liabilities exceed the fair market value of your assets—when the debt is forgiven.

Mortgage Debt
While recent bailout measures enacted to help homeowners generally won’t trigger the forgiven-debt tax on a principal home, “foreclosures, short sales and other loss-of-home scenarios could bring on capital gains tax.” For example, if your home is worth significantly more than a mortgage and is repossessed and sold by the lender, you are entitled to the difference. As Delafuente explains, “The difference is a taxable profit, which will cause a capital gain. Fortunately for the masses, the first $500,000 on gains on a main home for couples ($250,000 for single taxpayers) may be covered by a tax exclusion. Further, nonrecourse mortgages, in which the lender can’t touch any assets other than the property, generally don’t cause such a gain.”

Retirement Withdrawals
Aside from your mortgage, if you withdraw money prematurely from their retirement accounts because of a job loss or a reduction in hours, you will also face extra taxes.  Holders of traditional I.R.A.’s and I.R.A. rollover accounts must pay 10 percent of any amount withdrawn before they reach 59 1/2 as a penalty on top of the traditional taxes on money taken out, which must be paid regardless of your age.

If you have a Roth I.R.A., you’ll face different rules. Your contributions—but not the account earnings—can be withdrawn without penalty after five years.

If you have an employer-sponsored plan, like 401(k)s and 403(b)s, you face yet another set of rules. For you, withdrawals are penalty-free if you left the employer that set up your plan after you turned 55. However, money rolled over to an I.R.A. from a former employer’s plan is subject to the 59 1/2-age rule.

Most 401(k) and 403(b) plans do not allow current employees to make withdrawals; instead they often have loan provisions. But another tax nightmare occurs if you have an outstanding loan and lose your job. In that case, you must repay the loan quickly or have the balance treated as a withdrawal, making it subject to tax and to the 10 percent penalty if you’re under 55, unless an equal-payment plan is used.

But remember, before borrowing from your retirement accounts, one of the best debt forgiveness plans comes from a personal bankruptcy. In these taxing times, a qualified bankruptcy attorney can help you conquer your fears before losing it all.  Specifically, the bankruptcy attorneys at the Law Offices of John T. Orcutt offer a totally FREE debt consultation and now, more than ever, it’s time to take them up on their offer. Just call toll free to 1-800-899-1414, or during the off hours, you can make your own appointment right online at www.billsbills.com. Simply click on the yellow “FREE Consultation Now” button.

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Published Tuesday, March 2, 2010 @ 10:48 am

While many economists say this decade’s Great Recession ended in the middle of 2009, millions of struggling Americans who are still working hard to find meaningful employment would definitely disagree. And as we are all now well aware, the once thriving middle class is being hit especially hard—with a determination of whether you’re in a recession or recovery based largely on where you live and if you still have a job.

In the new year, the unemployment rate has, in fact, dropped incrementally from its staggering 10 percent highs in December 2009 to 9.7 percent, a small diminishment in the stats that some say exists because the long-term unemployed—the men and women out of work more than six months—have simply stopped looking for work. For these “long-termers,” making up some 40 percent of those collecting unemployment, these tiny changes in stats are far from comforting.

“These people, when you look at their unemployment rate, it’s just off the charts,” Lakshman Achuthan, managing director of the Economic Cycle Research Institute told CBS News Correspondent John Blackstone. “It’s very different from earlier patterns that we’ve seen in recessions.”

“For those who once worked in the auto industry, housing and manufacturing, new jobs could be a long time coming,” Achuthan adds, pointing out that, “Ten years ago, we had 18 million or so people in manufacturing; now, it’s a little over 10 million. So you have 8 million jobs gone and there not coming back, ever.”

In this case, the proof is largely in the pudding, as average Americans struggle to transition from job to job in this era of perpetual unemployment. Hammering this point home, CBS’s Blackstone also spoke with Kelley Novak, who used to own a restaurant in Napa, California, called the No Bad Day Café. In the months since Novak was forced from the restaurant business by falling revenues, she has been trying what is becoming a recession-worthy recipe: cooking up new ways to keep money flowing in at a time when finding a job seems impossible. Now she’s trying to feed folks on a diminished scale via a small catering business. “It’ hard,” she says, “because there’s nothing available and, you know, you just have to get creative.”

As is the case for many small businesses, the economic downturn hit her homegrown eatery especially hard. “We were down 30 percent like everybody else,” Novak told CBS. Not only did she have to close her California restaurant, but Novak was forced to lay off all of her employees. “It was sad. It was really sad,” Novak recalls.

With California’s unemployment pushing over 12 percent, Novak understands it may be a long time before the six people who used to work at the No Bad Day Café can, as Blackstone put it: have “ a good day.” Blackstone found, “Many more may have to follow Novak’s lead and find something they can do themselves – even though launching her catering business has been daunting, especially since she’s doing it on her own. ‘It’s just really frightening,’ says Novak. “But giving up is no answer.”

Novak is right. And another key to rebounding in a recession is knowing who can help. Extended unemployment is not only frightening, but can be fiscally devastating: draining savings, busting budgets, and leaving many bankruptcy bound.

A qualified bankruptcy attorney can assist proud, but jobless, citizens just like you to conquer your fears of losing it all.  Specifically, the bankruptcy attorneys at the Law Offices of John T. Orcutt offer a totally FREE debt consultation and now, more than ever, it’s time to take them up on their offer. Just call toll free to 1-800-899-1414, or during the off hours, you can make your own appointment right online at www.billsbills.com. Simply click on the yellow “FREE Consultation Now” button.

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Published Monday, March 1, 2010 @ 11:15 am

Overworked? Underpaid? Join the Club: The Middle Class

This week, a money-themed CBS Sunday Morning featured Cary, North Carolina’s SAS, a business software company–featuring subsidized on-site daycare, gyms, and health care–as an example of a corporate aberration in the these tough economic times. As CBS reporter Jim Axelrod pointed out in his cover story “The Great American Paycheck Squeeze,” the reality is, “for more and more Americans in these recessionary times, SAS might as well be Disney World. The fact is, most workers feel overworked, under-appreciated and–most of all–under-paid.”

What’s your work experience in this decade of decline? Overworked? Underpaid? Or just happy to be here? Regardless, it’s a tough time to be almost anyone in the work force.

“We’re living through one of the worst times for wage growth ever,” Larry Mishel, an economist with the Economic Policy Institute, a non-partisan, non-profit Washington think tank told CBS. “From 2002 to 2007, the hourly compensation of a typical college graduate or a typical high school graduate went up zero – didn’t grow at all.”

Mishel says for most American workers, wages haven’t been keeping up with productivity for some 40 years.

“If you’re in manufacturing, there’s pressure from overseas,” he said. “We’ve weakened the ability to have and keep a union, we’ve introduced privatization, we have a much lower minimum wage, in many industries, we’ve deregulated them.”

And then enter this decade’s Great Recession, marked by rising foreclosure rates, escalating health care costs, recent credit card company schemes and unprecedented unemployment.
“We’ve seen the steepest and longest rise in unemployment since the Great Depression,” Mishel told CBS’s Axelrod. “This has a tremendous downward pressure on wages. Employers have all the leverage; they don’t have to give you more money to get you accept a job.

“In a Great Recession, you don’t have songs that say, ‘Take this job and shove it!’” Mishel said.

Specifically, the economist points to the fact that from the 1940s until around 1970, “as workers became more productive, their salaries grew accordingly. But around 1970, things changed, and for the next four decades, as productivity skyrocketed 70%, hourly wages hardly budged, rising a mere four percent.”

And what happened to all of those profits?  Mishel points to the upper echelon of business leadership. “Between 1989 and 2007, before the Great Recession, of all the income growth that was generated, the bottom 90 percent [of Americans] got only 15 percent of it. The upper one percent got 55 percent. And the upper tenth of the upper one percent, the one out of 1,000 households, got about a third of all the income growth.”

In other words, a third of all income growth went to one tenth of one percent of people, leaving the middle class with little to show for all of the country’s purported economic growth.

“We know that CEOs in large companies make 270 times that of a typical worker,” Mishel said. “It used to be around 20 times, 30 times, back in the ’60s and ’70s. Now the fact is, you don’t have to pay someone that much to get out of bed and go to work and be productive.”

The economist also challenged anyone who says we’re actually better off now than 40 years ago. “It’s really a low threshold to say families are a little better off than 30 years ago, when the pie grew by 70%,” Mishel said. “They should be far better off.”

Which brings us back to the story of SAS, and what co-founder and CEO Jim Goodnight is trying to do: redefine the concept of “fair wage.”

“You know, I always use the phrase, ‘95 percent of my assets drive out the front gate every night, and it’s my job to bring ‘em back,’” Goodnight said to CBS.

And for anyone trying to grow a business in this economy, Goodnight’s view is that these fringe benefits are just “the smart thing to do.”

“The point of the benefits is to keep people,” said Goodnight. “And if you keep people and make your people happy, they’re going to make your customers happy. And if your customers are happy, they’re going to make the company happy. So, it’s sort of a triangle there that you have to always keep in mind.”

So, if you’re reading this and wishing you too could work for SAS, take heart. Even in these tough economic times, the company is hiring. But apply now . . . not surprisingly last year SAS received nearly 40,000 resumes.

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Published Thursday, February 25, 2010 @ 3:09 pm

While many economists argue that the economy is steadily rebounding, whether you’re in a recession or recovery seems to largely depend on where you live, if you have a job, if you can pay your bills, or if you still have your home.

The Huffington Post reported this week that facing an economic meltdown in their personal lives, many formerly middle-class families have had to find “creative ways to cope with the sudden loss of their jobs and homes.” In her article, “Rattlesnake for Breakfast, Wedding rings on Craigslist: Families Cope With Falling Out of the Middle Class,” Laura Bassett describes how the American dream, for many, has turned into a surreal nightmare.

Take Arkansas’s Jeff Falk, 51, for example. After losing his family business selling auto parts, and finding himself no longer able to afford the house he had built for his family, his wife Jill, and their two boys, ages 3 and 8, packed their 40-foot camper and headed to Arizona for the winter.

“Jill found a part-time job waiting tables, and Jeff found occasional work repairing old boats, but they struggled to feed and home-school their young boys. Occasionally, Falk says, he feeds his children rattlesnake that he caught near his camper. While Falk, his wife and his children have managed to stay positive throughout their financial hardships, he says the hardest part of falling out of the middle class is losing the respect of those around him. ‘There are two kinds of people,’ he said. ‘Those that turn and look the other way and don’t even wanna look at you, and those that reach out and help you, and it seems like there’s no in-between.’”

The Falk family isn’t alone. Bassett also found Illinois’s Stephen Mooney.  Laid off in 2008 from a job he had held for 10 years, his severance pay ran out a few, short months later, leaving he and his wife Marianne unable to pay their bills.

“’Our gas was shut off,’” Mooney told HuffPost. ‘We were taking showers with water that we would heat up in the rice cooker and microwave. It was very depressing. Going to a job interview, you may be wearing a shirt and suit, but you don’t feel clean. I looked unkempt all the time, and corporate America’s not an easy place. There were some places where I knew I didn’t have a job as soon as they saw me sitting in the lobby.’ To make matters worse, the Mooneys’ house was recently foreclosed, and they have been asked to leave by March 1. ‘I don’t know how we put all the pieces back together,’ Mooney said. ‘Where do we live? Where does all our stuff go? It’s going to be very strange.’”

As Bassett reports, many families are making similarly difficult decisions just to stay afloat.

Kimberly Rios of Maryland sold her wedding ring on Craigslist last weekend just to cover utility bills.  “‘This is no joke, please be a serious buyer,’ Rios wrote in her ad. ‘It is too cold for us to be without electric and heat so if you have been looking consider my deal.’ She told HuffPost that she sold the ring on Valentine’s Day. She is trying to decide whether to use the money to pay for a few weeks of electricity or to buy a cheap car so that she and her family of six will have a place to go when the foreclosure happens.”

In spite of it all, Rios remains positive about her family’s future: “At least we have each other.”

Unfortunately, in this new era of financial insecurityy, stories like these are common in articles, reports and blogs all across the World Wide Web. Fortunately, no matter how dire your financial situation and how extreme your sacrifice, you can find strength in the numbers of families—all across the country—facing the same tough choices.

Yet, even if major sacrifices just aren’t enough to keep you afloat, knowing a qualified bankruptcy attorney can also help you face your financial fears, yielding the right kinds of support, information and insights—at a low cost— for a viable and secure future.  The bankruptcy experts at the Law Offices of John T. Orcutt offer a totally FREE debt consultation and now, more than ever, it’s time to take them up on their offer. Just call toll free to 1-800-899-1414, or during the off hours, you can make your own appointment right online at www.billsbills.com. Simply click on the yellow “FREE Consultation Now” button.

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Published Wednesday, February 24, 2010 @ 1:03 pm

While the current economic forecast is considered less dismal than in past months, the Federal Reserve released a forecast this week predicting unemployment will stay high over the next two years—noting that recession-scarred employers are likely to stay conservative in their hiring practices even as recession-scarred citizens continue their search for a dwindling number of jobs.

According to The Huffington Post, in the Fed’s late January meeting, the central banking system left rates at a record low—near zero—“to help nurture the recovery and drive down unemployment. And it pledged to hold rates at ‘exceptionally low’ levels for an ‘extended period.’ Fed Chairman Ben Bernanke, in remarks last week, suggested the Fed is still months away from raising rates and draining money out of the financial system. The recovery is still fragile and unemployment, now at 9.7 percent, is high. In its economic forecast, Fed policymakers said it will take “some time” for the economy and the jobs market to get back to normal. They did not spell out how long that would be. Previously, they suggested it could take five or six years for economic conditions to return to full health. A ‘sizable minority,’ though, said they thought it could take more than five or six years for the economy and the job market to return to normal. The Fed said the unemployment rate this year could hover between 9.5 percent and 9.7 percent and between 8.2 percent and 8.5 percent next year. By 2012, the rate will range between 6.6 percent and 7.5 percent, it predicted.”

These forecasts have apparently changed very little from the projections released by the Fed towards the end of 2009. However, what is noteworthy is the fact that these numbers suggest unemployment will remain higher than normal unemployment rates (between 5.5 percent and 6 percent) just as the country heads into this year’s midterm congressional elections and the 2012 presidential election. Unless things change dramatically soon, this is bad news for incumbent members of Congress, and possibly the current administration, and bodes well for newcomers to the political scene willing to challenge their tenured counterparts on “The Economy, stupid.”

As the Huff Post reports, “Fed policymakers ‘expect that the pace of the economic recovery will be restrained by household and business uncertainty, only gradual improvement in labor market conditions and a slow easing of credit conditions in the banking sector,’ according to the forecast.

Against that backdrop, the Fed expects the economy will grow between 2.8 percent and 3.5 percent this year. Growth will pick up to between 3.4 percent and 4.5 percent next year and log similar growth in 2012. The economy would need to grow by at least 5 percent a year to make a dent in the unemployment rate, analysts say.”

Further forecasts into the Fed’s view of (and moves in) the current “up and down” economy, as well as its strategy for curtailing stimulus money, will likely come at next week’s House Financial Services Committee hearing. Wednesday’s meeting will feature Chairman Bernanke delivering the Fed’s twice-a-year economic report to Congress—a report that will likely show growth, just not enough for the millions of unemployed Americans.

Every week bankruptcy attorneys continue to meet with dozens of people in financial distress due to these very employment woes.  In each case, these same unemployed people, having heard no signs of relief from the government, come into law offices feeling hopeless and at the end of their rope, perceiving no alternatives to their continuing fiscal problems.  Almost every time, however, it seems when these same clients leave these offices, they finally feel some sense of relief for the first time since the job recession started; they are reassured that the bankruptcy laws and the bankruptcy system offers them the possibility of a new start—at an affordable cost—and with it a financially viable and secure future. In short, bankruptcy relief ends worry and stress for many jobless Americans living on the financial brink.

For reliable bankruptcy advice that you can trust, contact The Law Firm of John T. Orcutt. And to find out more about your bankruptcy options, visit The Law Offices of John T. Orcutt’s “Things to See and Hear” information.

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Published Wednesday, February 24, 2010 @ 11:56 am

In his February 20, 2010, article “Millions of Unemployed Face Years Without Jobs,” The New York Times’ Peter S. Goodman paints a dour portrait of what he calls “the new poor” — “people long accustomed to the comforts of middle-class life who are now relying on public assistance for the first time in their lives — potentially for years to come.”

With little good news for the millions of Americans who remain out of work, out of savings and at the end of their unemployment benefits, Goodman points to holes in America’s social safety net, built for short-term gaps between jobs, further strained in an unprecedented economic environment where work may be scarce for years, even as the American economy shows signs of a rebound.

“Every downturn pushes some people out of the middle class before the economy resumes expanding. Most recover. Many prosper. But some economists worry that this time could be different. An unusual constellation of forces — some embedded in the modern-day economy, others unique to this wrenching recession — might make it especially difficult for those out of work to find their way back to their middle-class lives.

Labor experts say the economy needs 100,000 new jobs a month just to absorb entrants to the labor force. With more than 15 million people officially jobless, even a vigorous recovery is likely to leave an enormous number out of work for years.

Some labor experts note that severe economic downturns are generally followed by powerful expansions, suggesting that aggressive hiring will soon resume. But doubts remain about whether such hiring can last long enough to absorb anywhere close to the millions of unemployed.”

Goodman cites a confluence of unfortunate financial factors—products of both our modern economy paired with the recent recession—as the reason it is now so challenging for the unemployed to “find their way back to their middle-class lives.”

First, there’s a scarcity of jobs. Fewer unions to protect full and temporary employees, the export of formerly American factory and white-collar jobs to overseas competitors, and an upsurge of innovation and automation, have all contributed to a smaller U.S. job pool for millions looking for work.

“Additionally, America has fewer protections for its beleaguered workforce. “Some poverty experts say the broader social safety net is not up to cushioning the impact of the worst downturn since the Great Depression,” writes Goodman. “Social services are less extensive than during the last period of double-digit unemployment, in the early 1980s.”

And then there are the millions of American households, that, due to the employment meltdown, have gone from two incomes, to none. Languishing in a “desert of joblessness,” many families, previously able to simply bounce back after a job loss, pay cut, or disability—are now finding themselves using food banks, charitable giving, and facing homelessness.

While recent reports of the nation’s financial future remain nothing short of bleak, the good news remains that through bankruptcy laws, Americans facing unemployment can take their future into their own hands, stop drowning in health care, consumer and mortgage debt, and begin on the road to a more viable financial future.

Even if major sacrifices just aren’t enough to keep you afloat, knowing a qualified bankruptcy attorney can also help you face your financial fears, yielding the right kinds of support, information and insights—at a low cost— for a viable and secure future.  The bankruptcy experts at the Law Offices of John T. Orcutt offer a totally FREE debt consultation and now, more than ever, it’s time to take them up on their offer. Just call toll free to 1-800-899-1414, or during the off hours, you can make your own appointment right online at www.billsbills.com. Simply click on the yellow “FREE Consultation Now” button.

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Published Wednesday, February 24, 2010 @ 9:50 am

We sure do like to shop in America.

Despite the rise of Internet browsing, there are still few environments more attractive to a modern-day capitalist than a shopping mall during the holidays. Even in down-times, like the last two major holiday periods, just about any mall appears packed with people as diverse as the brand names on the bags that dangle from their wrists. Despite two years of serious recession, it’s still hard to find a place to park.

So, as we try figure out who exactly is being pained by the Great Recession when we visit a mall (we know who is), the bigger question that looms is about on how on earth can the owner of one of these Great Pyramids of commerce can possibly go bankrupt? Well, it happens, and it did last year to General Growth Properties, one of the nation’s largest owners of malls and retail centers.

As we previously reported last year on this blog, the publicly-traded REIT (Real Estate Investment Trust) that had owned part or all of more than 200 shopping centers in almost every state, needed to restructure $27 billion in debt and filed Chapter 11 bankruptcy to help with the process. The company owns properties in North Carolina, including Durham’s The Streets at Southpoint and Valley Hills Mall in Hickory.

The company actually did not file a pre-packaged bankruptcy like so many other large companies have done during the last number of months. Since it has filed, the company has been courted by a number of buyers and as they get closer to exiting, the suitors are lining up.

In order to exit bankruptcy alone, General Growth needs to convince bankruptcy Judge Allan Gropper that they can pay off nearly $7 billion in unsecured debt. They would plan to do that with a good portion of it coming from stock. Problem is, their stock price may not be sufficient.

The Wall Street Journal is reporting that the company’s best strategy to exit alone will be to convince Judge Gropper that creditors’ acceptance of stock would be a reasonable settlement. That of course also depends on to what extent General Growth can convince their creditors that its stock is valuable enough.

In the last several days, competitors to General Growth, like Simon Properties, the nation’s largest mall owner, has caught wind of the company’s challenges and like any other understanding, cash-rich corporate entity who smells blood, submitted their own takeover bid.

Simon has put a $10 billion bid on the table that includes the creditors’ payoff in cash, a much preferred currency than the stock of a company in bankruptcy. Thus, the Simon plan is winning over critical parties to the transaction. General Growth’s board, not surprisingly, is not overly thrilled.

General Growth ultimately is hoping for a old fashioned bidding war over its assets. Enter Brookfield Asset Management, Inc., which announced it will outbid Simon and allow General Growth to exit bankruptcy on its own. Brookfield would become the company’s largest shareholder, despite just exiting bankruptcy itself. Based in Canada, Brookfield publishes Reader’s Digest and already owns a significant amount of General Growth stock.

Other potential bidders for the mall owner include Westfield Group and Vornado Realty Trust. If no bids get the approval of the court, a hearing will occur in which General Growth will need to convince Judge Gropper that they should be allowed to continue conceptualizing a reorganization plan, at which point the story will begin to get quite a bit longer.

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Published Saturday, February 13, 2010 @ 1:09 pm

In what can be considered the best example of the current state of the nation’s commercial real estate industry, the largest residential real estate investment in United States history is facing bankruptcy. As a result, the current owners of the Stuyvesant Town/Peter Cooper Village are handing the property over to its primary financial backers after the recession and overall plunge in global real estate values decimated the complex’s value to a third of where it was upon its 2006 purchase.

Bought for $5.4 billion by Tishman Speyer and BlackRock Realty, the largely middle-class development in New York city housed 11,227 apartments and provided homes to close to 25,000 individuals, a population larger than many small cities. The entire development actually consists of two separate apartment complexes.

Originally built to house soldiers returning from World War II, it is now estimated to be worth around $1.8 billion.

The owners chased down the massive deal at the absolute height of the real estate bubble, eager to undergo massive renovations to convert it to higher-end units and change the neighborhood’s reputation as a run-of-the-mill urban New York City address into a live and play destination.

They also fought hard to assess tenants for additional funds through rent increases and projected they could turn portions of the area into luxury condos.

However, tenants were quick to protest what would amount to a $200 million door-to-door collection when all was said and done. A New York State judge sided with the residents when the issue made it to court, leveling the owners’ redevelopment plans. The pending economic crash did not exactly help their cause, either.

Since November of last year, the group has been working to restructure close to $3 billion in outstanding loans.

The critical breaking point for the partnership, which is exactly what continues to erode the stability of our nation’s commercial real estate industry, was their inability to make their most recent loan payment of $16 million. With credit no longer readily available, owners of commercial property are collectively facing billions in expiring mortgage loans with no way to refinance.

Commercial landlords are doing everything possible to lure and keep tenants in their buildings. Rents have dropped substantially and months of free rent are handed out with little negotiation as high-end office property owners are watching their rent rolls shrink. Larger commercial real estate companies and ownership groups are filing bankruptcy, laying off brokers and shopping mergers as the United State government scrambles to prevent what many on Wall Street are calling “the other shoe” from dropping on our already trembling economy.

With the announcement of the Stuyvesant/Cooper complex’s trouble, the commercial real estate industry has sustained another serious blow across the chin. You can only hang on the ropes for so long.

The lenders on the property, a group that includes The Church of England and the California Public Employees’ Retirement System (as if they could use another reason to worry about money), now have to figure out the best way to handle one of the nation’s most massive housing developments. One option, of course, is foreclosure.

Many in the industry challenged the purchase as a major risk, given the difficulty of dislodging rent control standards in New York and the fact that high cost of the property left little room for error. Since income property is essentially the purchase of a revenue stream—rent—its value falls when tenants are not able to provide that revenue. Plus, when the tenants won the case against the rent increases, the coffin nails met even less resistance.

Brought to you by the Law Offices of John T. Orcutt. Call today for your free debt consultation. If you’re in North Carolina, call 1-800-899-1414. Durham, Raleigh, Fayetteville and Wilson offices.

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Published Saturday, February 13, 2010 @ 8:08 am

In this era of extreme homeowner hardship, mounting medical bills, and surging unemployment, most people use their credit cards—for better or for worse—just to get by. But, as everyone knows, there’s a price to pay for playing with plastic, including, over recent years, soaring interest rates, diminishing card disclosures, and a general lack of lender and credit card company transparency.

Well, now a hint of positive consumer news is just on the horizon. In addition to a few provisions enacted in August 2009 signifying a new era of consumer protection law, as of February 22, 2010, even more sweeping changes are set to occur in an effort to right several of the most basic wrongs credit card companies have increasingly imposed upon card holders.

The all-new Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act), signed into law by President Obama on May 22, 2009, is poised to protect consumers from unexpected and massive changes to their credit card terms—terms that have previously led to financial hardship for an overwhelming amount of American families.

As of February 22, 2010, major changes include:

Death to the “Default Clause”
Credit card issuers will be unable to increase interest rates on existing credit card balances unless you, as borrower, are a minimum of 60 days late on your card account. This provision eliminates the universal “default clause” whereby card companies could simply your increase interest rates and fees based on defaults on other debts.

Clear and Present Disclosure &  Standard Promotional Periods
Credit card companies must provide clear disclosure of account terms before you open a credit card account. Additionally, if the account is pitched with a promotional interest rate period, that rate must last a minimum of six months.

Interest Rates Remain In Check
Issuers cannot raise interest rates on your new credit cards during the first year of your account, unless the you are 60 days late on a credit card payment.

Overcoming Over Limit Fees
Credit card issuers cannot charge over-limit fees without your prior consent to accept and process over-limit transactions. If your consent is obtained, the card issuer cannot then charge more than one over-limit fee per billing cycle. Also, the issuer may not charge an over-limit fee if interest charges or fees are the reason the account is over its limit.

Packing Up Those Penalties
Credit card issuers must not charge penalties for receipt of payments by mail, phone, electronic transfer, or any other method, unless the payment is processed through an expedited service processor.

Avoids Taking Advantage of Younger Borrowers
These new rules make it much more difficult for credit card companies to target and issue cards to borrowers under age 21 without a co-signer, unless it is shown that the borrower has sufficient income to repay the card amount.

Atone for the Holidays
If an account due date falls on a weekend or holiday, the credit card company is forbidden from penalizing payments that are received on the following business day. In addition, any account payments received by 5 PM must be credited to the same day.

Down with Double Billing
Some credit card companies have used the previous month’s balance to calculate interest charges for the current month. These provisions forbid this type of “double-cycle billing.”

Payment Where Payment is Due
Card companies are required to apply any payment above your minimum amount due to your highest interest balance first.

Subprime Bargain
At the time the account is opened, subprime credit cards will have fee limits totaling 25% or less of the credit limit.

Disclosure Is In Demand
Credit card issuers must provide a written explanation of how long it will take to pay off your card’s existing balance and the total cost in interest fees if you pay only the minimum amount due, as well as the total cost in interest to pay off the balance within 3 years.

Terms You Can Live By
Credit card companies must also make account terms and cardholder agreements available to you online.

While provisions like these mark a major victory for consumer protection, this major overhaul is causing some unpredicted aftereffects, including demanding credit approval checks, a reduction in credit card limits, and, in some cases, the sudden closure of these cards by your cardholder.

Despite any good news, if credit card debt and demands have still got you down, an experienced bankruptcy attorney can be a useful resource. Visit the website of The Law Offices of John T. Orcutt for the latest advice and up-to-date information for creating a better financial future.

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Published Friday, February 12, 2010 @ 10:44 pm

He said he’d be back. He just didn’t know it would be as the result of a bankruptcy.

In a southern California bankruptcy court this week, a U.S. judge granted ownership of “The Terminator” movie franchise to a California-based hedge fund called Pacificor, LLC.

Halcyon Holding, the previous rights holder of the film series about an apocalyptic time traveling, hell-bent-on-assassination cyborg lost the right to assemble more killer robots last summer when it had to file for bankruptcy.

As we have discussed in other bankruptcy news posts, movie rights can be worth a lot of money if handled correctly. Some people have made generational fortunes by holding the rights to just a single Hollywood character. George Lucas, for example, passed on a studio paycheck for his “Star Wars” films in exchange for the rights to the characters and creatures in his far, far away galaxy. Today, Lucas makes money than the President every time Verizon advertises its “Droid” phone.

The bankruptcy judge granted rights to Pacificor because he felt it would best serve the previous owner’s creditors.

However, for a Hollywood-area judge, the ruling was somewhat vexing to the region’s more film-friendly bidders, like Lions Gate Entertainment and Columbia Pictures. Both studios, which bid as a team on the rights, would be able to more quickly turn the franchise around and make money from it.

The fear of a purely corporate entity possessing the rights to a popular science-fiction franchise will not take long to permeate the fan boy message boards and tabloids. Without question, the company will market its new robot toy to several studios for the eventual production of a follow-up to 2007’s “Terminator Salvation.” And why not? It made almost $400 million.

But here’s the problem: they will do what every non-industry executive producer does.

That is, they’ll sell the idea to the studio with best track record of successful third-party licensing deals- companies that make video games, lunchboxes and t-shirts for cats. They will completely take over the production process with cost-cutting measures like MTV video directors and casting rejects from failed UPN pilots; and then show up on opening weekend with a deposit envelope from the local branch of their bank.

In the process, production difficulties will stigmatize the film, script leaks will happen, buzz will dissipate into movie fan site rants and pans and the franchise will implode not unlike most of the people in the film. And then a Pacificor intern in charge of the franchise will negotiate the rights to a failed screenwriter working at soon-to-close coffee shop on Vine for $50.00 and an free extra shot of caramel in his double-tall. That’s just how it happens.

The hedge fund, which backed Halycon for its purchase of the rights, beat a Columbia and Lions Gate joint bid of $35 million, which also included a couple of million bucks for each of the potential sixth and seventh films. However, a fifth one needs to be made before that can happen. Pacificor won with a bid of $38 million.

The deal happened as part of a credit bid, which is a common process in a bankruptcy auction. The process involves the creditors willingness to forgive the debt in return for ownership or control of a product or in this case, a movie franchise.

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Published Friday, February 12, 2010 @ 5:44 pm

The Making Home Affordable program was designed to be the savior of the crashing real estate economy. People nationwide were taking solace in the President’s effort to save our homes and lead us through the worst economic situation our country has faced in almost 100 years. Hundreds of thousands of homeowners facing foreclosure due to the bubble bursting on a plague of poorly schemed sub-prime mortgages rejoiced in what seemed to be a cooperative effort on the part of the a supportive new Washington administration and the Wall Street.

Unfortunately, the program has landed far from expectations. The foreclosure rate has seen only minor blips in decline and it has become difficult to hear government officials even address the existence of the program, unless to defend it. Additional programs have been introduced to support it but larger menu items are being devoured by the House and Senate and the status of homeowners has been given a backseat. Meanwhile, the numbers of properties in foreclosure and pre-foreclosure continue to grow.

Accepted into the trial HAMP modification program for six months, Bert Carvajal of south Florida was eventually denied full participation in the President’s program. He was also deemed ineligible for any assistance from his lender, JPMorgan Chase. His situation is no different than that of most Americans in trouble with their mortgage. His construction management income was sapped by a declining housing market and he simply fell behind on the payments that keep a roof over his family. He is now behind on property taxes too, so he owes his bank and the county.

Mr. Carvajal’s best option may be to soon file bankruptcy. In Chapter 13, he can catch up on the missed mortgage payments, and pay back the property taxes over a period of up to 5 years.

Jag Bhangu was also recently denied a mortgage modification because he still has equity in his home. However, that doesn’t mean he can afford to pay for it. And, given his position as a mortgage consultant, one would think the bank would by sympathetic to his situation of lost income. In the last couple of years, his income dropped 70 percent from where it was when he was approved for the loan.

Bhangu was granted a trial modification under Obama’s plan for nine months but then declined for permanent adjustment. He continues to speak with people at CitiGroup about another modification but he is not hopeful that it will happen.

If you’re getting the runaround from your mortgage lender, talk to a bankruptcy attorney today to discuss how a Chapter 13 can help you and your family hold on to your most precious asset- your home. Call today. In North Carolina, contact the Law Offices of John T. Orcutt for a free initial debt consultation. 1-800-899-1414. Or visit www.billsbills.com and fill out our debt questionnaire. With offices in Raleigh, Durham, Wilson and Fayetteville, help is just a phone call away.

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Published Tuesday, February 9, 2010 @ 6:25 pm

Very few people set out to open a credit card account intent on not paying off the balance.  Those who do are assumed to be criminals, usually identity thieves or some other sort of con artist.

Credit card debt, and all other forms of long term financial drain that lead good people into the need to file bankruptcy, is very often caused by a setback of some kind, like illness or job loss.  And if recent unemployment predictions are on track, we can expect the bankruptcy rate to continue to climb.

The News & Observer published an Associated Press report about the impact job losses are having across the country. The piece also warned of a dire future.

On February 5, the Labor Department will release its January unemployment numbers. Industry analysts expect to read that an additional 800,000 positions have been lost since March of last year. That’s almost 1,000,000 more people out of work. In total, we can blame the loss of almost 8 million jobs on the Great Recession.

The Labor Department’s report will also illustrate the theory that another four years of healthy fiscal growth will be needed to return to the country’s employment figures to stable.

Job reports are notoriously vague, as the report will demonstrate that 5,000 jobs were added to the economy last month. For some, that signifies a positive sign. As does the rise of gross domestic product statistics, which show that this critical metric has climbed for the second quarter in a row.

Nevertheless, that small number is not enough to prevent the national unemployment rate from experiencing a slight increase. When the numbers come out, which are based on unemployment insurance tax figures turned in to state governments by companies, most are expecting to see 10.1 percent of the country’s workforce out of job.

As our economy becomes ever more global and harder to track, the further out of touch those making the important decisions about our country’s financial health become with the everyday workforce. All the statistics, theories and Wall Street rallies do not mean anything to the unemployed parents of four children.

Whether it’s out of fear of new taxes, the expiration of existing tax programs, health care requirements or lack of credit to fuel growth, the fact remains that companies are simply not hiring. Stimulus projects designed to spark growth, like home buyer tax credits, are soon to expire and creating the fear that the faint signs of recovery will dissipate.

Signs of productivity increases can be attributed in part to business practices designed to get more out of fewer employees. It helps that those still holding a job are willing to do more to protect it, now that the realization of the recession has become clear to everybody, not just line workers and cubicle drones.

So what does all this mean for bankruptcy rates? Quite a bit actually. It isn’t difficult to connect the sudden loss of income with the inability to pay bills. Today’s conditions are making it worse though. At one time, jobs were easily found, shortening the time frame a person was without income. In that window of unemployment, people could get by on savings or available credit. With credit limits being reduced, loans hard to come by and savings at all time lows, the need to file for legal protection becomes necessary sooner than ever.

If you are out of work and see the window of financial viability starting to close, maybe it’s time to call the Law Offices of John T. Orcutt at 1-800-899-1414 to explore some options.  Bankruptcy might just be your best way “Out of the Red and Back in the Black.”

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Published Tuesday, February 9, 2010 @ 11:14 am

You know your creditors: those nice folks who gave you something you wanted — goods, services, or money — in exchange for your promise to pay them back at a later date.  But those same nice folks can turn nasty when you can’t or won’t pay back your debts, hiring collection agencies to hound you every chance they get.  So, in these unfriendly economic times, what can you do when your creditors come calling? Can you keep bill collectors at bay? How should you conquer your collection fears and fight back?

Believe it or not, laws do exist at both the state and federal level to protect average Americans like you and me from harassing debt collectors.  That’s right:  between the Fair Debt Collection Practices Act, the Fair Credit Reporting Act and the Telephone Consumer Protection Act, many of the actions that debt collectors take for creditors are strictly prohibited.

No one knows that better than Craig Cunningham. As the Dallas Observer reported, the Texas resident understand exactly how to get creditors off his back. Craig sues them.

According to the Dallas Observer, “While most Americans with unpaid bills dread the collector’s call, Cunningham sees them as lucrative opportunities. Many collection and credit card companies, intentionally or not, violate little-known consumer rights laws, and Cunningham’s favorite pastime is catching them doing so and then suing them. In fact, it’s a profitable side job.”

After amassing over $100,000 in debt and becoming the target of creditor calls, this so-called “man with a plan” hired a lawyer from whom he learned the ins and outs of consumer rights. Using this knowledge, he taped creditor calls and saved their repeated and aggressive correspondence as evidence for eventual lawsuits against these same various debt collectors found to be violating national or state consumer protection law. From there, several court settlements followed providing Cunningham with a boon for his new “business.”

“Most collection agencies, it seems, prefer out-of-court settlements (which often involve a statutory fine) to taking a case to trial, since settlements save them money. The Observer notes that Cunningham has thus far earned $20,000 from suits against law-breaking collectors.”

Cunningham’s “collection baiting” turns their aggressive attempts to retrieve creditor’s money into a “financial liability” by hiding behind consumer rights and protections laws. These laws prohibit creditors from performing what might, in this economy, seem normal behaviors, including:

• Calling you repeatedly with intent to annoy or harass;
• Calling you outside of certain morning and evening hours;
• Contacting you directly when you have indicated that you have legal representation;
• Contacting you using certain types of media; and
• Lying about their ability to take legal action against you to collect on a debt.

While many consumers are unaware of their rights against these types of creditors, as in all cases, knowledge is power. For information about your consumer protections, learn more about the  Fair Debt Collection Practices Act (PDF).

And if you’re facing creditors, don’t forget that bankruptcy can be the most reliable way–to avoid the creditor crunch.

In fact, knowing a qualified bankruptcy attorney can also help you conquer your creditors and face your financial fears, yielding the right kinds of support, information and insights—at a low cost— for a viable and secure future.  The bankruptcy experts at the Law Offices of John T. Orcutt offer a totally FREE debt consultation and now, more than ever, it’s time to take them up on their offer. Just call toll free to 1-800-899-1414, or during the off hours, you can make your own appointment right online at www.billsbills.com. Simply click on the yellow “FREE Consultation Now” button.

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Published Sunday, February 7, 2010 @ 7:43 am

Facing foreclosure.

Escalating medical costs.

High interest credit crunch.

Rising unemployment.

And that’s just January 2010.

While times are admittedly tough for everyone—with the poor getting poorer and even the recently rich and famous falling on hard times—a truly unique phenomenon of the recent global recession and continual economic downturn is how catastrophic it’s been for our country’s middle class, driving many in the majority further and “further from the American Dream” and, in some cases, “directly into poverty.”

As The Huffington Post reported this week in Laura Bassett’s insightful article “Middle Class No More, Families Struggle to Fight off Homelessness,” those in power are not blind to the desperate bind of average Americans: “President Obama, in his remarks to Senate Democrats on [February 3], pointed out that the middle class was hurting even before the recession. ‘Part of the reason people are feeling anxious right now, it’s not just because of this current crisis — they’ve been going through this for 10 years. They’ve been working and not seeing a raise. Their costs have been going up, their spouses going to the workforce — they work as hard as they can. They’re barely keeping their heads above water. They’re trying to figure out how to retire. They’re seeing more and more of their costs on health care dumped in their lap. College tuition skyrockets….They are more and more vulnerable, and they have been for the last decade, treading water.’”

As part of Huff Post’s Bearing Witness 2.0 project, the online aggregator has culled a host of local stories of formerly middle-class folks who are now “struggling to stay afloat.” If you or someone you know is similarly situated, you’re encouraged to e-mail your story.

One such troubling tale is that of construction worker Troy Renault who, along with his wife and five children, has been forced from their 1900 square foot home in Lebanon, Tennesse into a donated 215 square foot trailer nestled in a local campgrounds. The cause of their “slide into homelessness?” Renault lost his job two years ago and the family was forced to make difficult choices. As Renault told Mike Osborne for Voice of America News, “You wind up starting to think to yourself, ‘Okay. Do we go ahead and make the house payment and keep a roof over our head but have no lights and no water, or do you go ahead and keep those utilities on and forego the house payment, and hope that you can get it caught up?’ And it just kept going where it got further and further behind until we wound up losing the home.” Osborne writes: “Tammy Renault says her family is getting a crash course in what it means, socially, to be labeled homeless. ‘It’s being called names. It’s being ridiculed. It’s running into people that have seen you in your highest and are not even speaking to you anymore because they’re too afraid for where you are and don’t know what to say.’

Stories like the Renault’s are made more difficult with the onset of winter, as many former middle class citizens, and now, newly disenfranchised, are forced to make decisions of life or death.  As Steve Neavling reports in the Detroit Free Press, Michigan area middle classers can barely afford heating bills that would keep their families warm in another brutal Midwest winter. “Unemployed and unable to find work, 42-year-old Jim Lowe received a shutoff notice at his home last week and says he’s unable to pay the $174 that’s overdue. ‘It’s definitely a wake-up call,’ Lowe told Neavling. ‘We’re three months behind on all of our bills. I just pray this gets better soon.’ State and local agencies estimate an unprecedented 150,000 metro Detroiters are at risk of having their heat shut off if they don’t receive help paying their bills. The number of people seeking state assistance so far this winter jumped 30% over last year at this time, according to the state Department of Human Services.”

And yet while unemployment, arrears in a mortgage, and other unexpected challenges for members of the middle class may be life-altering, they need not be life-threatening. Bankruptcy provides, in the form of Chapter 13 and Chapter 7,  an undeniable array of options for those with mounting debt and facing foreclosure.

The key is knowing who can help. A qualified bankruptcy attorney can assist proud, but struggling, citizens to conquer their fears of losing it all.  Specifically, the bankruptcy attorneys at the Law Offices of John T. Orcutt offer a totally FREE debt consultation and now, more than ever, it’s time to take them up on their offer. Just call toll free to 1-800-899-1414, or during the off hours, you can make your own appointment right online at www.billsbills.com. Simply click on the yellow “FREE Consultation Now” button. We’re here to help.

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Published Saturday, February 6, 2010 @ 12:31 pm

“It’s the same old story,  same old song and dance my friend’ -Aerosmith

Award-winning financial columnist Don McNay recently wrote an online article for The Huffington Post about the perils of overspending, entitled “Like Lottery Winners, Pro Athletes Also Blow Big Money.” In it, the part-time structured settlement consultant who has worked with injury victims, lottery winners and others who receive very large sums of money, has observed that some 90% of them will run through their money in five years or less; within two years of retirement, 78% of NFL football players are bankrupt or under financial stress; and 60% of  NBA basketball players are broke within five years of retirement—all “running through their money faster than a crazed lottery winner.”

In this blog, McNay ponders the question many of us wonder: why are these people so compelled to blow big money?

To answer it, McNay references the Sports Illustrated article entitled, “How (and Why) Athletes Go Broke,” which relays that one reason for the downfall of many pro athletes are the people who are advising them and hanging out with them.  McNay writes:

“You can’t choose your  “friends” by their ability to serve as your Yes-men.  In fact, a true friend will tell you when you are screwing up.  You need friends who like you for who you are, not for your wallet. Professional sports figures attract flunkies for many reasons…. Someone needs to tell sports figures that if a person REALLY wants to be your friend, he doesn’t need to be on your payroll. I have many friends.  But none of them get paid for that ‘privilege.’”

The author also points to a second symptom of this larger-than-life status: an innate overconfidence that the well will never dry up, and that the money will always be there.

“Sports stars also get caught in the same trap that others with big money fall into.  They think the money is going to last forever.  Someone who gets a lottery jackpot or injury settlement is only going to get it once.  As I told one injury victim, “You are only going to get hit by a truck once in your lifetime.  You need to make sure that this money is there for all your lifetime.”

Sports stars often think they will play forever, but the average career of an NFL player is only four years.  The careers end, the money runs out and they are not prepared for the sudden fall.

Sports stars often have an attraction for risk.  A young, professional athlete is the epitome of self-confidence.  Those who make it to the professional ranks were probably stars in grade school, high school and college.  They have never had anything go wrong in their entire lives.

Until they start investing big money. Overconfidence is an affliction that plagues many on Wall Street.  It is the primary reason we are in an economic crisis.  The problem is even worse for sports stars since they generally don’t have the education and experience that the Wall Street crowd has. When overconfidence is combined with lack of knowledge, disaster strikes.”

In these tough economic times, you may be asking why should you care about the downfall of formerly wealthy sports stars and Powerball pickers? The answer is clear: the same principles apply to your money as well as their millions. And no one says it better than McNay:

I would tell a professional athlete the same thing that I would tell anyone….Plan on the money you have lasting for the rest of your lifetime.  Assume you’ll never get another nickel.  Dump all the “friends” and hangers-on.  Don’t be spending to keep up with the Joneses. If they develop and stick to a sound financial game plan, they can avoid being another “same old story.”

If you’re in over your head, consider bankruptcy as way to start fresh. In North Carolina, contact the Law Offices of John T. Orcutt for a completely free debt consultation. Call 1-800-899-1414 today or visit www.billsbills.com.

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Published Saturday, February 6, 2010 @ 8:29 am

As someone facing serious financial difficulty, learning how much money is made by the huge banks to which you owe money can be frustrating. While we understand that we need to be accountable for our decisions, it stings to realize that profit models are often based on customers going into debt. Therefore, we can’t help but a feel a bit had, like the rube who just bought a cure-all tonic from the traveling pitchman selling from a horse and buggy.

CNN.com published an article recently that described what it deemed the “biggest rip-offs” in today’s society. We thought it relevant because knowing how some of these products are sold may encourage you to quit buying, using or subscribing to them and in the process, start saving more money to pay down debt or keep rebuilding after bankruptcy. We’ve summarized a few here:

Text messages
Wow. Rapidly replacing e-mail as the communication tool of choice for everyone under 25, text messaging has seen nothing short of a meteoric rise in usage in just the last 24 months. It’s an entirely new communication vertical, spawning marketing strategies and literally changing the way cell phones are developed and sold.

No doubt you have seen teenagers, maybe even your own, thumbing madly away on their mobile device, ignorant to the world around them. Well, with every OMG and TTYL the cell phone companies are LOL. Really loudly.

Text messages, which are causing cell phone bills nationwide to climb to record amounts, cost wireless phone companies roughly one-third of a cent to deliver. However, they cost you on average up to 20 cents to send and 10 cents to accept. That’s a 6,500 percent mark-up. :(

“Free” Credit Reports
Here’s one that stings. In a time when the nation is collectively reeling from a historic recession, when foreclosures are rampant, bankruptcies booming and no one’s credit rating is safe, several organizations are profiting off of selling you your own personal financial data.

You know the biggest name, Freecreditreport.com. The cheesy songs and redundant commercials sure do hit their target. But what they don’t do is sing honesty. At this site, and others like it, your credit report is not free, it’s simply provided for you in return for a monthly credit monitoring service. It’s like the cable company telling you HD programming is free.

Chances are, if you are worried about your credit report, you can’t afford another $15.00/month. The company is owned by Experian, a credit reporting agency, which means it costs them nothing to give that report to you. Let this sink in: a representative for the company had this to say: “We do realize there are a very small percentage of consumers who genuinely do not understand they have signed up for a credit monitoring service. We work to resolve issues with these consumers on a case by case basis.”

For a truly free report, as provided by law, go to: annualcreditreport.com

Movie popcorn
On the lighter side, it’s no surprise that movie food is expensive. Heck, they don’t even hide it. However, the movie industry is set up so theaters see a very small cut of the ticket proceeds. Therefore, concessions are their true money maker. Popcorn, for example, has a 900 percent mark-up, costing about $.06 to make and around $6.00 to eat. Many theater owners consider themselves to be in the concession business, not the film industry. As the recession continues its grip on the country, watch for more theaters to start offering beer and wine.

If you reserve a night out at the movies for the occasional reward for good financial behavior, skip the concession stand. Sneak in a bottle of water and some gum. Your cholesterol level will thank you.

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Published Friday, February 5, 2010 @ 12:07 pm

Foreclosures have become a plague across the country, sickening the economies of small towns, the general contractor industry and even the commercial real estate industry. No facet of the real estate world has gone unaffected.

Whether your home was foreclosed upon or your mortgage lender granted you a short sale (negotiated permission to sell your home for less than what is owed), it was probably considered a tremendous relief to drop the proverbial financial anchor tied around your neck.

However, thousands of Americans once in the same boat are now finding that the tide is again rising around them, as banks and lenders are coming back months later for the remainder of what is owed on the home. The most common occurrence of mortgage companies coming back for the difference is happening after auctions when a home did not sell for enough money. But it’s also happening after bank-approved short sales.

A woman in Virgina, who legitimately short sold her home after a divorce and her commission income plummeted as a result of the recession, was shocked to receive a letter from an attorney stating she owed the bank another $65,000 months after the sale closed. Called a “deficiency judgment,” the extra amount owed eventually led to her having to file for bankruptcy.

It is a common belief, and in most cases the truth, that a short sale ends a commitment to owing any more money on a mortgage. However, banks are finding a way to come back for more through the use of deficiency judgments. Often, a former homeowner doesn’t get notified of the judgment until months later.

And, believe it or not, some banks will wait until you have become more financially stable before pursuing the deficiency.

Making matters worse is that the practice of short-selling, which is the most common cause of a deficiency judgment, isn’t just a strategy used by those who took out a sub-prime loan or who are facing foreclosure. Homeowners with standard mortgages who simply watched their home value fall can use a short sale, even of just a few thousand dollars, to get out from under their mortgage.

A number of factors also contribute to whether or not your lender will pursue a deficiency. For example, the foreclosure rate of your home state can play a role, as can the presence of any additional liens you may have had on the home, like a home equity line of credit or second mortgage.

Still, because a deficiency judgment can follow you anywhere and lead to the garnishment of wages and serious credit report marks, it is essential for you to make certain that your short sale or foreclosure is indeed the end of your relationship with that lender.

But without a promise in writing, are you really going to trust the lender’s word that your debt has been extinguished? The only way to ensure a lender does not try to collect from you after a foreclosure or short-sale is to coordinate foreclosure through a bankruptcy. In bankruptcy, you can surrender your interest in the property, ending any possible future liability should the property sell for less than your mortgage.

And despite what your bank has told you, you don’t need to short sell your home. Obviously, your credit is already going to take a hit from conducting a short sale, even if you haven’t missed any payments. Going through the hassle of a short sale with no perceivable benefit for you or your family is just senseless. The only beneficiary of a short sale is the lender, who saves on the expensive legal costs of a foreclosure. Do you and your family a favor, talk to a bankruptcy attorney today and discuss your rights under federal bankruptcy law.

In North Carolina, contact the Law Offices of John T. Orcutt at 1-800-899-1414. With convenient offices in Raleigh, Durham, Fayetteville and Wilson, we’re close to you.

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Published Friday, February 5, 2010 @ 10:06 am

Try as we might to understand some the esoteric banking principles that contributed to the recession or give the industry any benefit of the doubt, the folks on Wall Street just keep giving us reasons to believe they are, and will forever be, drastically out of touch with the way the rest of America lives.

Last year, CitiBank, one the nation’s major banking services players, announced a plan to provide customers with a truly free checking account, provided some account usage stipulations were met, in an effort to attract new accounts and to do their part in helping us stave off the effects of the recession. However, come November 2009, an announcement was made that additional fees would be applied to individuals that carried less than $1,500 in all accounts.

The fees were going to be applied to “EZ Checking” and “Access” accounts. The products would allow customers who made at least two monthly online bill payments or used direct deposit to not be subject to maintenance fees and per-check charges.

Needless to say, this did not sit well with a lot of people. Nor did it pass the smell test for the New York State Attorney General’s office. Citing that the bank did not make it known within a reasonable timeframe that the fees would kick-in, Attorney General Andrew Cuomo managed to convince the bank to suspend any impending costs for consumers who had signed up for the accounts.

Those who registered for one the “free accounts” can continue to bank free of charge until the end of January of next year. Despite the case being tackled in New York State, customers across the country are eligible to continue using their accounts without being subject to the announced fees.

Cuomo, in a press conference about the settlement, spelled it out clearly for CitiBank customers. “If you signed up for free checking, the bank can’t change the terms and must extend the offer for a reasonable period of time. We are defining reasonable, in this context, to be for one year.”

The practice of surprising consumers with short notice announcements of interest rate hikes or banking fees is exactly what led to the recently enacted credit card reform. Far too many Americans have been subject to incentives that promise free services and discounts only to have them yanked away at the moment it hurts the most.

There is nothing wrong with a company making money. However, doing so with deliberately vague or misleading tactics is an entirely different story. There is not one in the industry that believes CitiBank intended to continually provide its customers with free checking; not in this economy. And sure, their marketing is most likely perfectly legal. But is it ethical?

These tactics can lead those teetering on financial ruin right over the edge and often into bankruptcy. Worse yet, it can severely disrupt the plans of a person emerging from bankruptcy who was seeking affordable checking options.

Consumers continue to be victimized in today’s post recession-landscape. And while Washington is doing what it can to adjust mortgages, ease bankruptcies and fix unemployment, there seems to still be too many sharks and plenty of guppies. Stay on your toes, folks.

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Published Tuesday, February 2, 2010 @ 7:49 am

The Triangle is a well-known national business center. With major universities driving innovation and a healthy collection of global technology and pharmaceutical companies touching all of its borders, history tends to be on our side in times of financial worry. Our area is known for entering recessions late and coming out of them sooner.

However, all those big companies, six-figure jobs and our collective entrepreneurial spirit has not done much to curb the rate of bankruptcies in Wake County, the heart of the Triangle.

The Triangle Business Journal reported recently that in 2009, Wake County bankruptcies grew by almost 37 percent during the last year. The total number of filings, both personal and business, is now at its highest level since 2005, when scores of Americans filed in order to avoid strict legislative changes that added a significant number of legal hurdles to the bankruptcy code.

In October alone of that record year, 1,210 bankruptcy filings went on record in Wake County. The total for 2005 was still significantly higher than 2009’s, coming in at 4,036.

The United States Bankruptcy Court for the Eastern District of the state, which counts all areas from Wake County to the coast, reported 2,961 Wake County bankruptcies for 2009. The year prior tallied 2,170. For the entire district, the court reported 11,592 bankruptcies. A little more than half were individual Chapter 13 cases and Chapter 7 filings totaled 4,532.

There were 142 Chapter 11 business reorganization cases. Chapter 12 bankruptcy, a section of the bankruptcy code pertaining to family fishing and farming businesses, saw only five cases.

In Wake County, where growth has always been a concern, the housing market drove a number of current personal and business financial collapses. Developers, appraisal companies, real estate agents, contractors and mortgage brokers were all deeply affected by the reach of the real estate crash. Many neighborhoods around Wake County remain unfinished, showcasing empty cul-de-sacs with “available lot” signs barely visible through knee-high weed creep and vacant streets that lead to long-settled dirt mounds.

The real estate industry has seen a culling of sales professionals like never before. Many Triangle-area professionals who switched careers to latch on to the real estate sales train found themselves catching it right as the market dropped into a seemingly bottomless valley of recession.

Chief Judge of the Eastern District court, Randy Doub, attributes the rise in part to the housing industry. “Much of it is related to the downturn in the home-building industry. The trend in the filings is upward.”

Wake County, which includes Raleigh, is not the only component of the Triangle that experienced a dramatic rise in 2009 bankruptcies. Durham and Orange, which are blanketed by the Middle District, saw increases of 20.5 percent and 44 percent, respectively. Orange County includes the towns of Chapel Hill and Hillsborough.

The numbers are scary. Being on the front lines, we can clearly see that for many of Americans, not much has changed since the recession began. Jobs simply are not coming back fast enough. The more fearsome revelation is that many positions will never come back; instead, they will remain forever lost in the debris of a shattered U.S. economy.

If you’re one of the many North Carolina residents struggling to find your financial footing, you need to speak with a qualified bankruptcy attorney. Call the Law Offices of John T. Orcutt for your completely free, no-obligation debt consultation. 1-800-899-1414 or visit www.billsbills.com. Convenient offices in Raleigh, Durham, Fayetteville and Wilson.

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Published Monday, February 1, 2010 @ 10:23 am

If A Wealthy Developer Can Walk Away From The Mother Of All Underwater Mortgages, Why Can’t You?

Rachel Beck, national business columnist for The Associated Press, asked this very question in a recent article upon finding that heavily capitalized developer Tishman Speyer Properties was able to simply “walk away” from 11,232 Manhattan apartments because it couldn’t pay its mortgage, under the guise of “good business,” while at the same time, in the same country, Rick Gilson, a college custodial supervisor in South Dakota, resists walking away from the mortgage on his mobile home, fearing he’ll be considered “a deadbeat.”

As Beck found, “Those two borrowers face the same financial dilemma: Their mortgages far exceed the values of their properties. Yet one gets to walk away without guilt, while the other can’t. Mr. Gilson is scared to dump the mortgage on his mobile home. He owes $31,973, but the home is only worth about $14,000.” “I have 12 years of money put into this property that I will never get out,” said the 50-year-old Gilson. “But I am still paying because this is what I have been told to do. That’s what I think is right.”

As Beck illustrates, up to this point, the focus of the real estate crisis has been on individual Americans facing their own personal mortgage meltdowns. Today, one in four U.S. homeowners (nearly 11 million Americans) are underwater on their mortgages.  While some experts believe it makes sense to walk away if you’re deeply underwater as it’s not necessarily worth it to keep paying a mortgage when they can find comparable rental housing for less, the argument against walkaways is not only a dropping credit score, but that they will wreak economic havoc. Banks will have made more bad loans, will then make fewer loans and home prices will continue to plunge.

Obviously the rules are different, though, for what Beck calls “the walk away of all walk aways.”

That title goes to the 56-building Stuyvesant Town and Peter Cooper Village complex, the largest single-owned residential area in the city. Commercial real-estate firm Tishman and its partner, investment, paid $5.4 billion for the property, hoping to make money by converting rent-regulated apartments into high-priced luxury condos.

Enter the current housing crash and now the property’s value sits squarely at $1.8 billion: a difference not simply underwater, but drowning.  While Tishman has said that it was turning the property back over to creditors to avoid filing for bankruptcy protection, Tishman has failed to restructure $4.4 billion in debt, unable to find another buyer. So, Tishman exits the deal with a mark on its reputation, and yet a conciliatory $33 billion in assets.

Residential homeowners like Rick Gilson don’t have it so easy. With a mobile home that started depreciating the minute he moved in over a decade ago, he rents out the property just to make the payments, living in another home with his wife.

“I get so stressed over this,” Gilson told Beck. “It’s like the elephant in the room and there is nothing you can do about it.”

While the unfair truth is that real-estate tycoons can default on a $4.4 billion mortgage, but dis-similarly-situated individuals can’t walk away from a $31,000 loan, average Americans do have choices.  As homeowners languish waiting for more immediate mortgage help, many are turning to bankruptcy to stop foreclosure and other creditor actions. For reliable bankruptcy advice that you can trust, contact The Law Firm of John T. Orcutt. And to find out more about your bankruptcy options, visit The Law Offices of John T. Orcutt’s “Things to See and Hear” information.

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Published Sunday, January 31, 2010 @ 6:10 pm

As the mortgage crisis continues on, ironically, President Obama seemed right at home at the podium during his 2010 State of the Union address just as millions of Americans face losing their home. As a result, many concerned citizens sought in the President’s national address any signs not only of “hope” or “change”—expressions made famous during his campaign days—but also second year specifics about what a new year would mean for the millions of average Americans, just like them, facing imminent foreclosure.

In that address, the President laid out an ambitious agenda attempting to attack one specific problem from every conceivable angle: the terrible economic squeeze on America’s middle class.  One portion of his plan mentioned helping Americans stay in their homes, retain their home’s value or absolve home debt, as the President works to “lift the value of a family’s single largest investment.”

President Obama revealed he intends to “step up” programs that encourage re-financing for affordable mortgages. Yet, while the President made clear that he would be increasingly busy in his second year on many fronts, many critics charged that his speech, as well as homeowner assistance policies to this point, has been short on specifics of how to put government to work for those average Americans facing the loss of their homes.

Under the President’s current and primary homeowner assistance plan, the Home Affordable Modification Program (or HAMP),  “responsible borrowers” who have unpaid principle balances of less than $729,750 (for one unit) from a mortgage originating prior to January 1, 2009 may qualify for loan modification assistance if your mortgage payment is greater than 31% of your monthly gross (pre-tax) income.

In addition to flack the President received for only providing housing help for the fuzzily defined “responsible homeower,” apparently the plan, as of last month, has been less than successful for even the most responsible of borrowers. According to a recent Treasury Department report, 27 percent of the 650,000 homeowners taking part in the mortgage modification program are now delinquent on their mortgage payments.  In fact, only 1,711 participating homeowners attempting to avoid foreclosure have been able to convert their modifications to permanent status. Homeowners facing foreclosure and needing help to secure a loan modification have been encouraged to visit http://www.makinghomeaffordable.gov.

To clarify, this type of organized modification effort does not constitute a refinance as the President spoke of; it’s simply a retooling of the mortgage, including a term that might be extended or an interest rate that could be adjusted.  Yet last night, the only thing the President said about the help distressed homeowners might get was this:

The steps we took last year to shore up the housing market have allowed millions of Americans to take out new loans and save an average of $1,500 on mortgage payments. This year, we will step up re-financing so that homeowners can move into more affordable mortgages.

The President never specifically mentioned HAMP, how HAMP might need time to work, or how it could be fixed.  And, most notably for some, he did not mention the word “foreclosure,” at all.

So, as foreclosures continue to escalate, American homeowners may feel that they have increasingly fewer options other than bankruptcy. Of this option, the President had a more definite response, with recent efforts to allow bankruptcy proceedings to renegotiate all debts, including home mortgages.

As American homeowners search for more immediate and specific mortgage help, many are turning to bankruptcy to stop foreclosure and other creditor actions. For reliable bankruptcy advice that you can trust, contact The Law Offices of John T. Orcutt for a totally FREE consultation at 1-800-899-1414.

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Published Sunday, January 31, 2010 @ 5:56 pm

Bankruptcy is not just for people and businesses. Town, cities and other municipalities can file for court protection from creditors as well.

Historically, city government bankruptcies are rare. However, in one of the worst economic situations in a generation, it has become more common. Almost two years ago, as the recession was really starting to collect steam, the city of Vallejo, CA filed for bankruptcy. The Bay area suburb of San Francisco cited that rapidly diminishing tax revenue and the housing crisis was too much for it to handle. Cities rely on the housing market just like the business world. As values fall and the number of people moving away outpaces the number of those moving in, things become challenging in a hurry.

Additionally, a falling tax base makes it exponentially more difficult for a city to pay its employees. Firefighters and police for example, start to suffer in response as pay raises are halted, positions are cut and equipment remains outdated and unavailable. Debates get heated, city leaders lose support and lawsuits get filed.

Now, a couple hundred of miles south, The City of San Diego, one of the nation’s most visited cities and the mecca of all things sunny and 70, is generating a bankruptcy buzz.

After seemingly bouncing back from a number of years under water, many have begun to believe the city’s financial situation to be a sound example of how to turn things around. However, the picture is not as clear as most believe.

A volunteer task force established to address the economic problems of the city, the Citizen’s Fiscal Sustainability Task Force, is not sold on their hometown’s long-term stability, as evidenced in a recent report it published that stated should the city not be able to accomplish a 12-step plan it created, San Diego would “be forced to consider seeking injunctive relief by filing for Chapter 9 bankruptcy protection to allow the city to put its long-term fiscal house in order.”

Chapter 9, according to www.uscourts.gov, allows for the court-structured reorganization of municipalities, which means towns, cities, villages and school districts. Chapter 9 varies quite a bit from the more common chapters of the code, as the law contains no provisions for the surrender or sale of assets or creditor distributions.

Despite the task force’s ominous report, the debate is swelling like the area surf.  Some believe the ongoing discussions to be, as put by San Diego Mayor Jerry Sanders, “… baloney.”

In his January 31 column, the Mayor stated the bankruptcy option was merely a deliberate smokescreen to avoid tackling the city’s serious need for reform. He also stated, “But the truth is talk of bankruptcy impedes progress on real substantive pension reform, and it poisons the climate for thoughtful solutions to our structural deficit.”

Mayor Sanders went on the record in a recent speech to label the bankruptcy discourse as “extremist.” Others who oppose the Chapter 9 option believe the city needs to curb executive pensions and health care and redirect those funds toward infrastructure spending.

Nevertheless, the very task force assembled to look deeply into the checking account believe otherwise. Certainly their input should not so quickly dismissed.

Mayor Sanders’ column went on to include figures arranged by a city attorney who estimated a bankruptcy for the city could cost taxpayers up to $300 million and still not solve the big pension drain. He also cited that Chapter 9 bankruptcies will present added challenges if a judge happens to dismiss the case under the auspices that the city has not done enough before filing.

Stay tuned. Sunny San Diego may start to get cloudy.

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Published Sunday, January 31, 2010 @ 7:38 am

There is so much we do not know about the things that put us into debt. From credit card fine print to car lease agreements and as the last few years have demonstrated, even the most basic facts about our home loans.

To anyone with the ability to fog a glass, it is more than evident that our collective ignorance on these matters is precisely what causes our country to carry so much personal debt. And despite the government’s best effort, whether in credit card reform or mortgage assistance programs, the only way to solve our financial problems is for the American consumer to educate itself as to the practices, jargon and bureaucracy that obfuscate the critical, debt-inducing rules of credit and loan products.

However, education, specifically student loans, is one of the things helping to add weight to America’s debt anchor. They have caused countless bankruptcies and yet remain a non-dischargeable debt under Chapters 7 and 13 unless you can prove that paying them will cause a substantial hardship on your family. As if the bankruptcy itself was not enough hardship.

Those in the student loan profit circle are hesitant to ever address the debt issue in public, despite it’s prevalence on so many household balance sheets.

In a Wall Street Journal column, an expert on the student loan debt problem cited a 2003 report by the Department of Education with some staggering statistics. It stated that default rates for loans that cover 4-year, 2-year and for profit colleges are 25 percent, 35 percent and 45 percent. In simpler terms, around one in three students default on the loans they accepted to pay for education.

Not sinking in yet? Try this: the student loan default rate is higher than credit cards, sub-prime mortgages and even over the counter payday loans. Yet, the issue is never introduced or addressed in Washington circles, even in the midst of today’s middle class stabilization efforts.

Even though the Department of Education (DOE) created and published the report demonstrating the nation’s difficulty in repaying student loans, it later boasted complete confidence in a full return on every loan it issues plus a 20 percent boost in interest and fees on forbearance, adjustments and default penalties.

Now, mix in organizations like Sallie Mae, who buy, issue and oversee billions in student loans and also own collection companies to track down those who can’t pay, and it’s easy to understand just how much money is being made on the back-end of our college diplomas.

The higher-ups in Washington are in on it too, as a number of very common consumer protections that apply to most loan vehicles, such as the bankruptcy code and truth in lending requirements simply can’t be found in the fine print of your student loan. Thus, the DOE is the lone source of control when it comes to student loans, wielding powers over your wallet and financial stability like no other wing of our democracy.

And it’s only going to get worse.

Reuters is reporting that the rate of student loan growth in the last two years is close to setting records, jumping 29 percent. In total, there are now close to 69 million student loan accounts open in the United States. This is primarily because the recession has put so many people back into the classroom to refresh job skills, obtain additional degrees or change careers. Additionally, with so many parents out of work, more children have to apply for loans to cover their schooling.

In total, the country now owes close to $527 billion in student loans. And just about every penny of it will be repaid. Plus interest.

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Published Saturday, January 30, 2010 @ 12:36 pm

Another company bites the dust, as the economic downturn takes its latest–and one of few– entertainment victims.

Air America Media ended its live programming operations this week. The company touted as the “only full-time progressive voice in the mainstream broadcast world” acknowledged its Chapter 7 bankruptcy filing in its final broadcast:

It is with the greatest regret, on behalf of our Board, that we must announce that Air America Media is ceasing its live programming operations as of this afternoon, and that the Company will file soon under Chapter 7 of the Bankruptcy Code to carry out an orderly winding-down of the business.

Thank you.

The moral of this radio story?  In tough economic times, bankruptcy affects the best and brightest of us.  It is essential to understand that bankruptcy can work for you…and isn’t a failure… but the possible key to a stronger and more productive financial future. For more information on finding a smooth transition to the next step through bankruptcy visit the experienced bankruptcy lawyers of The Law Offices of John T. Orcutt.

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Published Sunday, January 24, 2010 @ 6:51 pm

The United States has always been a nation of givers. Despite the recession and high unemployment, approximately 80% of Americans continued to give to religious and/or secular charities. This trend has continued in earnest following the recent catastrophe in Haiti. A new survey released by Zogby Interactive found that 64% of Ameircan adults have given or intend to give to relief efforts to aid to the earthquake-ravaged nation. The survey, released on Martin Luther King Jr. Day, found that 33% of respondents have already made a donation.

Perhaps you’re worried that declaring bankruptcy means you cannot donate. But, in fact, bankruptcy laws protect both debtors’ rights to give back. And now for those affected by the recession or for those bankruptcy bound, there’s even more reason to give back to Haiti.

As The Huffington Post reported on January 22, Taxpayers will now be able to write off charitable donations made by the end of February to Haitian relief efforts when they file their 2009 taxes under a bill President Barack Obama signed Friday. Under current law, donors would have to wait until they file their 2010 returns next year to take the deductions. The measure received final approval from Congress on January 21.

The hope is to encourage more donations.  And now is your chance to answer that call.

According to President Obama and Charity Navigator, an independent evaluator working to “advance a more efficient and responsive philanthropic marketplace,” listed below are prominent relief organizations, all of which are in dire need of donations specifically for Haitian relief efforts.

The American Red Cross has a full-time staff in Haiti, providing ongoing HIV/AIDS prevention and disaster preparedness programs. The Red Cross has already pledged an initial $200,000 to assist communities impacted by the earthquake. They seek additional donations to continue providing food, water, temporary shelter, medical services and emotional support.

Clinton Bush Haiti Fund is the unprecedented collaboration effort at the request of President Obama partnering former Presidents George W. Bush and Bill Clinton to help the Haitian people reclaim their country and rebuild their lives through donations of basic needs– food, water, shelter, and first-aid supplies.

Direct Relief International is a U.S.-based organization that provides medical assistance to impoverished nations. Direct Relief has committed up to $1 million to aid emergency response efforts, including medicine, supplies and food.

Doctors Without Borders is currently on the ground in Haiti continuing their mission as an international medical humanitarian organization working to assist people whose survival is threatened by this catastrophe.

Operation USA operates in Haiti, and is sending additional medical aid, water-purification supplies and food supplements to the hard-hit nation.

Convoy of Hope has established a command center just outside of Haiti’s capital where it is distributing food, water and supplies to the victims of the earthquake.

Oxfam America uses advocacy and education to aid areas in need of assistance. Oxfam is coordinating international aid groups to bring emergency water and sanitation services to Haiti.

Partners in Health has launched the Stand With Haiti campaign, bringing modern medical care to this nation and other countries around the world. Partners in Health has worked in Haiti for nearly 25 years and, since the earthquake, continues to provide medical assistance.

The Salvation Army is mobilizing personnel and supplies to assist in the relief effort in Haiti. The Salvation Army has already dedicated $850,000 in direct aid to the country; further donations can be made online or by calling 1-800-SAL-ARMY. The Salvation Army is also collecting $5 dollar donations by text. Mobile phone users in the United States can text the word HAITI to 52000.

UNICEF saw its offices in Port-au-Prince suffer heavy damages in the earthquake, but is ready to provide relief, deploying essential aid such as safe water, sanitation supplies, therapeutic foods, temporary shelter materials and medical supplies– all to assist in recovery efforts.

World Vision has worked in Haiti for 30 years, and is seeking donations to provide victims with food, water, blankets and tents.

Yele Haiti is entertainer Wyclef Jean’s own charitable organization and has established an online donation site to help victims of the earthquake. Through Jean’s Twitter account, the Haitian native also asks his fans to lend a hand, by making a $5 donation by texting YELE to 501 501.

Want to find out more about how the bankruptcy laws protects givers, givers who may end up needing help themselves? Check it out with the Law Offices of John T. Orcutt. In North Carolina, call for a totally FREE consultation. Call toll free to 1-800-899-1414 or visit their website at www.billsbills.com.

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Published Sunday, January 24, 2010 @ 6:37 pm

Most experts agree, even in a financial meltdown, the fastest way to go broke is through payday loans. But if you’re like many Americans, you may be facing the economic crisis head-on, and whether that looks like a missed mortgage payment or hovering health care bills, a payday loan might seem like an easy way to weather the economic storm.

Not so says Gavin Newsom. In fact, the San Francisco mayor best known for making the case for marriage equality has now made his case (on January 22) to those considering payday lending: “a payday loan company is not the solution.”

But, it wasn’t until I truly delved into how these fast cash operations take advantage of people in need that I began to understand the impact payday lenders have on our poorest communities.

With interest rates as high as 400% APR and a two-week loan term that does not give much of a chance for the loan to be repaid on time, payday loans trap mostly low-income borrowers in a cycle of debt. On average payday loan customers are paying back $800 on a $300 loan, costing consumers more than $4 billion in predatory fees each year.”

Now Newsom is taking on predatory payday lenders by providing alternatives. Working with San Francisco’s credit unions, Newsom developed a new program called Payday Plus SF, an alternative small dollar loan with a maximum interest rate of 18% APR.

“Payday Plus SF is latest in a series of successful financial empowerment and financial literacy programs spearheaded by San Francisco Treasurer José Cisneros. This program builds on an initiative the Treasurer and I launched three years ago called Bank on San Francisco, which has helped more than 45,000 thousand unbanked San Franciscans into checking accounts. Seventy other cities and states across the country are already replicating this program locally. And this week, I met with Treasury Department officials in Washington to talk about replicating Bank on San Francisco on a national scale.

Last month, we launched the Payday Plus SF program at 13 San Francisco credit union locations. This first of its kind program is already showing results.”

Newsom says he created Payday Plus SF to help people like Mark Laws, a low-income San Franciscan who found himself in need of emergency cash. Laws was unable to get a credit card and was living paycheck to paycheck with no savings. After the unexpected death of his mother left Laws scrambling for the funds to pay for and attend her funeral. As a last resort, Laws turned to payday lending for the $250 he needed. A few weeks later, high interest on this loan left Laws unable to pay back the balance. To deal with the expense, he went turned to another payday lender and took out another loan to pay off the first — and so on and so on.

The mayor confirmed that Mark Law’s story is typical -– “99% of payday loan borrowers are unable to pay off their loan within the two-week term” -– and the typical California payday borrower will take out 10 loans in a year before they are finally able to repay the original loan.

But with program’s like the Bay Area’s Payday Plus SF, now there’s hope.

“Mark is now one of our success stories — he took out a Payday Plus SF loan, paid off his debts and is now rebuilding his credit as he makes reasonable monthly payments at his local credit union. We may be the first City to do this, but I know we will not be the last. Predatory payday lenders are a national problem. But with no cost to taxpayers, Payday Plus SF shows what can happen when elected leaders, neighborhoods and the financial community come together to help low-income families in dire, but temporary, financial straits.”

For those folks not fortunate enough to live in San Francisco, there are other options. If you’ve already fallen victim to a payday lending scheme, an experienced bankruptcy attorney can end your cycle of endless spending. To get the big picture on how bankruptcy works and how the laws in North Carolina can help you, speak with an attorney at the The Law Offices of John T. Orcutt.

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Published Sunday, January 24, 2010 @ 6:34 pm

A January 22 government report announced that unemployment rates rose in 43 states in December 2009, painting an all too bleak portrait of the job market—even as the economy continues to grow—and leaving many unemployed Americans bankruptcy bound.  This jump in joblessness marked a sharp turn from November 2009’s numbers, when 36 states had actually reported their unemployment rates fell.

This dire financial news hit hardest at home. North Carolina joined South Carolina, Delaware, and Florida as the four states that reported record-high jobless rates last month—marking more tough times for Tar Heels seeking signs of “help wanted.” North Carolina’s jobless rate has now risen to a staggering 11.2 percent with employment dropping by more than 31,000 positions.

These new figures ended a string of five consecutive months where unemployment had either improved slightly or stabilized and have put the state’s jobless rate squarely at 8^th worst in the country.  A dubious distinction in troubled economic times.

According to WRAL News, as bad as the news is, the actual unemployment rate is likely higher, at least according to North Carolina State University economist, Dr. Michael Walden. “The rise in the unemployment rate was expected, and I think the rate could go higher before it declines,” Walden told WRAL.com.  “However, what was unfortunate in the December report was that the rise in unemployment was totally due to a loss in jobs rather than ‘discouraged workers’ coming back into the labor force and looking for work,” he warned. “The labor force number actually fell in December.“If discouraged workers and underemployed workers (those working part-time only because they can’t find full-time work), are included, then the unemployment rate is closer to 20 percent.”

In addition, like so many struggling states, North Carolina also saw sharp drops in restaurant, hotel and other leisure employment, a sign that consumers are still tentative when it comes to post-recessionary travel, tourism and spending. Nationwide, the United States lost 25,000 leisure and hospitality jobs in December. Of those, North Carolina shed 2,600 restaurant and hotel positions — more than any other sector in the state.

“Certainly, it’s frustrating out there right now,” North Carolina’s Employment Security Commission spokesman Larry Parker told WRAL.

And so the frustration continues, sometimes ending in insolvency.  Each and every week bankruptcy attorneys continue to meet with dozens of Americans in financial distress due to employment woes.  Each time those who have encountered job misfortune come into law offices feeling hopeless and at the end of their rope, perceiving no alternatives to their continuing fiscal faults.  Almost every time, however, it seems more and more when these same clients leave these offices, they finally feel some sense of relief for the first time since their joblessness began; they are reassured that the bankruptcy laws as well as the bankruptcy system offers them the possibility of a new start— at an affordable cost—and with it a financially viable and secure future. In short, bankruptcy relief can end worry and stress for jobless Americans, including many North Carolinians, living on a finite financial brink.

 Knowing a qualified bankruptcy attorney in our areas can also help you conquer the effects of unemployment.  The bankruptcy attorneys at the Law Offices of John T. Orcutt offer a totally FREE debt consultation and now, more than ever, it’s time to take them up on their offer. Just call toll free to 1-800-899-1414, or during the off hours, you can make your own appointment right online at www.billsbills.com. Simply click on the yellow “FREE Consultation Now” button.

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Published Friday, January 22, 2010 @ 7:59 pm

Harvard law professor Elizabeth Warren met with David Axelrod, one of President Obama’s senior advisors, Wednesday night. On Thursday, President Obama announced sweeping new restrictions on the largest banks: they will no longer be able to operate hedge funds and new policies will restrict how large a bank can be. Obama also called for an end to the obscene profits and enormous bonuses at firms that claim any additional fees or taxes would have to be passed on to consumers.

Is there a connection between Warren’s meeting and Obama’s proposed reforms? And, more importantly, could an increased role for Warren in Obama’s administration be good news for people who would like to see better bankruptcy laws and more bank and lender accountability?

Possibly yes, to both. Warren is an expert on bankruptcy who has spent two decades studying not just the economics of bankruptcy but its effect on real people. Her landmark study in the 1990s showed that the majority of people who declare bankruptcy do so not because of profligate spending but because of unexpected life events like divorce, loss of a job or enormous medical bills. Warren admits that it was not what she expected to find, and that this study changed the focus of her research. Her book The Two Income Trap: Why Middle Class Mothers and Fathers Are Going Broke, builds on this idea, pointing out that core costs, like mortgages, health care, transportation and child care have all increased enormously over the last few years. In addition, if families are living paycheck to paycheck on two incomes, they have twice as much chance that one of the breadwinners will lose their job, and then send the family spiraling toward poverty.

Warren has been an outspoken advocate for better bankruptcy laws, and testified against the bill in the hearings before it was passed in 2005. Last year, she was appointed chair of the congressional oversight panel appointed to investigate TARP (Troubled Asset Relief Program). Under her direction the panel has published easily-understood reports calling attention to the Treasury’s failure to ensure that taxpayers receive a fair deal. She’s also proposed a Financial Product Safety Commission, along the lines of the Consumer Product Safety Commission. This commission would be able to regulate financial products like mortgages and credit cards based on fairness, simplicity and appropriate risk. President Obama is insisting that any overhaul of financial rules include this commission; rumors are swirling that he will appoint Warren to head it.

That would be the banking industry’s worst nightmare. The major banks argue that The Financial Product Safety Commission would bring us back to the 1970s, with double digit interest rates and a sharp dip in available consumer credit. But it seems likely that most bankers are more concerned over limits to their bonuses than limits to the average Americans access to credit. Appointing Warren would tell the banks that Obama is serious about regulating banking abuses.

Obviously, the commission hasn’t been created yet, and Warren hasn’t been appointed to run it. But it’s hard not to see that only good things will come of having a powerful advocate for the financial distressed given such a role.

From the Law Offices of John T. Orcutt, helping North Carolina families get out of debt for over 15 years. Call today for your free initial debt consultation. 1-800-899-1414.

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Published Friday, January 22, 2010 @ 5:58 pm

Recent bankruptcy news includes a headline about industry icon MGM filing a prepackaged bankruptcy, which, relative to the movie industry, may carry as much as impact as the General Motors and Chrysler filings had in Detroit.

However, operating with excessive debt is not a new concept in the film industry. In fact, it’s how most filmmakers get started. One has only to ask the nearest independent movie director how he’s funding his latest effort and your likely to hear the words “Visa,” “Mastercard” and “American Express.”

Today, access to the credit market is slowly changing the small film market. Just a couple of years ago, aspiring directors and producers would have little fear about maxing out their credit cards because of the prospect of a major studio discovering their unpolished cinematic gem and putting it on screens across the country.

Hollywood is rife with stories of how the one-time small-time filmmaker thrived on friends’ couches and ramen noodles while making their “dream project.” With banks squashing credit limits and destroying all but one copy of the vault key, the creative collective in California is afraid that the recession is also hampering the future of film, not just the unemployment rate.

And, for those who took the credit card route to financing their films before the recession tsunami swept ashore, bankruptcy has become their best route back to dry land.

On the eve of the Sundance Film Festival, the crossroads of all things independent and Hollywood, little known movie makers are working harder than ever to see their dreams realized turned into record weekend box office gross. Thankfully, those behind the now red carpet event have found a way to deal with the recession’s toll on the individual director by creating a new category called “Next” that is only for those films made on little to no budget. This year, six pictures were selected.

In 2003, two documentary filmmakers made it to Sundance with a piece about children and spelling bees. They used to the limit 14 different credit cards to pay for the travel and production that went into the movie. One of the filmmakers said in a CNN.com article, “Over the course of several months, we hit the road, using our credit cards to fund the project … Then we’d come home between shooting the film, pay down some of the debt and resume shooting.” Their film, once picked up by a major studio, made $6 million.

In this credit drought, some indie producers are turning to a new loan concept powered primarily by the Internet called “crowdfunding.” One site in particular, www.indiegogo.com, allows filmmakers to propose their idea to whomever comes on to the site. They can include clips, story ideas and other production updates. Donations can be of just about any amount. Currently, the site boasts 2,300 projects and more than $200,000 in funds raised.

Crowdfunding has become a big hit with movie folks because it establishes a fan base early on that could eventually contribute marketability and in the end, butts in seats.

Still, the lack of credit has saved a lot of independent filmmakers from going too far into the hole. David Spaltro, a low-budget filmmaker, amassed $150,000 in debt on a total of 40 different credit cards.

“My credit score looks like a batting average. And that’s being conservative,” he said. The film was finished in 2008 and since then, he has been able to pay off a substantial amount of what he owes.

Wow, talk about a horror show.

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Published Thursday, January 21, 2010 @ 7:45 am

According to a January 8 article in the Huffington Post, lack of confidence in the recent economic recovery led employers to shed an unanticipated 85,000 jobs in December 2009—even as the unemployment rate held steady at 10 percent.  While it may seem strange that unemployment rates flatlined as American jobs continue to disappear, the explanation is even more disconcerting; in truth, the rate would have been higher if more people had been looking for work instead of ending their search because they can’t find jobs.

As the Huffington Post reported: “The sharp drop in the work force – 661,000 fewer people – showed that more of the jobless are giving up. Once people stop looking for jobs, they’re no longer counted among the unemployed. When discouraged workers and part-time workers who would prefer full-time jobs are included, the so-called “underemployment” rate in December rose to 17.3 percent, from 17.2 percent in November. That’s just below a revised figure of 17.4 percent in October, the highest on records dating from 1994.”

Many had hoped the latest Labor report would support the premise that the economy had actually begun to rebound, gaining jobs for the first time in two years.  As such, the divide between the have nots and notions from economic “experts” continues to grow as Main Street unemployment once again negatively contrasted Wall Street perceptions of economic improvement. “One word sums it up: Disappointment,” Jonathan Basile, an economist at Credit Suisse told Huffington Post. The drop in the labor force, Basile said, “tells me that Main Street doesn’t believe there’s a recovery yet, because they’re not out looking for jobs yet.”

As it is, the unemployment rate holds steady at 10%.

In terms of job creation, the bar is now a bit lower for a “happier new year.” Friday’s report caps a 2009 considered another terrible year for U.S. workers. The economy has lost more than 7.2 million jobs since the recession’s beginnings in December 2007. And while layoffs have slowed, they have hardly ended, with December’s numbers providing another staggering reminder.

“The economy is in a rough situation,” Labor Secretary Hilda Solis acknowledged in an interview with The Associated Press. She said she thinks companies are reluctant to ramp up hiring because they’re waiting to see what new stimulative steps the government will take to provide relief.

In an attempt to offset these negative numbers, President Obama has presented $2.3 billion in tax credits that Congress has already approved to create 17,000 green jobs.  Meanwhile, Congress is considering a “jobs bill” that would contribute $174 billion in unemployment benefits. Our nation’s leaders understand that if jobs remain scarce, consumer confidence and spending will continue to flag, slowing the economic recovery.

While recent reports of the nation’s financial future remain nothing short of bleak, the good news remains that through bankruptcy laws, borrowers facing unemployment can take their future into their own hands, stop drowning in health care, consumer and mortgage debt, and begin on the road to a more viable financial future.

Every week bankruptcy attorneys continue to meet with dozens of Americans in financial distress due to employment woes.  Each time those who have encountered job misfortune come into law offices feeling hopeless and at the end of their rope, perceiving no alternatives to their continuing fiscal problems.  Almost every time, however, it seems more and more when these same clients leave these offices, they finally feel some sense of relief for the first time since the job recession started; they are reassured that the bankruptcy laws and the bankruptcy system offers them the possibility of a new start— at an affordable cost—and with it a financially viable and secure future. In short, bankruptcy relief ends worry and stress for many jobless Americans living on the financial brink.

For reliable bankruptcy advice that you can trust, contact The Law Firm of John T. Orcutt. And to find out more about your bankruptcy options, visit The Law Offices of John T. Orcutt’s “Things to See and Hear” information.

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Published Wednesday, January 20, 2010 @ 9:34 am

The traditional media industry is hurting. Specifically, hard news print vehicles, newspapers mainly, have been decimated by the rise of the Internet and a rapid decline in advertiser spending as a result of both new media opportunities and of course, the recession.

The most recent indication of America’s tilting favoritism toward all things online, the publishing parent of newspapers like the Denver Post and San Jose Mercury News is expected to petition for bankruptcy in the next few days. MediaNews Group, Inc. isn’t saying much about the details but those “in the know” believe it could happen as soon as Friday.

As of today, it is suspected the company is working on ways to operate the restructured organization. It is widely believed that William Dean Singleton, the top executive, will retain control along with current president Joseph Lodovic IV.

The idea that current management will remain in control is surprising to many in the media industry for a couple of reasons. Primarily, it is rare for a corporate bankruptcy to not include massive management shifts. Additionally, Singleton is considered a member of newspaper industry’s “old guard.”

Because so much of traditional print media is being outpaced by the speed of online news and the flexibility of Web-based advertising, most expect a bankruptcy to spark a refreshed approach toward embracing contemporary industry trends, especially when close to 80 percent of the company’s revenue stems from ads being placed within the pages of its newspapers.

However, Singleton has a plan to tighten the operation through an aggressive consolidation effort that he hopes will lead to a more streamlined company that can better sustain profits and manage debts. More than likely, he will work to bond newspapers in Minnesota’s Twin Cities and in Southern California, where there is no shortage of regional print news outlets. And because only the holding company is declaring bankruptcy, the financial situation for many of its newspapers should remain stable.

The company also expects that the majority of its newspapers’ employees will be unaffected. However, consolidations cannot succeed without the elimination of redundant positions. For example, how many high school sports copy editors does one newspaper need? Or press technicians?

Currently, MediaNews owns 54 daily newspapers throughout the country and also has stakes in broadcast media outlets.

MediaNews’ bankruptcy will be yet another example of a corporate pre-packaged bankruptcy, a method of bankruptcy that entails substantial pre-planning and settlement talks with creditors before officially presenting a plan to the court. The idea is to enter and exit bankruptcy in very little time, as the pre-packaging enables the court to merely approve, in some cases, only the most minor legal facets of the bankruptcy.

Reports are showing that the company’s plan involves debt for equity swaps, which probably helps explain why Singleton will remain in charge. Creditors that will soon own parts of the company instead of its debt are going to be more confident with a seasoned leader than new blood. The company is expected to reduce its $930 million debt to a much more manageable $165 million.

One of the company’s largest investors, the most recognized newspaper company in the world, Hearst Corp., will lose close to $400 million as result of the bankruptcy. MediaNews is said to be working closely with Hearst on the situation.

There is no telling what lies ahead for the newspaper industry. However, there are not a whole lot of reasons to be optimistic, as MediaNews’ filing is one of seven that has occurred within the last 54 weeks. The Los Angeles Times and Chicago Tribune are notable examples.

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Published Tuesday, January 19, 2010 @ 2:56 pm

No doubt in the last several years you’ve heard the phrase “Too Big to Fail” more than once. This oft-used phrase refers to the regulatory idea that many of the largest and most interconnected businesses are, in fact, so large that a government cannot allow them to fail because their failure would have a disastrous effect not only on the business itself, or even the larger industry, but also to the greater economy.

Early in the economic meltdown and late in 2008, General Motors Co. was considered just such a company. And given their huge presence in the U.S. economy, bankruptcy appeared unthinkable. Yet the unthinkable became inevitable in June 2009 as GM finally filed for Chapter 11 after years of losses and market share declines capped by a dramatic plunge in sales.

In Michael McKee’s Bloomberg article, “GM’s Long Decline May Make Bankruptcy ‘Irrelevant’ to Economy” of the car company’s “failure” he wrote:

“General Motors Corp. once mattered so much to the U.S. economy that a two-month strike in 1970 helped trigger a 4.2 percent drop in gross domestic product for the fourth quarter, as national auto production fell 82 percent.

Then, GM accounted for about half the cars and light trucks sold in the country. Now, GM controls just 20 percent of the market, and analysts say its bankruptcy filing will barely register in the broader economy.

GM’s drawn-out restructuring, an increase in U.S. manufacturing by foreign carmakers and the recession-induced decline in auto sales all have meant more to the economy than today’s legal filing.

“Bankruptcy now is irrelevant in terms of the economic consequence of what’s happening to GM,” said Mark Zandi, chief economist at Moody’s Economy.com in West Chester, Pennsylvania. “Either way, it’s going to be a shadow of what it was, in terms of jobs and income.”

GM has been reducing payrolls for three decades. Its U.S. employment peaked in 1979 at 618,365, when it was the nation’s largest private employer and auto manufacturing accounted for 4.1 percent of GDP. At the end of this year’s first quarter, autos were 1.5 percent of the economy, and GM had 88,000 U.S. workers.”

But as unthinkable as it was last year to let GM go bust, and how “irrelevant” bankruptcy seemed at the time as a viable solution, GM has taken a surprising post-bankruptcy turn.

In short, it was too big. It failed. Nothing bad happened. And now it’s back again.

That’s right, after an aggressive bankruptcy-inspired restructuring and reorganizing, GM, even amid weak car sales, is talking about making a profit this year. According to this week’s Wall Street Journal, General Motors Co. will make money in 2010, its chairman said, “a bold and surprising forecast for a business that exited bankruptcy proceedings just last summer and hasn’t turned an annual profit since 2004.” “My prediction is we will be” profitable in 2010, Edward E. Whitacre Jr. told reporters at GM’s Detroit headquarters, a sign of rising confidence that also sets a tough benchmark for the still-struggling car maker’s employees. “Do we have obstacles in the way? Yes. But we have a good management team and a good plan in place.”

The moral of the story?  Bankruptcy works.

Now in addition to convincing Tim Geithner, Larry Summers, and Ben Bernanke that it’s okay to let financial firms sink into insolvency—for a restructured and reorganized future—the way small banks and businesses do every week under Chapter 11,  it’s also essential to understand that bankruptcy can work for you…and isn’t a failure… but the possible key to a stronger and more productive financial future.

For more information on getting back on your feet like GM through bankruptcy visit the experienced bankruptcy lawyers of The Law Offices of John T. Orcutt.

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Published Monday, January 18, 2010 @ 6:48 pm

In 2005, Congressional changes to the Bankruptcy Code made bankruptcy filing more cumbersome by requiring quite a bit more red tape, leading to a significant drop in filings the following year (2006). But, as a result of the economic downturn, during the past three years, bankruptcy filings have risen back to the levels seen before Congress’ 2005 bankruptcy overhaul.

In fact, despite notions that the economy improved last year, 2009 appears to have been a devastating year for the finances of American people—and businesses—beleaguered by an unending stream of bad economic news.

According to an Associated Press report on January 4, 2010, U.S. consumers and businesses are filing for bankruptcy at a pace that made 2009 a year with the seventh most filings on record, garnering more than 1.4 million bankruptcy petitions. This record number represented a staggering increase of 32 percent from 2008.

These statistics, gathered by the National Bankruptcy Research Center (NBRC), measure consumer and business filings from December through November. December 2009 filings are not included in the total. Of the 1.43 million bankruptcies in 2009, 116,000 were recorded in December 2009, up 22 percent from the same month the year prior—a sign that bankruptcies aren’t exactly slowing down.

Another sign of a continuing wave of insolvency is that recent, recession-driven bankruptcies have occurred in mini waves of their own, beginning nearly two years ago with a run of adjustable-rate mortgage (ARM)-related filings; followed closely with an upsurge of filings from the newly unemployed; and finally, and more recently, with findings that wealthy individuals and business owners are now succumbing to the economic effect of lower incomes and shrinking home values.

The increase includes a significant upturn in 2009 Chapter 7 (liquidation) filings, which increased by more than 42 percent compared to this time last year. Conversely, Chapter 13 filings have increased at only 12 percent. The steady decline in Chapter 13 filings, stands in direct contrast with the strong push by Congress in its 2005 bankruptcy legislation to encourage bankrupt consumers to choose Chapter 13—with its focus on creditor repayment—rather than Chapter 7. The figures seem to yield not only a failure in the policies and goals of the Congressional overhaul, but consumers desire to wipe their financial slate clean, and quickly, in lieu of holding on to, for example, their home, or other non-exempt possessions.

In fact, states with high foreclosure rates are leading the way in bankruptcies as well; again, signaling the housing crisis, adjustable mortgages, and a loss of home equity, as primary factors in many Americans’ decision to file. According to the NBRC, nationwide, filings to date amount to almost 11,500 filings per million households with the highest filing rates in Nevada (two-and-half times the national average), followed by Tennessee, Georgia, Alabama, and Indiana (with one and a half times the national average).

Is the housing market, job market, or a combination of factors hitting you and your household hard? If so, the numbers above show you’re not alone. In fact, there’s strength in these numbers—knowing a qualified bankruptcy attorney has helped many weed through the bankruptcy laws and the bankruptcy system, yielding the possibility of a new start— at a low cost— for a financially viable and secure future.

The bankruptcy experts at the Law Offices of John T. Orcutt offer a totally FREE debt consultation and now, more than ever, it’s time to take them up on their offer. Just call toll free to 1-800-899-1414, or during the off hours, you can make your own appointment right online at www.billsbills.com. Simply click on the yellow “FREE Consultation Now” button.

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Published Friday, January 15, 2010 @ 12:55 pm

If there ever was a sure sign that print advertising is drastically down from where it was only a couple of years ago, other than the slew of newspapers around the country that have either been sold, merged, closed or gone Web only, it’s the bankruptcy filing of R.H. Donnelley, a North Carolina-based publisher of phone directories. You know, the yellow pages. At one time, the single most ubiquitous business marketing channel.

The company originally filed for protection back in May of 2009. At the time, it was big news because of the company’s notoriety as one of the region’s most successful publicly traded companies. We covered the filing in a previous post. You can read it about here.

Fast forward to 2010 and you’ll find a new, leaner, meaner version of R.H. Donnelley. At least that’s the plan. Earlier this week, the company’s reorganization plan was accepted by a U.S. Bankruptcy court, which means it can soon get back to business.

According to its Web site, the company is “… one of the nation’s leading consumer and business-to-business local commercial search companies.” Essentially, they publish print and online directories of business listings that consumers and other businesses use to learn about, track and contact companies. They also publish white pages so we can find one another in case you can’t find a WiFi connection or Facebook is acting funny.

The company is confident it’s next iteration will be a good one. In a recent statement, found in The News & Observer, CEO David Swanson verbalized that thought, stating that the company will move forward on a “stronger financial foundation.”

R.H. Donnelley’s new approach, about which they aren’t saying much outside of court, should make for a compelling business case, given that the Internet and online searching continues to grow exponentially by the day. With every keyword entered into Google, Bing and Yahoo, the print industry’s oxygen supply dwindles.

Search engine optimization, the act of programming a Web site to ensure its presence in the results of a search for its content or product line, is a multi-million dollar industry that is only in its infancy. Just think for a moment about Google. It dominates any conversation about the power of the Internet. It is one of most prominent companies, on or offline, in the world. Why? Because it made searching for something easier. They created the better mousetrap in what R.H. Donnelley calls “the commercial search” industry.

That being said, R.H. Donnelley may exit bankruptcy swinging, with all guns blazing and ready to kick butt and search for names. Yet, skepticism is to be expected. The News & Observer article (written by David Ranii) stated, “Although the company has improved its debt situation significantly, the revenue picture remains difficult. The company’s revenue fell 18 percent to $534 million in the third quarter while ad sales, an indicator of future revenue, dropped 21 percent.”

Out of bankruptcy, it appears the company will be clinging to its New York Stock Exchange listing, only to hope for the best. The approved plan included 100 percent ownership by the creditors. They were owed close to $6 billion.

The bottom line is that the Internet advertising and online search industries have only become stronger while the company was in bankruptcy. Again, their reorganization plan may call for a complete Web-based business strategy. They certainly have the data and established Web presence with www.business.com and www.dexknows.com to create a number of very comprehensive Web search tools. It can be done. Probably just not in print.

If you live in North Carolina and are facing foreclosure, real help is only a phone call away. Call the Law Offices of John T. Orcutt today to set up your free initial debt consultation. 1-800-899-1414. Call today before it’s too late.

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Published Friday, January 15, 2010 @ 8:44 am

Will California become the first US state ever to default on its bonds in 2010? Last year, Governor Arnold Schwarzenegger spent most of the year haggling with the state legislature to try to come up with a balanced budget. In May, they warned they might go bankrupt if federal government help was not forthcoming – the Obama administration declined to help them out and they went back to the drawing board. Last summer, they issued IOUs to some vendors in lieu of checks. As of December 1, the state had almost 84 billion dollars in long term budget debt.

Just last Friday, Schwarzenegger revealed a new state budget that includes an additional 6.9 billion dollars of federal assistance – assistance the federal government has not yet agreed to give. Schwarzenegger claims that if it’s not received, the state will respond with already decided-upon spending cuts. Those cuts will come on top of deep slashes California has made in its state budget over the last year: hundreds of thousands of workers have been laid off or forced onto unpaid leave, health care for poor children and the elderly has been gutted. These cuts affect millions of people as the poverty rate across California increases: poverty in Los Angeles is now estimated at 20% of the population.

What’s caused this frightening state of affairs? The recession, for one thing. California rode the wave up during the housing boom, with some of the highest housing prices in the nation – it’s now suffering the depths as prices fall. In the town of Merced, for example, housing prices have fallen 70%. 25% of homeowners whose houses are ‘underwater’ – worth less than they owe on the mortgage – live in California. Increased unemployment and decreased revenue lead to lower amounts of taxes – and at 12%, California has one of the highest unemployment rates in the nation.

But California has some problems of its own making too. Ballot initiatives allow the population to vote spending mandates, then leave the legislature to find the money to pay for them. At the same time, one of these mandates requires that 2/3 of the legislature approve any tax increase. Since just over a third of the legislature is filled with Republicans who campaigned on ‘no new taxes’ promises, this is virtually impossible.

Like many people facing finances spiraling out of control, California’s reaction has been: deny, deny, deny. Last spring, voters rejected 5 out of 6 measures to control spending. Republicans blame high waged unions and claim illegal immigrants soak up resources. Democrats point out that there are people paying $600 of taxes per year on property worth millions of dollars, and that corporations, not individuals, have been the biggest beneficiaries of the Proposition 13, the 1978 ballot initiative to keep property taxes low.

So should California declare bankruptcy? Well, no. States aren’t afforded the protections individuals receive in bankruptcy, and there are no exemptions. Equally importantly, it’s a lot harder for a state to rebuild its credit rating than an individual. If California’s bonds get downgraded to junk, its interest rates will soar – leaving even less money to provide services to its population. The people of California are the ones who will suffer.

But what California can learn from bankruptcy is this: states, like people, deserve a fresh start – and sometimes they need it, too. What California should do is convene its first constitutional convention in over a hundred years and draw up new rules. Abolish ballot initiatives that mandate spending. Make it easier to raise taxes. Negotiate with the unions. Then, like anyone coming out of bankruptcy knows, they’ll have a fair chance at a healthy financial future.

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Published Thursday, January 14, 2010 @ 4:37 pm

After the rapid, pre-arranged bankruptcies of several of our country’s largest companies, it seems the federal government is once again on the path toward bankruptcy reform.

This time it doesn’t involve border-line unconstitutional changes to consumer bankruptcy processes. No, this time the effort may include change that some believe will carry even more impact: a specialized bankruptcy court for banks and financial firms that carry the now ubiquitous label, “too big to fail.”

However, there are two approaches to the problem. One option currently being discussed by the Senate Banking Committee, is a law that would create a new legal process designed to accommodate the structured handling of a mega-institution’s collapse. The new law would be part of a larger financial reform bill that is being bandied about in Washington in response to the role our largest financial players had in the onset of the recession.

The ultimate hope is that the new laws will allow these influential organizations to file bankruptcy without creating a worldwide economic tsunami when they come down. Think of it as taking apart an old building brick by brick instead of putting TNT in its foundation. (And then saving the most intact bricks for use in making even bigger, more cumbersome buildings.)

The reform measures, being led by Senate Banking Committee Chairman and Connecticut Democrat Chris Dodd, will enable the Federal Deposit Insurance Corporation (FDIC) to oversee the breakdown of a bank and minimize the impact on other banks.

The FDIC would orchestrate the use of public money (taxpayer’s money) to provide creditors and other involved entities with the debt and assets they are owed. Partial payments and settlements would be expected, of course. Special consideration would also be given to vendors and supplies and third party groups to hedge against their subsequent failures.

Wait, sounds like the establishment of a regular, every day bailout system, right? Sort of. The money used to settle the debts and stabilize the collapse will be put back into taxpayer pockets by fees charged to financial institutions with more than $10 billion in assets.

A specialized bankruptcy court, the other proposal, is being introduced by Sens. Mark Warner of Virginia, a Democrat, and Bob Corker of Tennessee, a Republican. Also on the Senate Banking Committee, their bi-partisan approach would create a court to decide if the FDIC dismantling, or a “resolution process,” or traditional bankruptcy, should be used to handle the shut down. Thus, it’s more of an add-on to existing law.

It still would involve legal wrangling and bureaucratic processes on the part of government bank regulators to determine if the organization’s demise would create enough disaster to warrant that a resolution process is needed. If so, it would be filed with the special bankruptcy court for a final decision.

Should Corker and Warner create an agreeable scenario, the Senate Judiciary Committee would then need to come into the picture, as they handle items related to bankruptcy code reform.

Proponents of a new bankruptcy court believe it would provide the failing organization the most say in its own future, providing a forum for insight on how to best distribute assets and formulate an exit strategy, if possible.

Also weighing in on the matter is the respected Pew Institute, which published a report calling for a Federal Financial Institutions Bankruptcy Court to handle the failure of the largest banks in only the most extreme circumstances. Otherwise, typical bankruptcy laws should remain as the default process.

Brought to you by the Law Offices of John T. Orcutt. With offices in Raleigh, Wilson, Fayetteville and Durham, our experts can handle all of your bankruptcy needs. Call today for a free initial consultation. 1-800-899-1414.

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Published Thursday, January 14, 2010 @ 11:34 am

It’s 2010, the year we take charge, so to speak, of our credit cards. In only a couple of months, credit card companies will have to fully abide by the provisions of the Credit Card Accountability, Responsibility and Disclosure Act (CARD). Some components of the act have already been in action.

Nevertheless, consumer advocates are expecting a slew of new credit card company tactics to increase, damage and elevate our debt, credit reports and heart rates. This is especially frustrating for those trying to re-establish a sound credit rating after bankruptcy. If more fees and restrictions come into play, it will take that much longer to use a credit card as a reputable credit source. (Remember though, this may not be a bad thing. Charge cards are a good way to use plastic and remain on top of your balance.)

We’ve discussed several times on the blog how credit issuers have started to counteract the measures by pushing interest rates just enough to not warrant any additional legislation yet get as much as possible from those Americans who already carry a significant monthly balance. For those with solid credit who manage a small balance over multiple cards, lenders have seized credit limits, decreasing what’s available and consequently creating marks on credit reports.

(It should be noted that action is underway to prevent those specific initiatives from harming a credit rating.)

Here are a few new methods by which credit card companies will be able to gouge their customers.

• Expect many cards to start charging annual fees. Currently, 80 percent of the available credit cards in the marketplace do not charge an annual fee. For those carrying solid credit ratings, annual charges are rare. Reports are coming in nationwide about some banks delivering notices about annual fees, which can in some cases climb to around $100. Other banks will only charge if you fall below a specific balance, which encourages card holders to not pay off a balance in order to avoid additional costs.
• Your one-time fixed rate card may suddenly shift to a variable rate, leaving you open to rapid jumps in balance. This is actually a byproduct of the law that prevents surprise interest rate hikes. Lenders bypassed it by simply creating credit cards with interest rates that will vary on their own. In other words, your card company isn’t deliberately increasing your rate, the market is doing it. Granted, that means your rate can sometimes go down, too. However, take a look at the markets. The Prime Rate is already as low as its been in a long, long time. It’s only going up from here.
• While the CARD act will prevent sudden rate hikes on existing cards, it does not address rate limits on new cards. Clearly, you don’t have to apply to a high rate card but the practice will make it much more difficult for people to obtain cards and also limit consumer choice.
• Scaring consumer advocates the most is the expected new fee strategy. It is believed that the credit card industry will start assigning fees for an array of membership services and card ownership privileges. You may also see vague charges on your statement, not unlike what’s found on most phone bills. For example, keep an eye out for inactivity or minimum balance fees.

Thankfully, consumers’ use of credit cards is at its lowest point in more than two decades. And it looks as if it may stay that way.

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Published Friday, January 8, 2010 @ 8:34 am

Bankruptcy should not be an embarrassing process. It’s bad enough the credit industry has surrounded it with negative stereotypes to make people believe it’s a life-altering decision.

However, for a number of people in Milwaukee, Wisconsin, filing Chapter 13 has become a series of perpetual embarrassments and ceaseless frustration as a result of a healthcare provider making public the medical conditions of patients who have filed for protection when their bills became too much to manage.

A 53-year-old college admissions employee filed Chapter 13 in an effort to clean up a difficult financial period of her life. Susan Dandridge understood that a good deal of private financial information will become public record. However, she did not count on an extensive list of her personal medical conditions being included in the claims filed by Aurora Health Care, a regional medical center to which she became indebted.

When she found out her privacy had been violated, she pursued legal action. In turn, a class action lawsuit was filed as it was revealed that Aurora had done the same thing with other patients’ billing records when submitting bankruptcy information.

This very compelling case not only brings to light once more the role medical bills play in the nation’s personal bankruptcy rate but also introduces the question about what medical information, considered private under HIPPAA laws, can be revealed during the bankruptcy process.

HIPPAA, or the Health Insurance Portability and Accountability Act of 1996, requires strict public protection of an individual’s health history by the entities that handle it, such as insurance companies and hospitals. Essentially, it is in place to protect citizens when medical information is transferred between health care providers or when people switch insurance companies. It is a private entity’s responsibility to protect your medical past.

Unfortunately, in Ms. Dandridge’s case, medical information became very public. Although those specific records have since been sealed, her suit contends they were available for months prior to her realizing they had been exposed. The suit also claims Aurora intentionally disclosed the records because of her inability to pay. Thus, her medical privacy was egregiously violated and, according to the lawsuit, the organization’s actions left her open to medical identity theft.

The lawsuit contends that Aurora could have filed summary information as a way to protect the consumers’ medical background while still adhering to state and federal medical privacy laws. However, the Wisconsin Hospital Association has jumped into the mix, stating that Dandridge’s attorney misinterpreted the law and that such information can be revealed in matters of billing and collections.

The realization that the information was made public came after a separate trustee in a Chapter 7 case noticed the amount of detail in Aurora’s claims and initiated legal action that eventually ended in a settlement. From there, the issue spiraled throughout the community and to those who had financial issues with the organization.

It does not matter whether or not anyone found or used for ill will the medical information revealed in the claims. The mere exposure of them is enough to constitute harm, according to Dandrige’s attorney. He also argues that now that the information is “out there” it is subject to additional exposure by third party companies who scan and archive court records.

It is the hope of Ms. Dandridge and the other class members that the practice of including conditions and reason for treatment in the collections and bankruptcy process be halted on a national level.

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Published Thursday, January 7, 2010 @ 9:24 am

Well, this isn’t really good news: the number of bankruptcy filings by businesses in the U.S. is officially rising faster than the rate at which individuals file.

The less stability in the business world, the less stability in the job market. In turn, meaning that those on the brink of serious financial trouble, may soon go beyond the brink. And, for those trying to make a successful transition out of bankruptcy, the lack of work opportunities are making it exponentially more difficult.

You may be reading about faint signs of recovery from the Great Recession. A rally on Wall Street; rising new home sales and a better than expected holiday sales season. Well, what we are not reading about is the pain being caused by the exceptional unemployment rates. And as long that hovers around double digits, we shouldn’t not expect a full recovery. That’s why more business bankruptcies are a little scary.

A service called Automated Access to Court Electronic Records compiled data that indicated more than 15,000 businesses filed for Chapter 11 bankruptcy in 2009, an increase of 50 percent. Small business Chapter 7 liquidations jumped 38 percent from 2008. Each number, respectively, was more than double the increase between 2007 and 2008.

The rate for individual bankruptcies climbed by only 32 percent. Unfortunately, a large percentage of those came at the hands of unemployment. And in light of the recent news concerning the rate of business filings, it only looks as if the two statistics are going to continue intertwining, wrapping our nation in a perpetual dance of financial misery.

Thankfully, the number of filings for 2009 still remain just below the record set in 2005 before the Bankruptcy Abuse Prevention and Consumer Protection Act was enforced.

In the last two weeks before the reforms became official, 630,000 people filed bankruptcy to avoid the more difficult path to Chapter 7 via the Means Test, a component of the new law that “qualifies” people for Chapter 7.

But now, with Chapter 7 numbers back at their pre-2005 rate, many who had thought they would fail to qualify for bankruptcy are finding out that the Means Test is no big hurdle.

However, the greatest fear to emerge from the increases in both commercial and individual bankruptcies is the notion that the credit industry make begin to seek tougher amendments to its 2005 action or worse yet, lobby for new anti-bankruptcy laws. Scary thought.

Ronald Mann, a Columbia law professor, believes the 2005 law was not warranted and that ” … it was largely ineffective. I don’t think anybody who’s knowledgeable about the bankruptcy system thought the statute was well crafted.”

Recent filings are showing a shifting demographic in the bankruptcy system. When at one time those who made between $40,000 and $80,000 were prevalent, salary ranges of those who file is beginning to grow into the $100,000 to $300,000 range.

There is no denying the connection between business bankruptcies and the rate at which individuals file. It’s all in the jobs report. And as both types continue to impact the country, we need to keep our other eye on the lobbying efforts of the lending and credit industries. There is no telling what they may think of next.

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Published Wednesday, January 6, 2010 @ 8:13 pm

The biggest bankruptcy since Orange County went through it back in 1994 may be coming to an end soon as the City of Vallejo looks to take steps necessary to move out of bankruptcy soon.

City officials for Vallejo filed for chapter 9 bankruptcy in May of 2008. The city had tried to avoid doing so by convincing the local labor unions to accept some salary concessions as the recession really began to take hold. However, since they refused to do so the city was forced to file for bankruptcy as the recession reduced local government tax revenue.

Another town, Desert Hot Springs, was forced to file for bankruptcy when it was hit with a legal verdict it could not cover. Orange County ended up filing in 2001 after some of its investments failed to pay off. Chapter 9 allows municipalities like Vallejo, Desert Hot Springs, and Orange County to reorganize instead of having to liquidate.

Currently the city is due in court with creditors this February, but it is doing what it can to come to an agreement with as many as possible. In late December the city council voted unanimously to approve a series of moves that include raising taxes, freeze bond payments, and slash spending. As it stands the budget for the city is expected to hit $83.5 million in 2014. That would be nearly $30 million more than the city is expected to get in revenue.

Financial conditions for Vallejo are not expected to get any better in the near future either. Estimates currently have the city collected almost one fifth less in property taxes due to home values falling. Administrative workers as well as police have negotiated new contracts with the city in a move intended to help it become more financially stable. Negotiations are ongoing with the labor unions in hopes of finally reaching an equitable arrangement. Next month the city hopes to come to new agreements with electrical workers and local firefighters.

Along with aiding their bottom line by receiving concessions from its employees the city will soon look to the citizens for help in order to cover the $51.6 million in debt that the city has accrued. The city will look to raise $4.5 million through increases in sales and property taxes. Hopes are that an additional $3 million a year can be saved by suspending interest and principal payments from its general fund. The city has already done this once in order to save money (last May- July) before beginning interest payments at a reduced rate of 2%.

Vallejo may not be alone in their troubles. According to a survey taken by the National League of Cities last September, most financial officers expect to see their city’s finances get much worse before any improvement.

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Published Wednesday, January 6, 2010 @ 7:22 am

It’s been a very rough year for media companies, particularly newspaper publishers. An ongoing decline in advertising revenue, huge debt and a continuing inability to obtain additional credit have threatened the industry at large. It should come as no surprise, then, that a number of newspaper publishers have sought protection from creditors through Chapter 11 bankruptcy filings and have been sorting out their financial affairs under the oversight of U.S. bankruptcy courts.

Tribune Co., home to the Chicago Tribune, has been in Chapter 11 bankruptcy since December 2008. A variety of creditors are fighting for control of Tribune Co., chief among them senior creditors led by JPMorgan Chase, which is challenging a bankruptcy court decision to extend the deadline for Tribune Co. to file a new plan of reorganization until February 2010. In turn, JPMorgan Chase and the other senior creditors’ efforts to gain control of Tribune Co. are being challenged by junior creditors.

Philadelphia Newspapers, which owns the The Philadelphia Inquirer and Philadelphia Daily News, also filed for Chapter 11 bankruptcy protection in February 2009. Senior creditors are also fighting through bankruptcy court proceedings to gain control of Philadelphia Newspapers. A three-judge panel of the United States Court of Appeals for the Third Circuit recently heard oral argument on the issue of whether Philadelphia Newspapers’s senior creditors would be allowed to use the amounts they are owed as bids in an auction proceeding, a measure known as “credit bidding.” Philadelphia Newspapers had earlier succeeded in persuading the United States District Court for the Eastern District of Pennsylvania to bar credit bidding in a potential auction proceeding.

Freedom Communications, publisher of the Orange County Register, hoped to exit bankruptcy protection quickly by filing a “pre-packaged” reorganization plan, in which a debtor’s reorganization plan is developed in advance with the aid of its creditors. Unfortunately for those which wished to see the company exit bankruptcy quickly, unsecured creditors successfully challenged the pre-packaged plan and were granted the right to file an alternative plan.

The latest publisher to seek bankruptcy protection in 2009 is Heartland Publications LLC, which filed for Chapter 11 bankruptcy protection on December 22nd. Heartland, which publishes twenty-three daily newspapers, is preparing to transfer ninety percent of its ownership to its senior creditor, GE Capital, and the remaining balance of its ownership to its largest unsecured creditor, the hedge fund Silver Point Finance LLC.

Broadcasters NextMedia Group Inc., Citadel Broadcasting and ION Media Networks Inc. and magazine publisher Reader’s Digest Association Inc. are among other media companies which filed for bankruptcy protection in 2009. The Sun-Times Media Group, which publishes the Chicago Sun-Times, and the Journal Register Co both entered and successfully exited bankruptcy in 2009.

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Published Tuesday, January 5, 2010 @ 6:45 pm

Okay, so this post isn’t exactly keeping with the recent holiday spirit, but it’s a pretty compelling topic given the nature of our blog. And sometimes, it takes extreme colors to paint the right picture.

A Tampa, Florida woman is suing a debt collection company for wrongful death relative to her husband’s 2005 heart failure. Dianne McLeod is charging that the ceaseless and what can rather easily be deemed as remarkably unprofessional phone calls contributed directly to the stress that initiated her husband’s cardiac arrest.

In 2002, not long after her husband had to be airlifted to a hospital because of heart trouble, the following message from an alleged Green Tree Servicing representative was left on the McLeod’s answering machine:

“Stanley McLeod, you need to call Green Tree and get your act together and make your payments on your mortgage and quit playing these games … Why don’t you have that helicopter pick you up and bring that payment to the office?”

Making such a message even more hard to believe is the fact that it was because Stanley could no longer work that contributed to the family’s debt problem. Disability payments were not enough to pay the bills. So the mortgage company hired Green Tree.

The collections company did not create Mr. McLeod’s heart disease. However, Green Tree is accused of calling on some days up to ten times. They were also contacting the McLeod’s neighbors. When they could reach Stanley, he would become so upset with the caller’s tone that he would begin to sweat just listening to them. He would also complain of chest pain after hanging up. His widow is certain the company’s demeanor and highly aggressive approach led to a rapid increase in stress and anxiety on an already strained heart.

Regulated by the U.S. Federal Trade Commission, debt collection efforts are often subject to scrutiny by those in debt. While the laws in place are meant to protect consumers, they are by no means tangible enough to be properly enforced within every debt collection office cubicle in the country. Many collection agents are short-term, hourly employees given a few days of training, a headset and computer-controlled call list. More over, the bonus structure for dollars collected creates a competitive work enviornment, which can easily lead to collection efforts that skirt the federal guidelines. No other industry receives more complaints than debt collection.

A representative for the company flatly denied the company’s attempts to seek restitution from the McLeods contributed to Stanley’s death.

“The collection activity did not lead to his death. The claim is meritless,” said Brian Corey of Green Tree Servicing. “We deny that the content, the number or the timing of the calls had anything to do with him dying in 2005.”

Scare tactics have long been an effective method by which to collect money owed. Heck, it’s the very strategy upon which the mafia is built. Now, that’s a reference used only to demonstrate that when typical collection efforts may not be effective, an inexperienced and frustrated collections agent may be tempted to resort to tactics not considered “above board.” And, it’s a comparison supported by industry analysts.

Billy Howard, the attorney representing Ms. McLeod, said his firm is also representing close to 500 individuals against companies that use, what he deems “Tony Soprano tactics.” Tony Soprano is a fictional mobster who glorified mob life in HBO’s series “The Sopranos.”

Howard states that most consumers, afraid of debt repercussions and stressed to the hilt, do not know which end is up financially, let alone the esoteric laws regarding debt collection. “Scare tactics work. They’ve worked for years. People are scared,” he said.

The McLeod trial will start in January. Happy New Year.

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Published Tuesday, January 5, 2010 @ 1:52 pm

Foreclosure is a common precursor to bankruptcy. More often than necessary, it happens before a family really knows where to turn for help.

Worse yet, those who lose their home in foreclosure continue to spiral into debt and end up filing bankruptcy long after it could have been used to help save their home in addition to relieving them from the agony of overwhelming monthly credit card bills and other debts. Fortunately for many citizens of North Carolina, a foreclosure prevention program has become a model for the nation and to date has assisted more than 2,500 of us from having to give back the property we worked so hard to obtain.

Called the State Home Foreclosure Prevention Project, this unique effort provides those worried about making their mortgage payment a hot line that provides advice, counseling and insight on how to work with your home’s mortgage lender to avoid having to surrender your deed back to the bank. While it certainly cannot help everyone who calls, two out of every three families needing help are getting it. And, more than 5,000 additional mortgages are still being re-negotiated.

It was originally created to assist those victimized by the sub-prime loan mortgage crisis but has since been expanded to help homeowners who have traditional loans but may be struggling with their house payment as a result of other debt forms or unemployment.

It should be noted that this program is not a debt or credit counseling service. It is designed specifically for those affected by the swath of spiking mortgage rates that resulted in the systemic plague of foreclosures nationwide, decimating the national real estate market and bolstering our economic demise.

Similar federal programs, such as the Making Home Affordable plan rolled-out last year, have not met expectations. North Carolina has managed, proportionally, to create an impact. The state banking commission has estimated that the total number of mortgages saved to date has stopped $218 million in property value and mortgage holder losses. Should those families currently working with the program be saved, the totals could more than double that number.

Yet, there remain a number of pain points in the state’s efforts to stave off foreclosures. Chris Kukla, a high level government affairs adviser at the Center for Responsible Lending, stated that a number of mortgage counseling companies and other private organizations are doing a “horrible job” in loan reorganization. Whether it be not hiring enough people to answer call-in questions or simply not understanding the paperwork process and related legalities, many of the efforts that have erupted on to the market at the height of the recession are too profit driven to provide real service.

The importance of this program to those considering bankruptcy is that it can help you alleviate one of your largest monthly financial headaches. Understand of course, that it does not eliminate your mortgage, but simply re-aligns it in a more reasonable payment plan. With this added stability, a troubled homeowner could arrive at a less pressure-driven decision to file bankruptcy and feel more confident in the outcome.

Remaining in one’s home is one of the most important factors for someone who files for bankruptcy protection, despite the fact that the majority of those who file do just that — stay in their homes. It seems that over the years, perhaps since the 2005 changes to the bankruptcy law, or maybe as a result of today’s hyper-sensitivity to the housing crisis, the fear of foreclosure has permeated the mindset of everyone facing financial trouble. Between programs like the State Home Foreclosure Prevention Project and the expertise of the bankruptcy attorneys at the Law Offices of John T. Orcutt, you have more than enough ways by which to remain safe and sound at home.

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Published Tuesday, January 5, 2010 @ 11:46 am

America is a nation of givers. Despite the recession and high unemployment, approximately 80% of Americans continued to give to religious and/or secular charities. Many people who’ve lost their jobs or accumulated large amounts of debt nonetheless continue to struggle to donate to churches and causes they believe in. Perhaps you’re worried that declaring bankruptcy would put an end to your ability to donate. Or perhaps, even worse, you’re afraid that the bankruptcy trustee would be able to recover any gifts you’ve made to your church in the past year.

In fact, bankruptcy laws protect both debtors’ rights to donate and religious charities’ rights to keep donated money. Debtors taking the ‘means test’ to determine whether or not they can file chapter 7, can allocate as much of their income to charity as desired- so long as the charitable giving is in line with past practices, and not merely a strategy to pass the means test. Similarly, Chapter 13 filers can use charitable contributions to reduce their disposable monthly income, and more importantly, reduce their monthly plan payment.

It’s true that a series of bankruptcy cases had surprising and sometimes contradictory findings after the passage of the 2005 bankruptcy act. One prominent case in New York, in 2006, for example, found that Chapter 13 filers could not tithe or make any other donations until they had paid off their credit card debt. However, Congress quickly passed the Religious Liberty and Charitable Donation Clarification Act of 2006, which clarified that Americans filing Chapter 13 do have the right to make charitable donations. It built on another act of Congress, the Religious Liberty and Charitable Donation Act of 1998.

Prior to the 1998 act, bankruptcy trustees frequently sued for the return of charitable gifts. Some trustees argued that charitable deductions to churches were donated without any ‘reasonably equivalent value’ being given in return. Therefore, they should fall into the category of fraudulent transfers – payments made to one person or creditor that are more than what they owe, or what they’re valued for, thus shortchanging everybody else. Bankruptcy attorneys argued no, that in fact the donor does receive something of value in exchange for the donation: preaching, teaching, spiritual instruction, etc. The trustees countered that the donor would receive those things whether or not they gave money. Many bankruptcy courts allowed the trustees to recover the money – which caused great hardship for some charities, who had already spent that money. However, the 1998 act clarified that gifts up to 15% of the donor’s income in the year before bankruptcy are not recoverable. In addition, gifts of more than 15% may be exempt if the debtor can show that these are consistent with their past practices. If you have given 20% of your income to your church every year for the past five years, for instance, the church would be able to keep the entire 20%.

Do note, however that bankruptcy courts can still consider these donations fraud if they look like a deliberate attempt to not pay your creditors. The courts will look at timing, the amount of the payments, and the circumstances surrounding your gifts. So if you’re an avowed atheist who hasn’t been to church in ten years, and you suddenly decide to donate 15% of your income to the Church of the Fallen Brethren the day before you declare bankruptcy – watch out. The court will most likely consider that fraud.

However, if you’ve been consistently donating to your church over the years, declaring bankruptcy shouldn’t hinder your ability to give them your financial support. In fact, bankruptcy could protect this support, and make it easier for you to give to an organization that really matters to you.

Think you may need to consider filing bankruptcy…or know someone who may need to. Keep the Law Offices of John T. Orcutt in mind, a North Carolina bankruptcy law firm offering a totally FREE and confidential initial consultation, with offices in Raleigh, Durham, Fayetteville and Wilson. Just call toll free to 1-800-899-1414 or visit their website at www.billsbills.com for tons of information about every aspect of bankruptcy and bankruptcy law.

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Published Tuesday, January 5, 2010 @ 8:35 am

Last month, the Supreme Court heard arguments in an interesting case about bankruptcy attorneys and free speech. The new bankruptcy law passed in 2005 contains a provision that prohibits bankruptcy attorneys from advising their clients to take on new debt before filing bankruptcy. In United States vs Milavetz, a 73-year old attorney from Minnesota is challenging that law.

The plaintiffs argue that the case represents a clear violation of attorney’s freedom of speech. Constitutional lawyers think this argument has merit: how can it be legal to interfere with a lawyer’s ability to advise his clients? There are legitimate reasons that people thinking about filing bankruptcy might need to take on new debt. In those cases, an attorney’s in a difficult position: does he violate federal law or does he fail in his ethical responsibility to his client?

For example, a debtor who is about to file for Chapter 13 bankruptcy might benefit by refinancing his mortgage, securing a lower rate before he files – in this case, since he’ll be paying less on his mortgage, there will actually be more money to contribute to his Chapter 13 plan. Or the debtor facing bankruptcy might purchase a new, reliable car to insure that he or she can get to work on time. What about an emergency medical situation? There are many situations in which taking on debt might actually be the responsible thing to do – but attorneys are prohibited from pointing these things out.

In oral arguments in the Supreme Court case, the government didn’t deny that there may indeed be circumstances in which someone about to file for bankruptcy could or should take on new debt. The law states that it’s prohibited to advise someone “to incur more debt in contemplation of such a person filing” for bankruptcy. The government argued that, in this case, ‘in contemplation of’ actually means ‘actions taken with an intent to abuse the protections of the bankruptcy system’. The restriction is not, they argue, against lawyers giving appropriate advice; it applies only to helping clients run up huge new debts that will never be repaid.

Really? That’s what ‘in contemplation of’ means? Wouldn’t most people – even most lawyers – read ‘in contemplation of (filing bankruptcy)’ as ’someone who’s thinking about filing bankruptcy’?

Also, it’s important to remember that running up debts you have no intention of paying is illegal: it’s civil fraud for sure, and maybe even criminal theft. All lawyers are already prohibited from advising their clients to do something illegal! Many lawyers feel that the provision was inserted into the bankruptcy bill as part of a whole host of punitive measures against consumers filing bankruptcy and their lawyers.

Of course, this is a very small part of bankruptcy law and doesn’t affect most of the interactions between attorney and client. An experienced bankruptcy attorney is able to give their clients the best advice even if, when it comes to the area of additional debt, they have to be creative about it. Some lawyers, for example, will set out the law in detail for their clients, without actually saying ‘this is what you should do.’ Still, it’s not right – and shouldn’t be legal – for the government to interfere with the attorney-client relationship like this.

Will the Supreme Court overturn the provision? Many observers think so. Others suggest that the court will decide that the provision only prohibits advice that was already illegal. Obviously, we all have to wait and see until the Court announces their decision this spring.

Need to consider filing bankruptcy. In North Carolina, keep the Law Offices of John T. Orcutt in mind. They offer a totally FREE initial consultation out of 4 different offices: Raleigh, Durham, Fayetteville and Wilson. Just call toll free to 1-800-899-1414 or check out their website at www.billsbills.com .

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Published Tuesday, January 5, 2010 @ 6:29 am

The New York Times recently published an insightful article detailing the struggles of homeowners facing foreclosure in the outer boroughs of New York City. At the New York State Supreme Court building in Jamaica, Queens, they come face-to-face with the lawyers representing the banks and the loan servicers that are pursuing foreclosure on their homes. These lawyers oversee large caseloads and don’t appear to the Times reporter have the time to delve into each individual matter.

New York state lawmakers have passed laws requiring lenders to negotiate with homeowners in court. That’s why the court’s docket is full of homeowners facing foreclosure. However, the banks in question, and the loan servicers that represent them, aren’t cutting deals to modify mortgages, despite the efforts of lawmakers to force the banks to do so. As a court referee says in the article, “I have yet to see an attorney for a servicer cut a deal.”

The evidence suggests there isn’t enough incentive for lenders and servicers to try to bargain with homeowners. The federal government has provided small financial incentives to services to allow loan modifications. But, because the servicers also make money from the foreclosure process, especially through fees charged to homeowners, the servicers don’t have as much of a reason to take the federal government’s money.

Even when modification is a possibility, the modification process often breaks down over logistics. For instance, homeowners often struggle to produce all of the paperwork lenders demand to see in order to process a modification. The Times also reports on an initiative to bring the documentation process online, allowing homeowners to store their documents in a database for safekeeping and to electronically track the progress of their modification efforts. A consultant quoted by the Times, however, remains pessimistic, stating bluntly, “[m]arginal improvements are not going to have a significant impact on increasing loan modifications.”

It should be good news for homeowners that the federal and state governments have stepped in to provide incentives for lenders and servicers to modify mortgages. However, an incentive is only an incentive, and sadly, evidence suggests that lenders and servicers generally choose to foreclose rather than modify. If you are a homeowner experiencing difficulty making your mortgage payments or facing foreclosure, relying on modification as a last resort may land you in a lot of trouble.

Filing for bankruptcy, on the other hand, can in many instances protect your home from creditors and keep foreclosure out of the picture. If you have a regular income, a Chapter 13 bankruptcy filing offers the opportunity to catch up on your missed mortgage payments, and your home will be protected by the bankruptcy court’s automatic stay, which stays, or freezes, collections actions, including foreclosures. A Chapter 7 bankruptcy filing may also protect your property, depending on the circumstances and the extent of your other outstanding debt. If you are looking for bankruptcy advice you can trust, do not hesitate to contact the attorneys at The Law Firm of John C. Orcutt.

If you’re one of the many North Carolina homeowners facing foreclosure, contact the Law Offices of John T. Orcutt today to discuss how Chapter 13 bankruptcy can save your family’s home. Call today: 1-800-899-1414.

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Published Monday, January 4, 2010 @ 5:15 pm

If you’re considering bankruptcy in 2010, it’s important to know you’re not alone. In addition to the millions who filed in 2009 or are considering bankruptcy as their last ditch financial New Year’s resolution, most American states could face insolvency in the coming year. As such, it is the “bankrupt state of the states” in the still-unfolding economic crisis that could be a major barometer for all of our ever-fluctuating financial futures.

While California’s credit crunch has been well-reported, Adrienne Gonzalez notes in her Jr Deputy Accountant blog (46 States Could Face Bankruptcy in FY09/FY10) that many municipalities are on the brink of a financial meltdown. According to the Center on Budget and Policy Priorities, 46 states could find themselves bankrupt and destitute by the end of fiscal year 2010. Gonzalez adds:

“States are currently at the mid-point of fiscal year 2009 – which started July 1 in most states – and are in the process of preparing their budgets for the next year. Over half the states had already cut spending, used reserves, or raised revenues in order to adopt a balanced budget for the current fiscal year – which started July 1 in most states. Now, their budgets have fallen out of balance again. New gaps of $51 billion (over 10% of state budgets) have opened up in the budgets of at least 42 states plus the District of Columbia. These budget gaps are in addition to the $48 billion shortfalls that these and other states faced as they adopted their budgets for the current fiscal year, bringing total gaps for the year to 15 percent of budgets….The states’ fiscal problems are continuing into the next two years. At least 45 states have looked ahead and anticipate deficits for fiscal year 2010 and beyond. These gaps total almost $94 billion – 16 percent of budgets – for the 36 states that have estimated the size of these gaps and are likely to grow as gaps are re-estimated in the next few months.”

Many share Gonzalez’s sentiments that the above numbers “look slightly frightening.” Elizabeth McNichol and Nicholas Johnson from the Center on Budget and Policy Priorities, one of the nation’s premier policy organizations working on policy and public programs that affect low- and moderate-income families and individuals, further project that, “States will continue to struggle to find the revenue needed to support critical public services for a number of years.” Citing budget shortfalls in 2010 and 2011, McNichol and Johnson illustrate how the states’ economic plight affect everyday Americans already beleaguered by their own personal recessions.

“In states facing budget gaps, the consequences are severe in many cases — for residents as well as the economy. As the 2009 fiscal year ended and states planned for 2010, budget difficulties have led at least 43 states to reduce services to their residents, including some of their most vulnerable families and individuals. Over 30 states have raised taxes to at least some degree, in some cases quite significantly.”

With the potential for higher taxes and reduced social services, average Americans may continue to suffer from the financial missteps of their home states. However, let the negative numbers above be a positive lesson that, from the largest states to the bankruptcy bound individual, a fresh chance to rebuild the finances is really what bankruptcy is all about! To learn more about the benefits of bankruptcy, visit The Law Offices of John T. Orcutt online today.

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Published Sunday, January 3, 2010 @ 6:56 pm

Like many airlines in the United States, Japan Airlines Corporation has been struggling, possibly since the company was privatized more than twenty years ago. Stock for the nearly 60 year old company and the flag carrier for Japan hit a record low on Wednesday as fear that the company would soon be undergoing restructuring as part of a bankruptcy filing. At one point during trading the stock had sunk as much as 32% from the starting price for the day.

To avoid a bankruptcy the airline is trying to do what it can to cut operating costs as it attempts to recover from the global recession. JAL claims that it lost $1.5 billion just from April through September of 2009. Executives plan on cutting routes and jobs in the near future. Retirees may soon see their pensions reduced as the company tries to cut costs wherever it can.. The company is also seeking its fourth government bailout this decade.

Reports from Japanese news sources say that a group backed by the government aimed to aid in corporate turnaround had recommended that creditors allow the airline to begin the process of entering bankruptcy proceedings. However, it has also been reported that the creditors have rejected the proposal. They are afraid that losses would only continue to increase and that operations may not continue to operate smoothly. A final plan to help the airline is supposed to come from the corporate turnaround committee by the end of January.

Some well known airlines are trying to extend their Asian service by gaining an interest in the troubled company. Currently, JAL is part of the one world alliance with American Airlines. Delta has been trying along with its partners to lure Japan Airlines away from American by offering it $1 billion.

Government officials say that they cannot allow the airline to fold, but have not ruled out allowing it to seek relief through filing for bankruptcy.

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Published Tuesday, December 29, 2009 @ 6:00 pm

It hardly seems fair.

Those needing help with a bad mortgage that can be blamed on banking industry profit strategies are now faced with the problem of having their credit ratings ransacked as a result of enrollment in a federally-backed mortgage modification program.

The subprime mortgage crisis forced hundreds of thousands of Americans into bankruptcy or foreclosure. As the government realized, despite its public reticence, that it played a tremendous role in the state of its citizens’ bleak checking accounts, it announced the creation of the Making Home Affordable program, a concerted effort to offer banks financial incentives to adjust their customers’ mortgages at more favorable terms to the customer.

In the program’s wake arose countless private organizations and state-run mortgage assistance efforts. However, deep under the surface of the seemingly endless field of good will grows a bitter small seed of realization that your credit rating will experience increased erosion by entering into a mortgage modification plan… As if the impact of missed home payments and additional debt wasn’t already hard enough to swallow.

Jason Axelrod, a Chicago city employee, was one of many Americans who recently realized that seeking mortgage help would lead to negative consequences. He enrolled in a trial modification a number of months ago, at which point he sustained a reputable credit score of 750. With overtime cut and a quick jump in property taxes, it became increasingly difficult for him keep his monthly payments on track. The mortgage modification adjusted his payments by $565.

Trial modifications are generally intended to last a few months while banks and program representatives collect paperwork and gauge the homeowner’s ability to handle the new payments.

Eight months later, Jason remains in a morass of confusing paperwork and has yet been able to provide his lender with the appropriate paperwork to finalize the trial plan into a permanent one. Oh, and his credit score, despite no additional big ticket items or debt troubles, has dropped by more than 100 points. He was recently offered a car loan at 12 percent interest. He had previously enjoyed a low rate of 4.7 percent.

It is during the trial period that industry guidelines require lenders to report information on those enrolled. Specifically, the credit bureaus want to know a borrower’s status before entering the program. And it is in this reporting effort where the less-than-above-board practices of the credit bureau come into play. Essentially, to the folks at Equifax, Experian and TransUnion, the mortgage modification enrollment process is simply another credit checkpoint, supplied by the government, that they use to collect information on consumers. It’s like shooting debtors in a barrel.

A jointly devised coding program was installed to signify a borrower’s status as a “partial payee.” The presence of this code alone is enough to negatively impact credit standing. The full scope of its impact is based on a number of mortgage payment factors, such as number of missed payments before enrolling in the assistance program.

However, according to the Treasury Department, even those who were current on their mortgage could see their credit score cut by 100 points, simply because they chose to enroll in a program offered by the government.

At the start of September 2009, 24,000 people current with their mortgage entered into trial modifications. Just after Thanksgiving, the total number of trial modifications was just under 700,000. That’s a lot of credit reports. And most likely, a lot of frustration.

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Published Monday, December 28, 2009 @ 4:40 pm

Student loans are the source of many an American’s debt woes, especially in today’s down economy. If you have ever looked into discharging your student loan debt through a bankruptcy filing, you have discovered that, while not impossible, discharging student loans in bankruptcy is extraordinarily difficult.

Student loans are not dischargeable in bankruptcy unless continued payment of those loans poses an “undue hardship” under Bankruptcy Code Section 523(a)(8). While the term “undue hardship” is not defined in the statute, in practical terms, the “undue hardship” standard has been applied extremely strictly. Speaking in broad terms, student loans cannot generally be discharged unless the debtor in question is physically unable to work and is unlikely to be able to obtain gainful employment anytime in the future. In fact, one federal judge has referred to the “undue hardship” standard as the “let’s make it as tough as humanly possible to discharge a student loan” standard.

The federal government actually made it harder for debtors to discharge student loans in bankruptcy in 2005, when the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) was passed into law. Prior to BAPCPA’s passage, privately funded student loans, as opposed to federally funded and federally guaranteed student loans, could potentially be discharged in a Chapter 7 bankruptcy proceeding. Under BAPCPA, the “undue hardship” standard applies to all student loans, whether federal loans or private loans.  

In one recent case, Educational Credit Mgmt. Corp. v. Bronsdon, a court ruling on the bankruptcy proceeding of a particularly luckless recent law school graduate chose not to make things any easier for her. Denise Bronsdon was sixty-one years old when she entered the Southern New England School of Law in 2002. Although she graduated in the top half of her class, she was unable to pass the Wisconsin bar exam upon her graduation in 2005, After failing the exam three times and finding herself unable to pay to take the exam again, she worked some temporary jobs, but was unable to find full-time employment and filed for bankruptcy. 

Ms. Bronsdon succeeded in convincing a Massachusetts bankruptcy court that her loans constituted an undue hardship. Her lender, however, appealed to the United States District Court for the District of Massachusetts. The District Court then ruled that the bankruptcy court erred when it failed to include the fact that Ms. Bronsdon chose not to participate in the D. Ford Direct Loan Program’s Income Contingent Repayment plan in its undue hardship analysis. The bankruptcy court concluded that the loan repayment assistance program should not be part of the analysis because her participation in the program could have resulted in serious tax liability, but the District Court held that the bankruptcy court’s conclusion as to Ms. Bronsdon’s future tax liability was overly speculative. 

The District Court remanded the case to bankruptcy court and instructed the court to consider the loan repayment assistance program in its undue hardship analysis. In related news, the Supreme Court of the United States recently heard argument in United Student Aid Funds, Inc. v. Espinosa, a case in which a lender sued to challenge the confirmation of a debtor’s Chapter 13 bankruptcy plan years after its approval by a bankruptcy court because the bankruptcy court did not apply an undue hardship analysis in ordering the discharge of interest owed on the debtor’s student loan debt. The Court will decide whether an undue hardship analysis was necessary for the bankruptcy court’s approval of the debtor’s bankruptcy plan and its subsequent discharge of his student loan debt to be valid and final. 

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Published Monday, December 28, 2009 @ 12:36 pm

Across the nation, there has been a dramatic increase in bankruptcy filings as more and more people are out of work or underemployed and unable to meet their financial obligations. Nowhere is this economic decline more evident than the state of Michigan, where both unemployment and bankruptcy figures have risen dramatically.

The state of Michigan has had the dubious distinction of having the highest unemployment rate in the nation, 15.3 in September. A glimpse of hope has been seen over the past couple months which have seen the rate drop to 15.1 in October. That number fell further, to 14.7 in November, as 16000 people became employed and the unemployed ranks closed by 20000. The unemployment rate for the nation dropped down to 10% in November.

Citizens of Kalamazoo, Michigan, like much of the nation, have been beset by economic woes over the last few years. Much of the state has been severely hit by the economic crunch with the woes that have hit the auto industry, a major employer throughout the state.

The U.S. Bankruptcy Court in Grand Rapids handles bankruptcy filings for Kalamazoo County. Through the first eleven months of the year over a thousand cases (1084 to be exact) were heard. This number was an increase of 13% over the previous year. The major source of bankruptcy filings came from the consumer sector as they increased by 16% over the last year from 960 through the end of November (from 830).

Kalamazoo County also falls under the purview of the Western Michigan District of the federal bankruptcy court. For the first eleven months of 2009 there were nearly 15000 bankruptcy cases filed in the district. As could be expected the vast majority were of the personal nature, Chapter 7, which totaled 13,278 up to this point in the year. Over 1600 filed for Chapter 13 protection with an additional 55 cases being filed for Chapter 11.

Many local attorneys say they have not seen this much work since the rush of filings back before the new law was passed back in 2005. Although there have been improvements in the recent unemloyement numbers across the state there is little evidence that relief will come to the beleagured state or Kalamazoo county any time soon.

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Published Monday, December 28, 2009 @ 7:10 am

The New Year is a few days away. And without doubt, millions of Americans will welcome 2010 with grand hope, desperate to put 2009 far behind them, the year the Great Recession took hold of our collars and shook us into submission. Unfortunately, many Americans will greet the end of the 2000’s first decade still in debt and financially directionless.

But that doesn’t have to be the case.

Bankruptcy, despite all you may think you know about it, can make 2010 the year you really start over, the year things become as you make them, the year you regain control.

The federal government is reporting that with 2009’s end, so goes the worst national economic era to strike the 50 states in decades. Much of this optimism, unfortunately, has failed to provide security. The talus is simply too loose, the slope too steep and the edge too precipitous for Americans to feel confident in the footholds being provided. Unemployment continues to shroud our workforce in a cloak of despair and frustration. All the positives can be too easily brushed off as temporary, government-designed band-aids that do nothing for long-term care and instead will soon peel off, exposing our credit card cuts and sub-prime avulsions to additional economic bacteria.

However, treatments are plentiful. And bankruptcy is one of them.

The bankruptcy process, when handled by a competent, established attorney, is a very respectable way to handle the stress and prevent the longstanding financial damage that un-attended-to debt can do to a family.

Most people who give thought to bankruptcy quickly brush it off as an escapist’s tool; something the irresponsible do to cover their mistakes. Well, if you were to start asking around, it would take little time for you to uncover that most of those who have filed for protection are professional, educated and careful with their money. You will also find that things like sudden unemployment, medical bills and emergency life expenses do not discriminate. They affect everyone and if we were universally prepared for those types of setbacks, we wouldn’t need the bankruptcy code.

Back in 1934, the U.S. Supreme Court established the need for a federal measure that could assist the honest debtor in repairing their economic wherewithal. That same year, an opinion was written on the matter that said:”(Bankruptcy) gives the honest but unfortunate debtor … a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.”

A few years ago, the lending industry powered a major revision to the bankruptcy code called The Bankruptcy Abuse Prevention and Consumer Protection Act. Despite its title, it was designed to make filing bankruptcy more difficult. It was meant to perpetuate the stigmas and make people less tolerant of those who have to file.

The law changes included the “Means Test,” which was designed to qualify a person for Chapter 7. If you made too much money, suddenly you are not eligible to file under the same guidelines as others. The questionable constitutionality aside, the law served to make the bankruptcy code that much more tedious and frustrating for people. Without question, it prompted many people to avoid filing altogether and made the protection of our established laws that much more difficult to obtain. But don’t buy into the myths or the hype. For 99.9% of you, bankruptcy is still a valid option. And the Law Offices of John T. Orcutt know how to make the new bankruptcy laws work for you!

If you want 2010 to ring in on a positive note, don’t do what you did in 2009. Let facts drive your decisions, not misappropriated stigmas and half-truths. It’s your New Year, give yourself a reason to make it a happy one.

In North Carolina, contact the Law Offices of John T. Orcutt. 1-800-899-1414.

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Published Sunday, December 27, 2009 @ 5:31 pm

If the present economic environment wasn’t Scrooge enough, just in time for the holidays, it appears the Obama Administration’s Making Home Affordable foreclosure prevention plan has failed to meet its goal of helping millions of Americans avoid foreclosure.

In fact, according to a recent Treasury Department report, 27 percent of the 650,000 homeowners taking part in the mortgage modification program are now delinquent on their mortgage payments.  Reflecting the mortgage industry’s aversion to permanently modify mortgages, of that number, only 1,711 participating homeowners attempting to avoid foreclosure have been able to convert their modifications to permanent status. Homeowners facing foreclosure and needing help to secure a loan modification were encouraged to visit http://www.makinghomeaffordable.gov.

Crunching these paltry numbers translates into even more disturbing results for many seeking good news about federal mortgage relief and a way to save their homes.  According to Shahien Nasiripour’s recent report in The Huffington Post, results of the President’s $75 billion foreclosure program mean that, for example, out of every 100 homeowners who came to JPMorgan Chase for modification assistance under Making Home Affordable, just 15 have or will likely receive a permanent payment reduction. So, what happened to the other 85? Nasiripour says:

“for every 100 trial plans initiated from April through September 2009 under the Home Affordable Modification Program:

• 29 borrowers did not make all required payments under their trial plan;
• 20 borrowers did not submit all documents required for underwriting;
• 31 borrowers submitted all required documents but the documents did not meet HAMP underwriting standards, due to such things as missing signatures or nonstandard formats;
• 4 borrowers were or are likely to be rejected for undisclosed reasons;
• 1 borrower will not or is not likely to get their payment lowered.”

This Huff Post data comes from the prepared remarks bank officials planned to make before the House Financial Services Committee. The testimony was posted on the committee’s website.

To date, critics say the response of legislators and the Treasury Department to this dire news has been sorely inadequate. While several weeks ago mortgage lenders were threatened with losing access to precious incentives if they didn’t increase permanent mortgage modifications, with millions of homeowners facing foreclosure, failing banks still received billions in bailout money with no real implications for not helping the same struggling borrowers, and by extension communities, avoid the negative impact of foreclosure.  While the Treasury Department has recently extended the modification program, this system on its own appears to have provided few long-term solutions to this continuing housing crisis.

To help homeowners avoid foreclosure in the long-term, industry insiders and other commentators insist legislators will need to force banks to modify mortgages in ways that are affordable over the long-term. Since many the rising numbers of unemployed homeowners are unable to pay their mortgage even with unemployment insurance benefits, one suggested change would be to allow unemployed homeowners a mortgage deferment while they’re looking for work.

Homeowners who are having difficulty making their mortgages may be considering filing for Chapter 7 or 13 bankruptcy protection. Another option for legislators is giving the bankruptcy courts the power to modify these same underwater mortgages during Chapter 7 and Chapter 13 bankruptcy.

As American homeowners languish waiting for more immediate mortgage help, many are turning to bankruptcy to stop foreclosure and other creditor actions. For reliable bankruptcy advice that you can trust, contact The Law Firm of John T. Orcutt. And to find out more about your bankruptcy options, visit The Law Offices of John T. Orcutt’s “Things to See and Hear” information.

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Published Sunday, December 27, 2009 @ 2:21 pm

Recently one of the largest radio broadcasting companies in the nation, Citadel Broadcasting, entered into bankruptcy proceedings. Now it appears as if there may be other media giants following in Citadel’s footsteps with NextMedia Group and Heartland Publications looking to file for bankruptcy as well.

This has been a bad year for media organizations all around. Earlier this year the well known Reader’s Digest Association filed as well as television broadcaster ION Media Networks and the Sun-Times Media Group (a newspaper company). So far, only ION has announced that it will be coming out from bankruptcy; this after they managed to get rid of nearly $3 billion (2.7) of preferred stock and debt.

Not only has the current poor economy made life difficult for the media, but having to compete with the internet has made things hard as well. Many of these companies also took on a large amount of debt right before things began to get bad. Such was definitely the case with Citadel as it took on a rather large amount of debt in order to purchase the Walt Disney Company’s ABC radio station (but not ESPN or Radio Disney) back in 2006.

Like Citadel, both NextMedia and Heartland have filed prearranged bankruptcies meaning that the already had come to an agreement with their creditors before filing. This form of bankruptcy filing is preferred in business since it tends to be less expensive, much quicker, and does not disrupt continuing business operations nearly as much.

NextMedia, an operator of nearly 40 radio stations claimed between $100 million and $500 million in debt when they filed. When all is said and done the control of the company will end up being in the hands of several creditors. Much of their debt will be paid in full while a good percentage will also be turned into equity in the company. The company does not expect any major changes to occur or any disruption of business to happen either. After proceedings are done they will be down to about $128 million in debt remaining.

Like NextMedia, Heartland Publications filed for bankruptcy in Delaware (chapter 11). They put the blame on a decline in advertising revenues along with the rise in competition from internet news sources. The company runs about 50 small town newspapers. Agreements with their creditors, namely GE Capital, will end up cutting their debt nearly in half.

Citadel, owner of 224 radio stations, came to an agreement with most of its lenders that will allow them to use their new secured credit facility to get a $762.5 million loan. The agreement will also see the elimination of about $1.4 billion in debt. However, the current shareholders will essentially get nothing for their investment as 90% of the stock in the newly formed organization will go to creditors. When it filed, Citadel listed assets valued at $1.4 billion with debt of $2.5 billion meaning nearly 60% of the debt will be erased.

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Published Sunday, December 27, 2009 @ 10:10 am

A common practice for many businesses and individuals is to make charitable contributions that can then be used as a tax deduction. Whether the motivation be a tax benefit or true philanthropy, many organizations depend on these contributions.

The contributions that Joe Kimmel has made to two local universities in western North Carolina are likely to come to an end soon as the philanthropic business man has filed for personal bankruptcy protection as well as protection for his company, Kimmel and Associates. Kimmel is the sole owner of Kimmel and Associates, a company that specializes in executive searches for the construction industry. Exactly how the two bankruptcy filings will affect the donations he has pledged to two universities remains to be seen.

Kimmel has pledged a combined $9 million to the University of North Carolina at Asheville and Western Carolina University. A new basketball arena was to be constructed in Asheville and a new construction college at WCU.

He made his pledge to Western Carolina University back in December of 2005. He was supposed to be donating $6.92 million to go to the construction of the Joseph W. Kimmel School of Construction Management, Engineering and Technology. The donations were to be spread over an eight year time frame.

Information has yet to be obtained about the $2 million Kimmel donated to the University of North Carolina in Asheville. The convocation center for the Center for Health and Wellness at the University is set to be named after Kimmel.

While Kimmel and his business will likely come out of the bankruptcy court in good shape the same may not be said for the construction projects already underway by both universities. It is almost a certainty that any future contributions will be out on hold as Kimmel and his company regain their financial footing. None of the nearly hundred employees of Kimmel and Associates are expected to lose their jobs.

At least three of the payments to Western Carolina have already been made. Bankruptcy law permits a Trustee to recover amounts contributed to a charity if the contributions were made with an intent to defraud creditors. While the true motivation of Kimmel’s contributions are probably not of a fraudulent nature, it is certain that no future contributions will be made. This will leave the school scrambling to obtain additional funding to complete the projects.

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Published Thursday, December 24, 2009 @ 7:26 pm

Medical debt is one of the nation’s largest bankruptcy stimulants. Hospital stays, exotic medications and steep monthly premiums have helped fester a plague of debilitating debt obligations that is said to affect millions of Americans.

Today, on what may eventually be considered an historic day for American government, the United State Congress may have found a cure. Or at the very least, it could be argued that the political chemo drip that has been hanging over the country’s head for almost a century has started to have an effect.

On the eve of our country’s most recognized reason to come together with families and to celebrate life’s little importances, like health and happiness, the United State Senate approved a healthcare reform bill that contains some of the most sweeping changes ever introduced to the $2.5 trillion healthcare industry.

In its current dosage, the bill will broaden medical coverage to 30 million citizens currently deemed uninsured. Once in place, 94 percent of the country will be covered. The bill also introduces provisions that will require industry providers to cease denying coverage to people with existing medical problems.

Other highlights include the requirement for most Americans to have coverage, a subsidy program to assist those unable to pay for an entire plan and a system of state-run insurance exchanges in which people can compare potential insurance products.

Every year, more Americans file bankruptcy because of medical debt. Quite often, even those with good coverage find themselves unable to cope economically with the burden of sickness. The American Journal of Medicine reported earlier this year the number of families in debt because of hospital bills is growing quickly. Specifically, the organization’s report cited that 62 percent of all bankruptcies in 2007 were rooted in medical obligations. And that was before the recession’s tentacles were able to fully strangle the country.

Most of those surveyed in the report were college educated and middle class. Here are some more stats:

• Unaffordable bills were directly attributed to 92 percent of medical bankruptcies
• Loss of income due to illness caused 40 percent
• A quarter of all business that provide health insurance benefits cancel them when an employee experiences a serious illness
• An additional 25 percent cancel medical health benefits within a year of onset of an employee’s medical problems

The debate on medical insurance reform is far from over. In fact, it will never end. Today’s measure will ignite an entirely new litany of political diatribes, grandstands, agendas and campaign platforms.

The majority of Republicans are remaining firm on their stance that the bill is an intrusion into the private sector and a government power-grab, arguing also that it will increase the budget deficit and slash a patients’ right to choose how they are covered.

Additionally, with the President’s approval rating far below from where it ballooned just after his election almost a year ago, critics are using the health care bill debate as a pulpit from which to preach about broken promises, expanding government and un-accounted for policy blunders. No doubt the political haggling will slow the bill’s ongoing maturity.

In the end, the bill is about providing American’s with a reasonable shot at being able to financially afford being sick. Sure, there is not much talk about prevention, maintaining personal health or altering the lifestyle habits that contribute to the economic weight of our medical bills. But at least the problem has finally reached its spot in the limelight. And from here, it looks as if the only direction left to go, is up.

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Published Sunday, December 20, 2009 @ 2:45 pm

The full extent of the new credit card legislation will not kick in until February 22. And since its announcement, many of us have been experiencing the credit card companies’ efforts to remedy the government action.

For example, card companies are quickly pushing interest rates, doubling minimum payments, sneaking in fees and lowering credit limits, even for cardholders with solid credit histories.

Back in August, the first wave of reform took effect, requiring card issuers to provide additional notice of account changes, such as rate changes or fee hikes. In February, the second wave will impart on card companies the responsibility to limit interest rate increases on current balances. Next summer will see the final phases of the law involving reduced fees.

Truthfully, if you have thought about bankruptcy recently but are holding out hope that these new laws are going to fix your credit card debt problems, we have news for you: you need to call us. And quickly. Your bills are only going to continue to mount and could even get worse. Because the folks on the other side of your Visa, MasterCard and Discover statements still have ways to encourage you to spend and at the very least, know how to continue to make additional money off of your monthly balances.

While the new legislation will prevent credit card companies from jacking your interest rates on an existing balance, they will still be able to raise your rate after a late payment or other form of “agreement violation.” And, they can raise those rates by any amount they deem reasonable. Rest assured, their definition of “reasonable” is not the same as ours.

One of the loopholes in the new legislation (called the CARD act) is that it only addresses existing fees and rules. Card companies can create new fees at will. A representative with www.lowcards.com, a Web site devoted to helping consumers understand credit cards, recently stated, “Theoretically, they could create a fee for names that begin with ‘J.”

Annual fees, online access fees, inactivity charges—you name it, could become familiar numbers at the bottom of your monthly statement. Fifth Third Bank starting using a $19.00 inactivity fee if a card is not used for 12 months and Citibank is implementing fees for some customers who don’t spend more than $2,400 a year.

Credit card issuers will also be doubling minimum balance payments and in some cases, by even more. For a person carrying a $5,000 balance, that payment, typically at 2 percent, could be as much as $250, which amounts to 5 percent of their balance. For many, this could be the scariest component of a card company’s profit strategy, as most cardholders use the minimum payment as a benchmark for staying afloat.

Thankfully, Washington has recognized the practices underway in the credit card industry and proposed, under House Financial Services Committee Chair Barney Frank (who else?), the Consumer Financial Protection Agency. The purpose, among many others to be sure, of this regulatory entity would be to approve credit card fees.

Credit card companies might want to exercise caution as they proceed, however. This is the age of the vocal consumer. Viral ground swells of protest can flow quickly via the Internet, especially through social media pathways. A woman recently posted her disgust with Bank of America’s actions relative to a interest rate hike on YouTube. It resulted in her rate being reduced to its original amount.

Does that give you any ideas?

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Published Sunday, December 20, 2009 @ 8:22 am

Creditors around the country probably still secretly wish that Debtor’s Prison still existed so that they could send all the people that do not pay their bills there. Thankfully, the founding fathers had the foresight to do away with such an antiquated notion back when the country was formed and even provide the foundation for the bankruptcy laws that we now have today.

Little do most people know but the founding fathers were not the best at managing their own finances as they were in managing a war for independence. After all, these people did dump thousands upon thousands of dollars in tea into Boston Harbor! Most people are not aware, but the third president of the United States, Thomas Jefferson, was on the verge of bankruptcy for many years.

Luckily our founding fathers had the understanding that financial turmoil could strike any American, usually honest people that made a few too many mistakes or fell on hard times that would have trouble making ends meet and fulfilling their financial obligations. The first law allowing for people to wipe their debts clean was passed in 1800, but the power of business was evident even then and the law was repealed three short years after it was enacted. States tried to follow suit by enacting their own bankruptcy laws, but the Supreme Court quickly put a stop to this exercise.

The first federal law to pass that helped debtors came about in 1833. However, it was not until 1841 that bankruptcy laws became more of a remedy for debtors than creditors. Much like the law in 1800 though, this one was abolished three short years later as well. Another effort lasted a few years longer following the end of the Civil War with the passage of the Bankruptcy Act of 1867; eleven years later business interests once again prevailed as the law was done away with.

The underlying rationale for the repeal of each bankruptcy law was that it should be up to the creditor and/or the court if someone should be able to declare bankruptcy and wipe out their financial obligations. It was not until the late 1890s that the idea that honest people should be allowed a way out from the financial hole of too much debt without the creditors/ courts giving the okay. This unconditional discharge finally became law with the passage of the Bankruptcy Act of 1898.

Creditors undoubtedly still try to get this law overturned. It worked at other times in history so why not? However, in a country founded on the concept of new beginnings the concept of being allowed to escape persecution of a financial nature appears to have become an inherent right.

So when you are pondering the decision to file for bankruptcy keep this in mind: it took nearly a hundred years for that right to be secured; it is yours- use it. Also, if it was good enough for Thomas Jefferson than it is good enough for you too!

If you are in North Carolina, talk to the experienced bankruptcy attorneys at the Law Offices of John T. Orcutt today to discuss how bankruptcy can help you save your family home from foreclosure, decrease your auto payments, and get rid of your burdensome credit card debt once and for all. Call 1-800-899-1414 today to set up your free initial consultation. Convenient offices in Raleigh, Durham, Fayetteville and Wilson.

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Published Saturday, December 19, 2009 @ 4:18 pm

One would think that with the country going through the worst economic downturn since the Depression years that the government would be a bit more concerned with people trying to commit fraud when they file for bankruptcy. Yet in the last fiscal year (ending September 30) the government had conducted the fewest number of fraud investigations since 1986.

In the last fiscal year the number of people filing for bankruptcy has increased by approximately 30 to 35%; nearly 1.4 million people filed in fiscal 2008. This increase comes on the heels of two years (2006 and 2007) in which there was a decrease in filings. That was due to laws being passed in 2005 making it more difficult for people to file and be approved for bankruptcy (with the aim of decreasing the number of people trying to file). As economic times worsened that number was bound to come up like it did.

With such a dramatic increase it would seem logical that the government would increase the number of agents involved in investigating bankruptcy fraud cases. Instead that number has seen a reduction. Ever since the terrorist attacks on 9/11 the government has been dedicating more resources to national security. This has inevitably led to fewer agents available to investigate white collar crimes. Since there are fewer agents, they have been forced to prioritize their efforts.

White collar investigations have been geared towards larger criminals than potential fraudulent bankruptcy filers. The focus has been more towards stopping securities and mortgage fraud and the next Bernie Madoff from getting away with $65 billion of honest peoples’ money. Whenever the FBI has been able to assign more agents to white collar crimes it is typically for securities or mortgage cases. Bankruptcy fraud does not even register in the top five as far as investigation priorities go according to the section chief for financial crimes in the Washington FBI office, Sharon Ormsby.

For the fiscal year ending September 30, the government had investigated 82 cases which they looked upon as bankruptcy fraud. There could possibly be other cases involving bankruptcy fraud, but that would be where the bankruptcy fraud would be secondary to a larger crime, i.e. securities fraud. Numbers from 2003 estimated that a potential 10% of cases filed were fraudulent to some extent. It would be hard to tell right now with such limited resources whether or not that number is any better or worse.

Some judges have found it a little frustrating. Whenever they are suspicious that fraud may have been committed in a case they can recommend that the FBI investigage, but clearly there are not enough resources directed toward the problem.

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Published Saturday, December 19, 2009 @ 10:10 am

Back in 2005, credit card companies were convinced – or at least tried hard to convince everyone else – that there was a bankruptcy crisis in the United States. Bankruptcy rates had doubled since 1980, they pointed out. ‘Shopaholics’ were charging everything under the sun and then declaring bankruptcy, forcing the credit card companies to eat their debt. They then had no choice but to pass these expenses on to consumers in the form of higher fees and interest rates.

In 2005, the major banks spent tens of millions of dollars lobbying Congress to make it harder for consumers to declare bankruptcy. Despite protests from lawyers, judges and law professors working in the system, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act. Insiders pointed out that the law was essentially written by the credit card companies; a single law professor and four credit industry lobbyists actually wrote the legislation.

Nearly everyone agrees that the laws made filing for bankruptcy more burdensome for debtors. Perhaps the most pernicious element, and the one the credit card companies fought hardest for, is the means test. The means test looks at your prior six months of income to determine whether you qualify for Chapter 7 bankruptcy. If your income is too high, you may need to increase certain expenses which qualify as deductions (much like tax deductions). If your income is still too high, you may need to file for Chapter 13 bankruptcy, which offers the same relief as a Chapter 7, but requires a payment plan. The Chapter 13 payment plan can last anywhere from 15 months to 5 years, depending on your particular jurisdiction.

A boon for the credit card companies and consumers who pay their debts, right? Well, certainly the credit card companies did well for a while– their profits rose thirty percent between 2005 and 2007. However, the decline in interest rates and fees they promised would accompany this never happened – in fact, interest rates and fees increased over this period. Things got so bad that Congress finally passed another bill last May, this one regulating industry practices: they set limits on credit card fees and interest rates and will require lenders to be transparent in their communications, starting in July of 2010.

More importantly, recent studies suggest that the new bankruptcy law may have contributed to the rise in foreclosures – costing the banks billions of dollars – and to the housing crisis in general. Now that many consumers mistakenly believed that bankruptcy was not an option, in many cases they simply walked away from their homes instead of declaring bankruptcy and continuing to make their mortgage payments. Feeling that they couldn’t make both their mortgage and credit card payments, they may have opted to make neither. As foreclosure rates rose, slumping housing prices feel even further. Neighborhoods with a number of foreclosures went into deep decline. Banks lost money, the country slid into recession.

Does this mean that the bankruptcy law caused all of this? No, of course not. Many factors contributed to the recession, included the derivatives trading on Wall Street, the government trying to finance two wars without raising taxes, etc. However, it is clear that the idea that banks would pass on savings to consumers was unrealistic. It’s also clear that removing consumer options resulted in financial decisions that ultimately hurt the banks as well as consumers. (Other studies argue that stringent bankruptcy laws discourage risk and entrepreneurship; it’s no accident that many countries in the EU are loosening their bankruptcy laws during this recession.) The obvious conclusion is that Congress, and not the banks, should write laws. And that they should listen to the experts – in this case, the lawyers and judges involved in bankruptcy proceedings – instead of lobbyists with an agenda.

The good thing is that, in many jurisdictions, judges have construed the new law in favor of debtors. The means test is not bullet proof, and Chapter 7 is still a viable option for most consumers. And with the rising tide of delinquent mortgages, Chapter 13 bankruptcy remains the best way to save your family’s home. Contact a bankruptcy attorney today and get the truth about bankruptcy. And visit http://www.billsbills.com/truth_bankruptcy_book.php for more of the truth.

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Published Tuesday, December 15, 2009 @ 1:48 pm

In these painful financial times, the toughest bind facing many Americans is financing their well- being. While it’s vital to stay healthy and seek medical help when necessary, with health care costs on the rise and health care reform largely in limbo, the results of putting wellness over wealth can be financially devastating.

As the New York Times reported, (from the November 25, 2009, article “From the Hospital Room to the Bankruptcy Court” by Kevin Sack), many Americans are merely “one accident or illness away” from a “medical bankruptcy.” And while there is no medical bankruptcy per se—rather merely a standard filing that includes the wiping away of medical bills—more and more people are filing for bankruptcy because of these bills with the ubiquitous term “medically bankrupt” having become largely a sign of the economic times. “This has really become the insurance system for the country,” said Susan R. Limor to the New York Times in the same article. Limor is a bankruptcy trustee who calculated that 13 of the 48 Chapter 7 liquidation cases on her docket included medical debts of more than $1,000. Under Chapter 7, a debtor’s assets are liquidated and the proceeds are used to pay creditors; any remaining debts are discharged, and filers are left with a 10-year mark on their credit ratings.  “You can’t believe how many people discharge medical debts,” Limor said. “It’s a kind of trailing indicator of who’s suffering in this economy.”

And those suffering are not alone. According to a recent study from Harvard University, today medical bills make up well over half of all bankruptcy filings (62% in 2007), accounting for the bankruptcies of between 1.5 to 2 million Americans each year. Moreover, of those filing for bankruptcy, three-quarters have medical insurance.  In many cases, this crippling debt is the result of insurance co-pays and deductibles, which can run into the tens of thousands of dollars. Yet, some who file for “medical bankruptcy” do so even with relatively small medical bills because, left to their own devices, many hospitals and medical practices refuse to make arrangements for debt relief or installment plans.

As such, the alternatives to a medical bills-inspired bankruptcy can be worse. Medical debt—from hospitalization to medication—is unsecured with no guarantee available for creditors, like insurance companies, hospitals and doctors, to take back. As a result, without filing medical bankruptcy, health care debts can be tied to the collateral you do own. A hospital or insurance company can also garnish your wages, and even claim a portion of the equity in your home, business or other large assets.

As the New York Times article illustrated, if you’re plagued by medical debts and other related health care costs, Chapter 7 bankruptcy may be the only viable solution for you. Filing for Chapter 7 can eliminate most of your debts, including those arising out of medical expenses—whether they’re billed from your hospital or charged on your credit card.  An experienced attorney can evaluate your precise financial problems—medical or otherwise—and work out how the implications are likely to affect you. You’ll also learn the best ways to most effectively deal with creditors, along with possible solutions to improve your credit scores and credit ratings so that any effects of the bankruptcy might be minimized. The same lawyer can help you file for bankruptcy, as well as represent you in the bankruptcy court. For more information about the benefits of filing for bankruptcy, including alleviating medical debts, visit the experienced attorneys of The Law Offices of John T. Orcutt online.

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Published Sunday, December 13, 2009 @ 10:39 am

The nation’s third largest radio broadcasting company is preparing to hand over the reins of the organization to its creditors as part of a chapter 11 bankruptcy plan. The Citadel Broadcasting Corporation took on a rather sizable debt in its efforts to acquire Walt Disney Company’s ABC radio station (but not ESPN or Radio Disney) back in 2006. With ad revenue expected to drop even further for radio broadcasting companies the outlook does not appear to be improving. Poor economic times lead to a lack of sufficient advertising revenue to allow the company to manage its debt appropriately hence the pending bankruptcy filing.

As other forms of media continue to take off, i.e. the internet, subscription based satellite radio service, etc, the task of remaining viable becomes even harder for the traditional radio station meaning it would not be surprising to see other radio broadcast companies suffer similar hardships.

For this plan to work the lenders would have to agree to the plan and sign off prior to the December 15 deadline. Two of the majority holders, JP Morgan Chase and Company and GE Capital, have already signed off. It takes at least two thirds of all lenders for a plan to e approved.

In the process a large percentage of the company’s debt will be erased. Currently Citadel owes close to $2 billion; after the plan is approved by the court that number will be cut down to $760 million. The catch in this prearranged plan- all of the shareholders of Citadel will lose stock in the company. While the current head of the company, Farid Suleman, would remain in charge, the company would almost wholly be owned by its creditors.

A chapter 11 bankruptcy plan is a remedy available to any form of business under United States bankruptcy code. While some debt is discharged it is often used as a means of reorganizing the company’s assets versus its debt. Often the original company will no longer have ownership, or at least controlling ownership, but will often be left in charge as the trustee or debtor in possession.

The prearranged, pre-approved plan will hopefully expedite the bankruptcy process and provide the company with a quick recovery. The thought would be that since the Citadel executives can show the court that the company’s creditors have already approved the plan, there would be no reason for the court to disapprove.

Brought to you by the experienced attorneys at the Law Offices of John T. Orcutt. Call today for a free initial debt consultation. 1-800-899-1414. Or visit www.billsbills.com to fill out our free debt questionnaire.

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Published Friday, December 11, 2009 @ 12:39 pm

The debate about how to handle the failure of some of our nation’s—and world’s—largest companies helped define 2009. Cable news talking heads, government policy analysts and politicians went at each other like pit vipers, spitting political barbs, stabbing with historic precedent and twisting around each other in spastic, vocal tirades from atop whatever soapbox could sustain the weight of the blustering.

Come 2010, the wrangling is still not really over, even though companies were bailed out and the biggest of the big were not “allowed to fail.” As a result of Washington’s somewhat inconsistent and at times, utterly vague, interference with the financial system, much of Wall Street has quite a bit of trepidation about future government involvement. So much so that congressional lobbyists and staffers are circulating talk of creating a new bankruptcy chapter that will address the systematic dismantling of companies whose failure could contribute to the proverbial erosion of our financial system.

Currently dubbed, “Chapter 14 bankruptcy,” this new plan would establish a legal process to specifically restructure crumbling, non-bank financial holding companies. One of the primary points of worry leading to this discussion stemmed from the government’s “picking and choosing” of companies to rescue. For example, allowing Lehman Brothers to file bankruptcy but coming to the direct aid of Bear Stearns.

If these companies are in a position to have such an impact when they fail, then they should be treated as a separate class of corporation. Daniel Flores, the top Republican counsel for the House committee involved in this potential new component of the bankruptcy code said recently that the related activities of such companies plays into their potential to cause lasting damage to the economy. At a recent conference, he stated that the new governance would provide a “simple but effective set of reforms to help us handle the bankruptcies of large, interconnected firms.”

Essentially, the effort would simply formalize, under an amended bankruptcy code, the process used earlier in the year to handle AIG, GM and Chrysler by bringing together the company in question, creditors and government regulators into an oversight board to discuss pre-bankruptcy issues. To many, this sounds like a Washington-backed, “pre-packaged” bankruptcy.

Flores, who made it clear that the plan should not encourage or tolerate additional bailouts, added that the bankruptcy system was not allowed to work. “We don’t need to abandon bankruptcy, we need to abandon government intervention that can seem inconsistent and panicky.”

The point to be made most clear by those in favor of the possible Chapter 14 is that it would remove any risk that Wall Street will continue to rely on government intervention (bailouts) when things go bad.

H.R. 3310, as it is formally deemed, would do what’s needed to handle these risky situations, Georgetown professor Adam Levitin affirmed. However, he also communicated doubt about its passing because “Ultimately we’re chicken.”

The bankruptcy code, like many of our laws, can fluctuate with our economy. And while an entire new type of bankruptcy may not be the answer, these is no question something needs to change.

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Published Wednesday, December 9, 2009 @ 11:28 am

Of all the special programs and incentives in place to help struggling Americans during what many have now deemed “The Great Recession,” perhaps the most critical is the often debated but not often publicly discussed “mortgage cram-down” bill.

First introduced last year but shot down in the Senate in favor of the President’s “Making Home Affordable” loan modificationprogram, the cram-down provision would grant bankruptcy judges special authority over the terms of a mortgage during the bankruptcy process. Based on a filer’s situation, the judge could lengthen the payment term, reduce the interest rate or decrease the balance. The judge will have the right to alter the mortgage even in the face of lender rejection.

Given the number of bankruptcies happening today, it is easy to understand why the lending industry lobby has become increasingly active this week, as the legislation will be inserted into a larger, more sweeping economic regulatory plan being put to the House this week.

The cram-down bill has been championed by many Democratic party leaders, namely House Financial Services Committee Chairman Barney Frank. This version of the cram-down bill, which is identical to the previous bill offered in March of this year, is being presented as an amendment by House Judiciary Committee Chairman John Conyers.

Currently, federal judges have some say over mortgages that become part of the bankruptcy picture. Investment properties and vacation homes can have their mortgages altered by a judge.

What makes the cram-down legislation additionally interesting is that at one time judges were able to alter mortgage terms. Guess what changed that measure? You guessed it. The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act.

Defeating the re-institution of this court power will be a major win for the lending industry. They presented a letter to House leaders stating that the cram-down bill would increase foreclosures and bankruptcies because homeowners would envision an easier path to escaping a burdensome mortgage and further destabilize the house market.

In essence, mortgage lenders are offering no stronger an argument than credit card companies do when trying to fight any sort of rule that may allow a consumer some sort of leeway in repaying overdue balances. In this economy, it comes across as quite brash for lenders to accuse consumers of trying to avoid responsibility. Truthfully, homeowners are the ones shouldering the load for the lending industry’s egregious mis-steps.

In its current state, the cram-down proposal would first require borrowers to attempt a loan modification plan, either through their lender or with the help of a third party. This would enable the judge to make a more qualified decision about the sincerity of the homeowner’s efforts and to determine if the plan they sought was qualified under the Making Home Affordable program.

Lenders would be encouraged to voluntarily decrease a borrower’s monthly payment to 31 percent of a borrower’s paycheck, a standard that before the “boom times” was considered the benchmark for approval. Another component includes the provision that a borrower who is able to have a mortgage “crammed down” would have to reimburse the lender in question for a portion of the expenses incurred from the process if the house is sold before the five-year bankruptcy repayment plan is competed.

Things are different now than they were in March. This time, the cram down bill might fit.

If your lender simply won’t work with you, or you’re stuck in an indefinite “trial mod”, call your Congressman today and insist on judicial modification of mortgages. Go to https://writerep.house.gov/writerep/welcome.shtml for your Congressman’s contact information. The mortgage banking industry has been pulling the strings for far too long. It’s time to take the power back.

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Published Tuesday, December 8, 2009 @ 2:45 pm

Nicholas Cage isn’t the only movie star filing for bankruptcy. The owners of Tavern on the Green, arguably America’s most famous restaurant, and an esteemed eatery featured in films from Edward Scissorhands, and Ghostbusters to The Out-of-Towners and Wall Street, has recently sought the protection of the U.S. Bankruptcy Court in the Southern District of New York.

As Reuters reported in September, “To thousands of visitors, Tavern on the Green is New York,” a 2005 New York Times restaurant review stated. It was also considered one of the most romantic spots in town to become engaged, have a wedding reception or spend an anniversary.

The 75 year-old New York eatery institution filed Chapter 11 after its lease was terminated by the City of New York, who has granted a new 20-year lease at the same location to another restaurant, the owners of Central Park Boathouse. Tavern on the Green continues to operate while in Chapter 11, but may auction off the restaurant’s name, which it claims has a value of $19,000,000.

So, why should you care about the fate of a wealthy restaurant?

In this sign of the economic times, when even the most rich and famous are feeling the effects of the declining financial futures, it is important to remember that if you’re feeling a financial squeeze you’re not alone. And watching the processes businesses like Tavern on the Green must go through when filing bankruptcy could provide valuable lessons of how the bankruptcy process might work for you.

Like a business, bankruptcy isn’t the end of you, in fact it’s business as usual. While Tavern on the Green may auction its name as it attempts to pay its creditors in full, it continues to operate. Similarly, your bankruptcy proceedings can force creditors to end their collection activities and get you back on your financial feet, operating again as a whole person.

Bankruptcy protection provides temporary relief and “buys time” to reorganize . Chapter 11 allowed Tavern on the Green to not only operate, but leverage their significant brand to make more money. In the same way, bankruptcy buys individuals like you precious time to stockpile savings and reorganize for your next financial moves—unfettered by the actions of creditors.

Bankruptcy promises a fresh financial start as debts are “discharged.” As mentioned, when bankruptcy happens, the debtor is released from personal liability for that debt and is no longer legally required to repay it. While Tavern on the Green may change hands, its lucrative name lives on. And just as Tavern on the Green’s name will live on beyond bankruptcy, your filing allows you to get back your “good name,” providing a much-needed stopping point

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Published Monday, December 7, 2009 @ 12:57 pm

The rise of mega-bankruptcies in the last two years has literally changed the face of how our financial system works, incorporating new precedents for pre-arranged Chapter 11 filings and instituting new standards of government intervention. Now the results of these sweeping insolvencies are being translated into legislative activity.

For a number of weeks, lawmakers have been considering a new method by which to systematically dismantle struggling companies that if allowed to crumble under current laws, would pose a significant risk to the economy. In other words, the debate is really about how the government deals with companies that are “too big to fail.”

Naturally, there is debate among the parties but in general, the plan calls for creating a government standard for strategically dismantling large companies. At the heart of the floor disagreements is how creditors are treated under the new plan.

The current bankruptcy code follows an order for who should be paid when a company becomes insolvent. It starts with securitized debt (such as bonds issued to investors), then unsecured senior debt, subordinated debt, preferred stock and then common stock.

However, that order would change under the proposed rules, which grant seniority to the FDIC (Federal Deposit Insurance Corporation.) Basically, the new plan uses the resources of the government, not bankruptcy court, to decide who gets what. The new approach, called the “systemic resolution bill,” would first pay funds to the FDIC to cover its expenses, next the government itself if any bailout funds were used, and then the traditional repayment priority would begin.

Creditors often involved in these types of bankruptcies are voicing support for the current bankruptcy system, citing primarily that government interaction at this level would lead to legislative bottlenecks and surely delay a company’s ability to repay them and effectively handle the sale of its assets. Additionally, their stance is that the bankruptcy process entails an independent judicial review and enables the negotiation of payments.

The bill would allow the FDIC to decide the payout to creditors and delays judicial review until after the resolution is completed. There are also a number of ancillary issues involving bankruptcies of this type, such as contingent claims and indemnities, that the FDIC has not yet considered.

Systemic-resolution proponents argue that the bankruptcy system is already ill-equipped to handle massive, economy-damaging bankruptcies, citing that the Lehman bankruptcy remains tied up in court as a result of countless loose-ends. Michael Krimminger, an adviser working with the FDIC on the formulation of the plan insists that “… there is a reason large financial firms have not been allowed to fail — because no one has had enough confidence in the bankruptcy code to handle it. We must have a process that can close the largest financial firms without creating a systemic crisis.”

Krimminger and others in his court believe that the government plan would handle things much more efficiently. However, none of the bill’s detractors are willing to listen to that argument.

They also believe that the bill will severely impact the market as a whole by spreading doubt about how such companies will be end up in the market once inside the government blanket. Other companies monitor bankruptcies for a number of financial reasons that can play out on Wall Street in daily trading, especially if another financial crisis hits. In other words, the plan could make the impact of large bankruptcies even worse because of the lack of “sunshine” (public information) the FDIC allows.

Is this plan a legitimate effort to alleviate a burden from the bankruptcy code or another attempt by the government to control corporate America? Stay tuned …

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Published Saturday, December 5, 2009 @ 6:14 pm

On December 1, the United States Supreme Court was in session to listen to a couple of arguments about bankruptcy.

The first case concerned student loans, specifically in reference to their ability to be discharged under the confines of a Chapter 13 bankruptcy. The other case, however, had larger implications on the industry as a whole, as it challenged the bankruptcy code itself.

Bankruptcy attorneys are not allowed to encourage clients to take on more debt if they have communicated to the attorney that they are considering filing for bankruptcy. To no surprise, the provision was put in place in 2005 as part of the Bankruptcy Abuse Prevention and Consumer Protection Act. The problem with this provision is that essentially, it prevents an attorney from providing a full scope of legal advice. A law firm from Minnesota is challenging that the provision violates the first amendment.

The firm is also challenging the act’s provision that states law firms must identify themselves as “debt-relief agencies.” Justices Scalia and Roberts both seemed to agree that the provisions were problematic, leaving the challengers quite optimistic after the hearing.

The other case on the docket involved the bankruptcy of an airline ramp agent from Phoenix and his subsequent discharge of more than $13,000 in student loans he was unable to pay. Francisco Espinosa took out the loan to pay for a trade school he wanted to attend but never finished the program and remained employed with the airline.

Currently, federal law does not treat student loans quite like other types of debt. The debtor must prove an undue hardship in court as reason for non-payment. For a number of debt types, the bankruptcy becomes that proof of hardship and is then subject to discharge. Not so with student loans, they require additional evidence of a person’s inability to pay.

Those arguing on behalf Espinosa’s creditors cite the fact that undue hardship was not proven and that like child support, student loans need to be held to a higher standard because without those added protections, secondary education funding would become increasingly difficult to obtain.

Lawyers working on behalf of Espinosa are citing the fact that once a bankruptcy ruling is decided, it cannot be undone on the grounds of a judge’s error.

In a previous ruling from a lower U.S. appeals court favored Espinosa’s argument, stating that when the bankruptcy petition was submitted and the creditor’s notified, they did not object. It was this decision that the student loan industry and the lawyers present in the Supreme Court yesterday are worried about, as it may pave the way for student loans to be easier to discharge.

If yesterday’s hearings are any indication, the court may come down on Espinosa’s side when a ruling is issued, as a couple of judges, Kennedy and Ginsburg specifically, voiced concern that perhaps a new balance can be found between the need for a hardship hearing and some leniency in regard to discharging student loan debt.

Both cases heard in court this week could have impact on the bankruptcy code, one in favor of debtors and the other in favor of the attorneys who help debtors. All in all, it wasn’t a bad day in court.

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Published Saturday, December 5, 2009 @ 3:10 pm

For far too many people in North Carolina, and the country, job loss has been the primary driver of excessive debt. Even those who spend wisely and are conservative with credit can quickly feel the impact of being laid off. Three months of savings may help. But only for three months.

If you are one of the millions of Americans reluctantly contributing to the unemployment rate, it may seem like things are never going to get better. Looking for a job can be a mentally tiring and frustrating endeavor. And if you are facing the additional pressure of mounting debt from credit cards, a mortgage and maybe a couple of car payments, it can be hard to sleep at night. Well hopefully, recent news about positive job growth will help you get some rest. Or not.

According to reports, the number of jobs lost in the month of November has decreased. Payroll processing company ADP stated that companies only cut 169,000 jobs, which signifies the eight consecutive month in which cuts have been less than the previous 30 days.

Employment experts are hopeful that the coming months will continue the trend, but the overall drag on the economy caused by cumulative job losses will continue until 2014. The benchmark for “full employment” is an unemployment rate of 5 percent or less. Given our current conditions, achieving that number looks like a tall order.

We at “Bankruptcy & Your Passage into and out of Debt” do not pretend to be experts on the macro-economic conditions that impact employment, gross domestic product or the price of barley in Argentina. What we are experts on is how bankruptcy can help you. And, for a lot of readers who are out of work, in debt and frozen in financial stress, we understand how reports like this can be frustrating. Minimal positive blips on the job growth radar screen don’t help you navigate a way out of the financial abyss. Without sugar-coating it, we believe this remains a difficult economy in which to make a living.

Compounding the loss of a paycheck for someone out of work is the loss of medical insurance, or at least your ability to afford it. Medical debt is a very large cause of bankruptcy in our country and today’s work conditions are only making it ever more prominent.

In total, companies let go of 1.24 million jobs in 2009, which is almost 18 percent more than in 2008. So what kind of positive should you take from that? We’re not sure, to be honest. That’s what makes employment figures so darn frustrating. While the rate at which jobs are being cut has diminished, the rate of hiring has not increased, suggesting that many jobs simply will not be replaced. This should not be a surprise to anyone, really, given the beyond reasonable rate at which many companies expanded in the last five years.

Truthfully, job reports are becoming ineffective in their ability to communicate any real data to the economic growth equation. In the end, the preservation of one’s economic well-being needs to become insular, self-focused. If bankruptcy is your best option, then ignore the stats and stigmas and screwy metrics. Do what is right for yourself and your family. There is no better barometer for health of the job market than your own situation. You need to act when the time is right for you.

If you’re struggling to keep your head above water, bankruptcy can be just the lifeline you need. Contact the Law Offices of John T. Orcutt today to discuss your options. Call 1-800-899-1414 to discuss your options.

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Published Thursday, December 3, 2009 @ 6:11 am

The American Bankruptcy Institute, relying on data from the National Bankruptcy Research Center, reports that more than 135,000 consumers filed for bankruptcy in October 2009. The industry group estimates that this represents a nearly 9% increase in filings from the previous month. ABI Executive Director Samuel J. Gerdano commented that the increase in consumer bankruptcy filings in October, together with a reported 7 percent increase in business cases, “demonstrates the sustained stress on the U.S. Economy.”

The American Bankruptcy Institute further predicts that by year’s end, total bankruptcy filings will be up 30% over 2008. In fact, as of October, bankruptcy filings were up 22% over the same period in the previous year, with roughly 950,000 filings, as compared to roughly 700,000 in the same period in 2008.

Of October’s filings, the American Bankruptcy Institute estimates that roughly one-third of consumer bankruptcy filings were Chapter 13 filings. As discussed before on our blog, a Chapter 13 bankruptcy filing, also known as a “wage earner’s plan,” provides a flexible means for individuals to work out a payment plan with creditors, in particular when those individuals do not have incomes low enough to qualify for a Chapter 7 liquidation bankruptcy filing, or where the individuals wish to retain particular property after filing for bankruptcy.

A Chapter 13 filing allows an individual with a regular income to create a plan with the bankruptcy court’s approval to pay on outstanding debts. After the payment period established under the plan, the remaining balance of the debts is often discharged. The duration of the repayment plan varies. For wage earners with monthly incomes below a particular median income (determined on a state-by-state basis), the standard period for a repayment plan under Chapter 13 is three years. For those with incomes above the applicable median income, the standard period for a repayment plan under Chapter 13 is five years. Depending on your locale, however, the time you spend in your bankruptcy plan can be less than 3 years. Talk to an experienced bankruptcy attorney about this issue.

Please note that as of May 2009, the amount of debt that may be discharged under a Chapter 13 bankruptcy filing is limited to $336,900 or less of unsecured debt and $1,010,650 of secured debt. These amounts are recalculated periodically to account for changes in the consumer price index.

If you are considering filing for bankruptcy, the evidence is abundantly clear that you are not alone. Many American consumers are concluding that filing for bankruptcy is an effective way to resolve outstanding debt issues and move on with their lives.

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Published Wednesday, December 2, 2009 @ 10:08 am

As NPR reported this week, more than a third of students enrolled in post-high school classes borrow money to advance their education. In sum, the federal government guarantees most student loans at a cost of $618 billion.

To discourage students from simply walking away from their debt, federal bankruptcy law makes it difficult to discharge a student loan debt—even in Chapter 13 bankruptcy—except in cases of undue hardship. Debtors must prove that the loan presents an undue hardship, such as an injury that prevents the type of work for which the degree was earned. Additionally, the debtor must have made a good faith effort to repay the loan. In the alternative, the Code does permit restructuring of a debt to make it repayable. The question now before the Supreme Court is what the obligations of the lender and the borrower are when a student cannot pay back their debt.

In the current case before the nation’s highest court, a student loan debtor, Francisco Espinosa, was allowed to enter a Chapter 13 plan without ever proving undue hardship to the bankruptcy court.  A bankruptcy trustee working with Espinosa’s lawyer, in turn, worked out a payment plan for Espinosa to pay off the loan plus any bankruptcy fees. They plan absolved Espinoa of paying the $4,000 accrued interest. The lender, United Student Aid Funds Inc. (USAF), was notified in writing of the proposed repayment plan and filed no objections. A federal bankruptcy judge later approved the plan. Absent any appeal from the lender, Espinosa paid off his student debt in installments over the maximum five-year period permitted under law, absent the interest.

In 1997, the bankruptcy court declared the debt paid in full and discharged. Two years later, though, United pursued Espinosa for the interest, placing a lien on his tax refunds. Espinosa’s lawyer asked the bankruptcy court to hold United in contempt.

According to the NPR report, the student loan company now argues that the bankruptcy court should have held a special hearing to determine whether Espinosa’s circumstances qualified as an undue hardship, and have required USAF to appear in court. USAF argues further that because the hearing was never held, undue hardship was never established, and the loan discharge was therefore illegal and void.

Espinosa’s attorney has countered that USAF was properly notified and did not raise any objections at the time.  As NPR reported, a federal appeals court ruled against United, declaring that “it makes a mockery of the English language and common sense” for United to claim that it “was somehow ambushed or taken advantage of.” Backed by the U.S. government, 24 states and the entire student loan industry, United appealed to the U.S. Supreme Court.

Stay tuned in the coming months for this potentially landmark bankruptcy case. In it, the Supreme Court will hopefully determine when a lender can assert their rights and raise objection to a Chapter 13 bankruptcy plan—and, in the alternative, when bankruptcy judgments, like that for Francisco Espinosa, are truly final.

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Published Sunday, November 29, 2009 @ 1:44 pm

A lot of people joke about Canada being our “51st state.” (Not Canadians, mind you.) However, from a bankruptcy standpoint, our neighbors to the north are not all that different.

In the last few months, personal bankruptcy filings in Canada have surged 47 percent from the same time last year. In September, 12,305 people filed for bankruptcy and 3,160 people filed “consumer proposals,” which is a component of Canadian law that allows people in debt an alternative to bankruptcy by negotiating the payoff of only a portion of their debt. That number increased 38 percent from last year.

In Canada, these statistics and the bankruptcy process is watched over by the Office of the Superintendent of Bankruptcy. According to its Web site, its role is to protect the integrity of the bankruptcy and insolvency system. It also oversees trustees.

Granted, the number of people needing to file is substantially lower than in America. However, the important thing to note is the percentage increase, which has the country quite concerned about the financial stability of its citizens. For the year, filings are up 36 percent. However, the last few months have demonstrated a noticeable spike. This means that things in Canada may be getting worse.

For the last several years, the total number of people who were insolvent (filed bankruptcy and consumer proposals) averaged around 100,000. In 2009, the number is closer to 150,000.

Just like in the U.S., Canada experienced a booming economy from 2005-2007. And just like in America, people bought homes, cars and ran up credit cards. Then came a slide in the nation’s ability to employ. Now here is the scariest similarity between the two nation’s increasing bankruptcy issues: new government legislation making bankruptcy more difficult prompted Canadians to file before the new laws took effect. In America, that happened in 2005. In Canada, it happened a few weeks ago, on September 18, 2009.

As expected, thousands of people rushed to file before the process became much more expensive to execute. And, their new law states that a person who files is required to report their income every month. The amount they need to pay back as part of the bankruptcy agreement is based on that number. Thus, the more you make, the more you have to pay.

Additionally, the Canadian government sets a limit on how much a person who has filed can make. Should a person surpass that limit, the remainder is forced into a “bankruptcy estate,” or the trustee, who then distributes it to your creditors. Every month, one has to file paperwork with their trustee documenting how much was earned.

This surplus income rule also impacts the amount of time a Canadian is “in bankruptcy.” Prior to September’s new laws, a person could emerge from bankruptcy in Canada within nine months. Now, the surplus income rules stretch the bankruptcy period to almost two years.

As a result, more Canadians are turning to consumer proposals to avoid the high cost of bankruptcy.

Not unlike our recession, there is no clear predictor on when things will begin to shape up for Canada. Signs of improvement come and go but the building number of insolvency filings is worrying a number of economists, as is the steady rate of unemployment.

As it turns out, we have a lot more in common with Canada than hockey and Michael J. Fox. We also share a recent increase in insolvency and bankruptcy.

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Published Saturday, November 28, 2009 @ 1:58 pm

The most talked-about sports team bankruptcy of the summer is still having effects on its city, taxpayers and fans.

The Phoenix Coyotes were embroiled in a drawn-out and often convoluted bankruptcy proceeding that introduced the notion of the team’s relocation at the hands of Canadian technology billionaire Jim Balsillie, personal vendettas between league executives and Balsillie and the very notion that the NHL may be losing the face-off between its product and a Southwestern city not exactly known for its ice sports.

The league is currently courting buyers for the team with the hope that the sheer market size and fan support will be enough to keep the team in place. However, NHL commissioner Gary Bettman has to deal with the problems the team’s insolvency has introduced to the local municipality that invested in its success.

In 2003, Glendale, AZ, the city in which the team is actually located, invested $182 million in the team’s arena. At the time, there was excitement and confidence about the deal.

In its bid to the court for ownership, the NHL set an end-of-season deadline for finding a new owner who would agree to keep the team in its current location. The bid language also dictated that if that goal is not met, the league will petition the judge to reject the team’s exisiting arena lease, opening the door to potential relocation.

The City of Glendale will be able to file a counter suit for damages as a result of the substantial funds lost from lease payments and tax revenue. Because of the bankruptcy, the City will simply become another creditor owed money by the Phoenix Coyotes. On top of that, the team will only be able to distribute about $10 million between all creditors.

The attorney for the team’s former owner, who initiated the bankruptcy hearings as part of a covert deal to open up its reduced sale to Balsillie, has stated that Glendale understood the risks upon formalizing the relationship and should be entitled to no additional compensation should the team ship out of Arizona.

Meanwhile, the Glendale Mayor Elaine Scruggs has created a team of employees to court potential owners or at least develop a plan for the team to once again become financially stable, if not profitable.

The league is doing its part too, having recently initiated discussions with six possible owners. One of those groups, Ice Edge Holdings, is a conglomerate of Canadian and American investors that would plan on leaving the team in Arizona and implement an aggressive plan to get the team out of the financial penalty box.

Ancilliary problems faced by the city include the development of a nearby commercial center that targeted the team’s draw as a reason to build new homes and retail establishments. The owner is also a former owner who sold his share before the bankruptcy to focus on building the Westgage City Center. The tax proceeds from the now stalled project were to also help the city recoup its investment in the team.

The developer, Steve Ellman, is also ignoring a clause in his agreement with the City to pay $1 million per year if his project did not meet pre-set milestones in construction. Further complicating matters is the fact that in previous years, Ellman’s payment was channeled through the team. Again, because of the bankruptcy, the payments have ceased.

Just when we thought this bankruptcy story was losing its legs, it appears we only made it through the first period. Stay tuned.

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Published Saturday, November 28, 2009 @ 10:58 am

Home foreclosures, job losses, massive consumer debt and health care costs have millions on the edge of financial ruin, struggling every single day even as we’re told by some that the worst economic downturn since the Great Depression is “technically over.”

If you’re affected by any of the above and you’re here, you may be considering bankruptcy. But, as we work towards financial freedom, it’s important to also consider, times are indeed tough for some more than others. And in this economic recession, spurred by downturns in our nation’s financial institutions, the most beloved banks in America are now food banks. And they’ve never been more necessary.

In addition to facing a massive recession, America is now, more than ever, the land of the hungry. Last week, the government (in its 2008-2009 Food Insecurity Report) said 49 million Americans are unsure where their next meal is coming from. For those keeping count, that’s 1 in 6 Americans. Of those, 17 million are children.

So, even if times are technically tight…it’s also holiday food-drive season, and needs for community kitchens this year are growing. In the past year, Feeding America, the nation’s leading food bank network, has seen an average increase of 15 to 20 percent in the number of people seeking help at its 200-plus food banks across the nation.

So what, specifically, do food banks need this year?

The staff of MSN Money provide a few basic guidelines for reaching out to those in need while keeping your money in check. Keep in mind your local food banks might also have specific needs, so you’re encouraged to contact them directly.

For One, Cash is Still King
While you may think your bank account is small, you and those around you can still make a big difference in someone’s holidays with very little money. In fact, some food banks rate their return on a single dollar cash donation at anywhere from 5 to 15 pounds of food. That’s right: five to fifteen pounds for just one dollar. So, if you and everyone in your family, church, office or class were to donate one dollar to your local food bank, you could provide many with more reasons to be thankful following Thanksgiving and heading into the holidays.

Put the “Food” Back in Food Bank
Though cash donations take care of many bulk-food purchases, food donations also play an important role in keeping community kitchens afloat during this economic maelstrom. Food drives can provide more-healthful and higher-quality foods than bulk buys, and provide a greater diversity of foods for the nation’s hungry. Most importantly, food drives provide a nexus between those in need and those willing to feed.

Commonly needed foods in community kitchens include:

• Canned or dried beans and peas;
• Canned fruits; · Canned vegetables;
• Cereal, including oatmeal;
• Fruit juice; · Prepared box mixes;
• Proteins (canned meats such as tuna, chicken or fish and peanut butter);
• Shelf-stable milk (dehydrated milk, evaporated milk and instant breakfasts);
• Soups and stews; and
• Rice and Pasta.

What the Needy Don’t Need
While food bank officials aren’t known to “just say no” to any donations, as a general rule out-of-date and glass items are least desirable for those kitchens seeking easy to serve, and eat, options, including:

• Baby food;
• Homemade foods;
• Noncommercial canned items;
• Perishables; and
• Unlabeled cans.

So, even if times are tight, make a bank deposit that truly counts this holiday season: give to your local food banks and cash in on the gift of kindness.

The Food Bank of Central & Eastern North Carolina needs your help. In Durham, contact (919) 956-2513 to learn how you can contribute. In Raleigh, call 919-875-0707.

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Published Wednesday, November 18, 2009 @ 10:30 am

In the last year, we’ve been witness to one record breaking bankruptcy petition after the next, from national retailers like Circuit City to automobile manufacturing icons like General Motors. However, in the last few months, fewer companies have failed thanks to the relative loosening of the credit markets and the somewhat more complex process of bond sales and distressed-debt exchanges.

A distressed-debt exchange occurs when bondholders trade, or exchange, current debt for debt that will come due down the road or for equity in the hopefully stronger company, provided the money from the bonds fuels enough positive change.

Okay, and what are bonds? Basically, a securitized loan.

Companies often issue bonds to raise money instead of going to banks for a loan. Basically, a bond is a debt instrument. The issuer (the company) agrees to pay back the holder (the entity loaning the money, like an investor) the principle with interest.

Bonds are often a better way for a company to secure capital because banks are often much too restrictive on how the company can use the borrowed funds. So for large public companies, bonds are often a better way to go when times are tight or some sort of company expansion is planned.

Since the beginning of 2009, companies have issued close to $123 billion in new bonds whereas in 2008, struggling companies issued closer to $48 billion in new bonds.

The money being raised has allowed a number of companies to avoid bankruptcy court. Although, many of those bonds are considered very low quality, or “junk” bonds, because the potential to become insolvent makes it a risky investment.

There are positives to take away from the large amount of money being raised, and that’s the idea the investors see value in the markets and are not nearly as pessimistic as months past.

Detractors of the growth in bond issuance believe that many companies are merely delaying the inevitable and that when the bonds come due, issuers will not be able to pay them. In the next five years, it is estimated that almost $1.4 trillion in bonds will be called due.

Additionally, the majority of the money being raised will be used to refinance existing loans. Typically, bonds are issued to fund expansion efforts, which is what has ignited glimmers of optimism along Wall Street.

An executive for Barclays was able to find some good news in the recent wave of fundraising, remarking that companies are able to avoid “bankruptcies that would have otherwise occurred in the next year.”

Helping the bond market, not that it should surprise many, is the United States government. By keeping interest rates so low, investors are seeking returns on riskier bets, such as junk bonds, instead of more traditional investment vehicles. Bonds are considered a high-yield investment.

A good example of the power of bond sales today is Blockbuster, the movie rental chain and stalwart on every money-saver’s “how-to-have-fun-without-going-out” list. Last spring, the nation’s most prominent movie rental chain was on the verge of having to close the set but by last month, had raised enough by issuing bonds to drastically cut what it owed to banks, raising double what it set out to secure. Let the show go on.

The ability of many of these companies to pay their bonds rests on the potential increase in consumer spending and the general growth of the economy. Will the holiday spending periods do enough to keep things moving in the right direction? Right now, the jury is still out.

But at least corporate bankruptcies are down.

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Published Wednesday, November 4, 2009 @ 10:31 am

For many Americans, the news of a credit card company declaring bankruptcy would be welcome news. However, before any corks are popped, those celebrating should look a little deeper into what Advanta Corp.’s Chapter 11 filing means for the economy.

Advanta Corp. provides credit cards to small businesses, which they can use to buy general business items and support operations. Because the recession has had such a tremendous impact on our nation’s small business owners, few Advanta customers could repay their debt, leaving the company in dire straits. The bankruptcy is not a complete surprise to banking analysts or Wall Street, as the company ceased all activity on current accounts a number of months ago.

In its petition, filed in Delaware, the company cited total assets of about $363 million with debt totaling $331 million. The company’s CEO said the the just more than $30 million schism required filing protection, adding, “The economic debacle over the last two years devastated Advanta’s small business customers and Advanta itself.”

The bankruptcy does not change the obligations of current customers, which will continue to be paid as if under normal circumstances. According to reports, 360,000 Advanta customers owe close to $2.7 billion.

When anything that is tied to small business fails, it’s not a good thing for our country’s economic equilibrium. While it’s easy to point and laugh at the failure of a credit card company, critics should practice some restraint when considering the needs of our mom and pop hardware stores, local diners, locksmiths and corner coffee shops. The smaller stores and service providers we depend on every day require credit to operate. Now, another source of capital has dried up in an already overdrawn credit aquifer.

There is some backstory to the Advanta tale, however. This past summer, the company had to agree with the Federal Deposit Insurance Company (FDIC) to refund customers close to $35 million because of “unsafe or unsound” practices. The refund was part of a settlement stemming from charges it violated federal trade laws in regard to pricing on business credit cards and in its marketing of cash-back incentives.

Sound familiar?

The company did not officially acknowledge the acceptance of the charges but nevertheless agreed to settle to avoid legal action.

A month later, Advanta released 200 employees, taking the year to date layoff total to 1,100. Shortly after, it was delisted from the NASDAQ stock exchange because its stock was below $1.00 per share for more than 30 days.

The company tried several times to work out non-bankruptcy re-organizations with the FDIC. After a second plan was denied, Chapter 11 was the last, best option.

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Published Tuesday, November 3, 2009 @ 8:03 am

So your long-time employer is declaring bankruptcy, re-organizing, or worse, closing its doors for good. Fine, you never liked that job anyway. You’ll cash in your chips, downsize, move to the lake, and finally open that bait and tackle shop you always dreamed of. Heck, you might even rent rowboats while you’re at it.

But wait. What about those chips? Your employer was one of the “Old Guard”, one of the few companies still around “generous” (or, some would say, “naiive”) enough to still be offering its loyal employees a pension plan, and you’ve stuck it out there for a lot of years expecting on that pension to carry you through your retirement years. What will happen to it now that the company is declaring bankruptcy?? What will happen to you?

As an employer begins moving through the bankruptcy process, the questions surrounding the fate of the pension plan become highly charged and difficult to solve. This is because there can be so many affected parties: the employer administering the plan, the members (and creditors) of the debtor-employer’s controlled group, retirees, active employees and their union, the Pension Benefit Guaranty Corp. and, perhaps, the plan’s independent fiduciary, may all become active participants, some with competing interests.

There are many ways that the scenario could play out, depending upon the financial condition of the company, whether unions have engaged in a collective bargaining agreement which obligates the company to continue funding the plan, or a whole host of other factors. What if the company’s fiscal condition is so bad that it will be impossible for it to continue funding the pension plan at all?

Members of Congress considered just such a scenario way back in 1974 and created the Pension Benefit Guaranty Corporation (PBGC) as a safety net for employees. In return for premium payments made by participating companies, the PBGC guarantees a benefit to current and future retirees when a pension plan is under-funded, if the plan runs out of money altogether, or if the company sponsoring the plan cannot continue to stay in business if it continues to fund its plan.

When the PBGC takes over a pension plan, all new benefit accruals and vesting terminate. Other plan provisions, such as certain early retirement privileges, disability and survivor benefits, might be preserved if they don’t exceed the maximums allowed under PBGC rules. However, other benefits included in the original plan provisions, such as severance payments and death or disability benefits after plan termination, are typically not guaranteed.

To date, more than one million workers and retirees have received financial assistance from the PBGC. In 2008 alone, the PBGC paid out more than $4 billion in benefits to the retirees of terminated pension plans. And, with this difficult economy, it’s more than likely that the PBGC will have another big payout year in 2009 even though maximum guaranteed benefits are limited by statute and adjusted annually.

Several factors determine how much a person can receive from the PBGC. The guaranteed amount depends upon the type of plan, when the plan termination occurs, the type of PBGC involvement, and other factors. For single-employer plans that terminate in 2009, the maximum guarantee is $4,500 per month ($54,000 per year) for a single-life annuity commencing at age 65. The maximum is reduced if the worker retires at a younger age: at age 62, the guarantee is $3,555 per month. At age 55, the maximum is only $2,025 per month. All of these totals are reduced for annuities that continue to pay a portion of the monthly benefit to a retiree’s surviving spouse.

In addition to being subject to these limits, you might lose the right to take your benefit as a lump sum or to roll it over into an IRA if the pension plan becomes subject to PBGC rules. This may have an effect on your financial and retirement planning. So before you pick out the perfect spot for your hammock at the lake, you need to make sure that the pension payout you receive is adequate to cover all of your expenses.

For more information about the potential effect of your employer’s bankruptcy on your own benefits, contact your plan administrator. You may also go to the PBGC Web site, www.pgbc.gov, or call (800) 400-7242. The U.S. Department of Labor’s Employee Benefits Security Administration can also be reached online at www.askebsa.dol.gov or by calling (866) 444-3272.

If you are worried about not being able to meet your financial commitments due to a decrease in your expected pension benefits, you should seek the advice of a qualified bankruptcy lawyer to determine if clearing your debts through bankrupcty would help. Bankruptcy could mean the difference between a financially tight and tense retirement or one that is stress-free and filled with choices.

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Published Friday, October 30, 2009 @ 6:15 am

Making it harder for overburdened debtors to file bankruptcy in the middle of our biggest financial crisis in living memory may not be the best policy idea to come down the beltway, but it is exactly what Congress set in motion in 2005. Here is why:

If you have been looking into filing bankruptcy, then you have heard about the ‘Means Test’. The Means Test was created by Congress to determine eligibility for consumer bankruptcy in 2005 when it reformed the Bankruptcy Law. The idea was that a debtor should only get as much bankruptcy relief as he or she really needed. So Congress developed a formula to determine which bankruptcy filers would qualify for Chapter 7, which offers an immediate discharge of debt, and who should file Chapter 13, which requires a lengthier payment plan.

Along with its creation of the means test in 2005, Congress provided for automatic updates of state median incomes, upon which the means test is based. The state median income figures are periodically updated by the U.S. Census and the Executive Office for U.S. Trustees (EOUST) publishes a table that is used in the bankruptcy courts.

As more workers lose their jobs, the median income, unsurprising, can drop as well. If the median income figures for a state drops, it lowers the bar for debtors who will be subjected to the means test and the possibility of being denied help in Chapter 7 bankruptcy. In North Carolina, the unemployment rate rose to 10.8% according to the US Dept of Labor figures reported for August 2009. Similarly, the post-November 1 EOUST table, cites the median annual income in North Carolina for a family of three fell by several thousand dollars. The irony is that even though the number of people needing bankruptcy has risen, the means test makes it more difficult for them to qualify for Chapter 7.

None of this news should discourage you from seeking bankruptcy relief. Even if you are one of the small percentage of people who don’t qualify for a Chapter 7 bankruptcy, Chapter 13 has essentially the same effect of a Chapter 7- a discharge of your unsecured debt. Additionally, some means test deductions which are not available in a Chapter 7 are available as disposable monthly income deductions in Chapter 13. The Chapter 13 disposable monthly income test measures how much disposable monthly income you must devote to your Chapter 13 payment plan. Even if you are deemed to have substantial disposable monthly income, some pre-petition planning will help bring the number down. As always, talk to an experienced bankruptcy about your options, you’ll be amazed at how beneficial a a properly planned bankruptcy can be.

In North Carolina, contact the Law Offices of John T. Orcutt. Call 1-800-899-1414 for a free initial debt consultation. Or visit www.billsbills.com to fill out a free and confidential debt questionnaire.

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Published Thursday, October 29, 2009 @ 11:14 pm

The recent bankruptcy of Capmark Financial Group, Inc., one of our country’s largest commercial real estate lenders, may just introduce the rest of the country to the problem Washington, the real estate industry, Wall Street and all other type of financial professional has nicknamed, “the other shoe.”

For a number of months, owners of commercial real estate have been scrambling to prepare for that “shoe” to drop. That is, in only a matter of months, office, industrial and multi-family (apartment) property mortgages are going to come due. And just like in the consumer banking world, the credit isn’t there to keep landlords afloat.

According to an expert with Deutsche Bank AG, between now and 2013, more than $2 trillion will need to be re-financed. Commercial real estate mortgages typically have shorter terms and are called due within five or ten years. At that point, it is up to the owner to pay up or find new financing.

Essentially, commercial landlords did the same thing so many homeowners did: they jumped at aggressive mortgages and then used the property’s equity for additional loans and lines of credit. It should also be noted that the lending industry also played the same game with landlords as they did with home buyers. Countless landlords were encouraged to take out bigger loans to finance renovation and tenant-required fit-up projects on top of monthly mortgage payments.

The problem with an office property going under is the immediate effect it has on the local economy. When the value of commercial property drops, the business appeal of an area falls along with it. Businesses, like homeowners, are driven by location. Office parks and high-end business districts carry the same appeal as a gated, affluent residential community does to a person seeking a new home.

Unemployment is also making things worse. If people aren’t working, then companies need less office, manufacturing and lab space. That means that landlords can’t fill their buildings and thus, can’t make enough in rent to pay their mortgage. Additionally, many companies are subleasing excess space at very steep discounts, which competes directly with buildings that have first generation, or new, space on the market.

For months, government legislators have been negotiating with industry leaders about how to best leverage TARP dollars, finance bonds and leverage government money to keep the property market from tanking. So far, nothing seems to be working.

Capmark’s issues are a perfect case study for the mortgage problems behind this recession. Basically, the company sold the majority of its loans to the secondary market, which froze completely upon the recession’s conception. As companies fell apart and stopped leasing space or couldn’t pay anymore, commercial property value plummeted. Capmark was then left holding billions in debt that it could no longer handle.

Upon filing, the company listed $20.1 billion in assets and $21 billion in debt.

Many industry professionals view the Capmark bankruptcy as merely the beginning of what lies ahead for the commercial real estate sector. As of right now, business are not growing or relocating. Thus, with little demand for commercial space, buildings sit empty or inactive and thus, lose value. And therein lies another major problem. Even if capital was available to refinance all the mortgages, many properties simply will not be worth enough to justify a new mortgage.

Like we’ve said a number of times, despite some positive signs of economic recovery, there are far too many messes out there still needing to be cleaned up. Boy, did we do a number on this economy or what?

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Published Monday, October 26, 2009 @ 10:38 pm

In discussing the issues surrounding the current economy, the term “mortgage meltdown” is now officially as tired a wordplay as assemblages like “From Wall Street to Main Street,” “Where’s my bailout?” and “It’s a crisis of confidence.” Beyond these catchphrases, you might still be wondering: What is really behind this recession?

In a nutshell, big banks created a huge demand for mortgage backed securities. Mortgage securities are basically your mortgage, packaged with a bunch of other people’s mortgages, which are then sold on the open market to investment banks who pay for the package based on the quality of loans included. Good borrowers with good loan applications made up the “Prime” packages, and different variations of the packages existed for other qualities of debt, such as “Alt-A” and “Sub-Prime”, the latter being defined by weak credit scores and little documentation. The packaging allowed investors to pick and choose, depending on how much risk they wanted to take on. This worked well as long as everyone in the game stayed honest.

It turns out, everyone involved was not being honest. As more and more consumers qualified for loans, the securities became watered down. It got to the point that literally anyone with a pulse was being qualified for a home loan. The prime packages were increasingly including “low-doc” and “no-doc” consumers, who had little prospect of being able to afford their mortgages over the long term. However, the investment banks kept buying and selling, re-packaging bad loans for investment banks who were hungry for more securities.

This giant tinder box eventually exploded when all parties realized that what they owned was worth far less than they thought. Adding to the devastation was the trillions of dollars in side bets on the market, termed “credit default swaps”. When the whole thing blew up, everyone needed to be paid. The only problem- the banks simply didn’t have enough money to go around. Lending froze as everyone clung tightly to the dollars that remained. Despite hundreds of billions in government money, banks still aren’t completely out of the woods.

Now that the dust has somewhat settled, many entities who purchased the bad debt are discovering that they can’t even prove ownership. In a New York bankruptcy court earlier this month, a mortgage servicer was unable to prove it serviced the loan or that the parent bank was the legal note holder. Upon formal request to prove their ownership of the note, the servicer, PHH Mortgage alerted the court that US Bank actually owned the loan. The only “proof” which PHH could provide was some vague paperwork by PHH officials, multiple signatures by the same executive (although with different titles each time), documents post-dated from the date of bankruptcy filing and eventually, an admittance of improper fees levied and even less proof they had a right to what was owed. The judge, unable to ascertain whether the debtor’s proposed Chapter 13 plan would be paying the right bank, completely disallowed the bank’s claim. You heard that right–the judge completely eliminated well over $450,000 in mortgage debt! Not only will this person continue to sleep in her house, she’ll be doing so knowing her mortgage payment isn’t due any time soon. Or ever.

Not every case involving a confused lender will result in such a favorable outcome. A lot will depend on the supporting documentation behind the loan, but if you bought or refinanced a home during the boom years, the chances are higher that your note holder might not be able to prove that it owns the debt. In a bankruptcy setting, this is a huge problem for the lender, and a potential windfall for the consumer.

The recent New York case is being looked at as a serious wake-up call for lending institutions: the days of free passes and assembly-line foreclosures are over. If you’re a consumer with a bad loan and bad terms you can’t afford, at the very least a bankruptcy may be an option to catch you up on the missed mortgage payments. Call an experienced bankruptcy attorney today to discuss how bankruptcy can help you save your family home. In North Carolina, call the Law Offices of John T. Orcutt. 1-800-899-1414.

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Published Sunday, October 25, 2009 @ 11:26 pm

In the past 24 months, the American suburban landscape has been ravaged by personal bankruptcies. Expanded credit limits, inflated home prices and a false sense of security in everything material contributed to one of the worst financial landslides since the 1930s. Needless for some to say, a lot can be learned from the way so many of us treated our credit reports in the last few years.

To that end, the Institute for Financial Literacy (IFL) recently shared their thoughts on what our society can take from the thousands of bankruptcy petitions filed in 2008.Surprising the IFL was that this time around, people in higher education brackets were greatly affected by the downturn, as were those in higher income brackets. Self employed individuals have also taken a disproportionate hit. Thus, many are starting to deem this a “middle-class” recession.

From a demographic perspective, more white people have filed for bankruptcy than blacks, as have more people of Asian descent. The most alarming metric occurred in the Asian population, as their rate of filing increased by an entire percentage point within one year. Given their presence within the entire U.S. population, one percent is considered a significant jump. One theory states that the Asian increase may be related to the number of small business owners hit particularly hard by this recession.

An interesting trend arose relative to home ownership. It seems that the desire to keep the family own in lieu of financial stability proved that having a house in America has become a seriously emotional issue. People have been pushed into believing that owning a home is the best sign of one’s financial wherewithal. In turn, it has created an unreasonable connection to a material asset that is now more unaffordable than ever.

The IFL made a note about the role a dependable bankruptcy attorney can have in separating a client from the material mindset, showing them that in the long run, sometimes the loss of an asset can be beneficial. Sure, the family home holds great intrinsic value. However, is it really worth the tight budget it requires? Are you cutting back on the necessities such as food and medical, just so you can hold on to a home you can’t afford?

The report also discusses the hazards of those trying to file on their own, given that one can only file for bankruptcy once every eight years. If things do not go right the first time, a person can face a very long-term financial struggle until they are eligible to file again.

It seems that almost any discussion about bankruptcy today involves the 2005 legal reform and the means test it spawned. Creditors are simply not seeing the return from that effort, given the personal credit bedlam that this current economic maelstrom has washed ashore. Unemployment numbers of this magnitude could not have been predicted. It’s not like the majority of those filing bankruptcy are choosing to not pay what they owe–with unemployment remaining near 10%, paying the bills is simply not possible.

The IFL also used their findings to reveal a few misconceptions about bankruptcy. Specifically, many people believe it is grounds for termination from your job. Even though credit reports are reviewed in some job application processes, the federal bankruptcy code prohibits employment discrimination based on a bankruptcy filing Also, the stigmas that those who file are “irresponsible” people is relaxing. These are difficult times and people from walks of life are being impacted.

Bankruptcy is a real option for many people. If you’re facing financial difficulty, don’t think of it as a last resort. A properly planned bankruptcy can help you keep the family home or car, and can get rid of all of your credit report. There’s not a better time- call today. In North Carolina, contact the Law Offices of John T. Orcutt at 1-800-899-1414. Or visit www.billsbills.com to take our free debt questionnaire.

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Published Saturday, October 24, 2009 @ 11:16 am

If you are considering filing for bankruptcy protection but are reluctant to hire an attorney to help you with the process, there might be a couple of explanations. Maybe you are feeling a little bit embarrassed about your situation and are none too eager to spill your troubles to a stranger. This is understandable but it shouldn’t hold you back; a bankruptcy attorney is like a doctor for your financial health, and there is no need to be embarrassed when you talk to a doctor.  If it’s not embarrassment or even sheer inertia holding you back, it’s easy to hazard a guess about another source of worry: attorney’s fees.

When people are ready to file for bankruptcy protection, they are thinking that the last thing they need is to spend more money. Understandable, but you should not let this stop you from seeking the help you need. Remember that the first consultation with most attorneys is often free (always free with the Law Offices of John T. Orcutt), so make sure to look for a reputable firm that offers this opportunity in your area. In a Chapter 13 bankruptcy, the up-front attorney fees are minimal, often less than $200.00. The remainder of the fees are paid through your Chapter 13 plan. If Chapter 7 is advisable, the up-front money will be higher, but your bankruptcy attorney can suggest some ways to come up with the money.

You may have heard about some the more extraordinary bankruptcies, such as the 2008 Lehman Chapter 11 filing. According to filings in a Manhattan bankruptcy court, the once prestigious investment bank, which collapsed in September 2008, paid out $402 million+ to attorneys and advisers in one year as the company struggled through a very complicated Chapter 11 reorganization. As Lehman struggles to pay back creditors, they have had to sell or auction the assets that were once the hallmarks of a prominent (and prominently excessive) bastion of the investment world. Take for example the funds they have raised through the sale of their multiple jets. Lehman’s art collection, comprising more than 280 works, is reported to be next on the chopping block as Lehman grinds through its ultra-complicated bankruptcy.

If you are worried about how much your bankruptcy attorney will charge you to help you unload assets like your old Gulfstream IV jet, who can blame you? That sounds like a pretty complicated filing. If, however, you are one of the millions of Main Street Americans whose personal lives were slammed by the credit crisis, your bankruptcy is likely to be much simpler–and cheaper. Whatever you do, don’t even consider filing without an attorney. The bankruptcy process became infinitely more complex after the 2005 law change, and only an experienced bankruptcy attorney can successfully navigate the many unforeseen obstacles.

In North Carolina, the Law Offices of John T. Orcutt always offer a free initial consultation. Call 1-800-899-1414 today to schedule a free initial consultation today. Or visit www.billsbills.com for more information.

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Published Saturday, October 17, 2009 @ 11:01 am

Data recently released by the Federal Reserve demonstrates that our collective credit card debt is on the way down and has been trending lower for the last 11 months. The “Fed” issues a monthly Consumer Credit report that tracks an array of spending metrics throughout the country. The most recent cited an annual decrease in credit card debt of 13.1 percent, totaling $899.44 billion. (Staggering, huh?) In dollars, that amounts to a $9.9 billion reduction in total debt, which is the largest decline since February.

Experts are in agreement that one of the factors contributing to this reduction is an overall decrease in credit card limits. While for some spenders, individual card limits are hardly a barrier to accumulating debt, it does prevent many people from spending more than they should. Credit card companies reported they lowered the card limits on more than 58 million users in the last year.

The more important factor contributing to the decrease in credit card debt is that we are actually cutting back on material goods purchased with credit. Granted, a drop in consumer spending has a serious impact on the economy, which is one reason (among many others) we just experienced the most punishing financial setback in almost 100 years.

Other things causing a stir in credit card marketing departments include the fact that since January 2008, more than a third of consumers have paid off or closed an active account. Their reason? The banks’ habit of raising rates and implementing surprise fees.
As a result, profits are continuing to slide. Bank earnings are dropping every month and internal squabbles continue to make the front page and afternoon business reports.

Moreover, credit card delinquencies are on the rise. According to The Fed report, Bank of America reported an increase in delinquencies to 14.54 percent of all card holders. Citigroup was up to 12.14 percent while Discover went from 8.43 percent to 9.16 percent. Serious delinquencies and a rise in the number of consumer bankruptcies may also be contributing to the number of closed accounts.

To remedy the falling profits and the pending impact of the CARD Act, credit card issuers continue to raise fees and rates. For example, Wells Fargo will push all interest rates on some credit products by a significant three points come the end of November.

For the banking industry, these numbers foreshadow a difficult future. With the end of access to easy credit and an undercurrent of anger toward the credit industry is prompting many Americans to once again start stuffing their mattresses.

It’s not a stretch to assume that in the coming years, credit cards will only be found in the billfolds of the most financially sound Americans–which is not necessarily a bad thing.

Credit can be a very powerful financial advantage. However, the companies that issued the majority if it in the last several years preyed on the collective naivete of its customers, encouraging them to spend and perpetuating the illusion that access to credit signified prosperity.

How wrong so many of us were.

If you’re struggling with credit card debt, bankruptcy can be your rescue line. In North Carolina, contact the Law Offices of John T. Orcutt for a free initial debt consultation. 1-800-899-1414. Visit www.billsbills.com for more information.

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Published Wednesday, October 14, 2009 @ 9:54 pm

It looks as if the sale of the Chicago Cubs will make it out of the bullpen and on to the playing field, after a bankruptcy judge approved the sale of the Windy City baseball team for $845 million. The family of billionaire Joe Rickets agreed to buy the team from the Tribune Co., which filed bankruptcy at the end of last year and along with the Cubs, owns The Chicago Tribune and the Los Angeles Times.

The sale will also include the iconic Wrigley Field, which the Tribune bought along with the team in 1980 for a mere $20 million. Tribune’s owner, Steve Zell, is somewhat infamous for his aggressive business dealings, which occurred mainly in commercial real estate. He managed to sell his highly profitable real estate holdings at the peak of the market, timing it almost exactly with the start of the real estate market’s rapid decline. His net from the sale was estimated at just over $900 million. He promptly purchased Tribune, which he now acknowledges as a mistake.

While the sale of the Cubs had been approved once already, it was done so again because the team filed a separate bankruptcy petition to protect itself from the creditors of its former owner.

The Cubs are the first major league baseball team to file in almost 40 years, doing so because the Tribune Co., one of the nation’s largest media companies, pledged the team as collateral when it became a private company in 2007.

The Cubs are undoubtedly one of professional sports most popular franchises, despite their inability to reach the World Series in more than 100 years. They have millions of fans around the world, in part because of their position as the perpetual underdog.

The bankruptcy is expected to be brief and will allow the new owner to be free and clear of all Tribune creditors. The Cubs franchise, in and of itself, had been operating successfully. Tribune Co., however, owes more than $13 billion.

The Cubs bankruptcy demonstrates that a business does not have to be failing to file bankruptcy. Sometimes, it’s simply the right business decision. A provision of the federal bankruptcy code, section 363, enables a company to dispose of assets “free and clear”. It also does not always require a creditor’s consent to execute.

The last baseball franchise to file for bankruptcy was the Seattle Pilots, who filed for protection in 1970. the team struck out financially and was bailed out by none other than Bud Selig, the current commissioner of the major league. The team was moved to Wisconsin and became the Milwaukee Brewers. In 1993, the Baltimore Orioles were sold as part of a bankruptcy plan but the team itself did not file.

The Law Offices of John T. Orcutt has helped many business owners through tough times. If you are suffering to keep your business afloat, speak with a bankruptcy professional today to discuss your options. In North Carolina, call 1-800-899-1414 today.

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Published Wednesday, October 7, 2009 @ 8:40 am

With the government’s new credit card legislation possibly reaching its stride two months early on December 1, a lot of frustrated credit card users may be breathing a collective sigh of relief. Given the tighter restrictions on credit card issuers, you might want to take the opportunity to be a little more choosy in selecting your new card, as industry players are going to push hard to win customers from competitors, using reward plans and low introductory rates as incentives. However, unknown to many credit card users is how reward plans are handled when payments are missed.

What far too few consumers understand is that not only do credit reports get the news when a payment is missed, so do the third party companies that handle the reward plans. Understandably, most people find themselves worried more about the late fees and interest rate bumps that occur when a balance goes unpaid. However, if you’re counting on the reward points to finance your next vacation, you may be in for a big surprise when they are told that as a result of missed payments, a big chunk of those rewards have been taken away.

A research effort at www.cardhub.com showed that each of the major credit card companies employ rules which revoke reward points when a payment is missed. That list includes American Express, Bank of America, Capital One, Chase, Citibank and Discover.

Discover seems to be a bit more brazen than their competitors. For example, miss your due date for two months and all of your points go away. All of them. (Don’t forget, Discover is “the card that pays you back.” Maybe.) American Express examines situations individually but will seemingly not hesitate to take away what you have earned. With all the other penalties for missing payments, like late fees, interest rate spikes, credit report dings and dinner time phone calls, this is just one more slap in the face to consumers.

Also, remember that the credit card companies can change the terms of a reward program at any time, without notice. Essentially, the lending industry allows points to be accumulated but not necessarily returned. Thus, a consumer may be using a card for a specific rewards program only to find that program is suddenly no longer available. Furthermore, reward programs are marketed as perks, gifts for simply doing business with a specific bank. Yet, that gift can be revoked without notice. Thanks for nothing.

Consumer advocates preach that those looking for a card with a rewards program should choose only those that offer cash back, because it can’t be devalued. Plus, you are more apt to take the cash reward earlier than if it was simply a pile of points accumulating in cyberspace over time for you to “eventually” use for a new mountain bike, kayak or trip to Yosemite.

Remember, if a card’s rewards plan is the main reason you choose to open the account, as it is for more card users today, make sure you understand all of the fine print before you make a decision.

From: The Law Offices of John T. Orcutt, with 4 convenient office locations in Raleigh, Durham, Fayetteville and Wilson. Call us today to set up your free initial consultation. 1-800-899-1414.

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Published Monday, October 5, 2009 @ 1:54 pm

Hockey season is underway. And in Phoenix, the seemingly endless off-season bankruptcy parade may finally be forgotten, for at least 60 minutes, when the Phoenix Coyotes open at home against the Columbus Blue Jackets on October 10.

For a number of months, a wave of personal vendettas and crumbling finances have plagued one of the NHL’s major market franchises ever since its now previous owner, Jerry Moyes, tried to file bankruptcy without notifying the league. Moreover, he also conspired with an aggressive Canadian billionaire, Jim Balsillie, to move the team to Hamilton, Ontario. NHL league executives were definitely not on board, especially after Balsillie had previously attempted to move both the Nashville Predators and Pittsburgh Penguins to Canada.

After U.S. Bankruptcy Judge Redfield Baum rejected Balsille’s latest bid to buy the Phoenix Coyotes out of bankruptcy, the team and its fans seem to have settled on the idea that the Coyotes may continue to howl in Phoenix. Balsillie, apparently tired of the league’s stonewalling and equally powerful first line of attorneys, agreed to not appeal.

Balsillie’s bid was for $242.5 million. But it wasn’t the money that prompted the court’s decision. The purchase of the team, according to Judge Baum, would undermine the league’s right to determine where franchises can be located. However, Baum also rejected the league’s bid of $140 million to buy the team.

So now, with skates on the ice across the country, the Phoenix Coyotes do not have an owner. Despite that, deputy league commissioner, Bill Daly, believes the team is an attractive sports franchise. “We’re confident that there will be buyers for this club that want to operate it in Phoenix,” he said.

As of the start of the season, the court has maintained that current management and staff is to remain in place and continue business as usual. Amidst the scuffle, the team has lost close to 40 percent of its season ticket holders. However, as of October 2, only 1,000 tickets were left for the opener.

Fans are ready to put the mess behind them and cheer for a hopefully refreshed team that clearly grew tired of the distractions and confusion. As a result, team sales managers are trying to sell an entire off-season’s worth of ticket packages in under 10 days. No easy task in a down economy. Nevertheless, fans are poised for a “Welcome Back Whiteout” and will be given white shirts upon entry to the arena.

Hopefully, nothing else will happen to the team’s status to stain the thrill of the opener. Except maybe some Blue Jacket blood.

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Published Sunday, October 4, 2009 @ 1:27 pm

The current administration would love to perpetuate the common belief that most personal bankruptcies are the result of ruinous medical bills. News articles cite numerous studies and statistics that support this theory. But is it really true?

The “recent” Harvard study that has been bandied about lately as proof that the broken US healthcare system is behind the majority of personal bankruptcies was originally published in 2005, five years ago, and was based on data collected in 2001. The study states that “about half of people filing for bankruptcy said health care expenses, illness or related job-loss led them to do so.” Politicians and the media are fond of attributing the “about half” statistic solely to health care expenses as a cause of bankruptcy, as in “about half of all bankruptcies are caused by medical bills.”

In the study, the actual percentage of respondents who indicated that medical issues were a significant factor in declaring bankruptcy was 46.2. This number included people who had lost a job or income due to illness or injury. Only 27 percent of respondents citing medical reasons for declaring bankruptcy indicated that they had incurred uncovered medical bills exceeding $1,000 in the past two years. This leads one to believe that while medical reasons (illness or injury) may have been a major factor in filing bankruptcy due to the loss of a job or inability to work, only a small percentage of bankruptcies resulted from actual medical bills. Said one critic: “One thousand dollars in medical debt can hardly be considered catastrophic.”

A second category in the survey entitled “any medical bankruptcy” included people who cited addiction, uncontrolled gambling, childbirth, or the death of a family member as a major contributing cause. Only by including this second group in the total number were the authors of were able to increase the total percentage of “medical bankruptcies” to 54.5 percent.

Other factors may well have been in play, and the authors themselves acknowledged that if some respondents had not faced health care problems, they may still have found themselves in bankruptcy court. The authors state: “Many debtors described a complex web of problems involving illness, work, and family. Dissecting medical from other causes of bankruptcy is difficult. We cannot presume that eliminating the medical antecedents of bankruptcy would have prevented all of the filings we classified as ‘medical bankruptcies.’ ”

The 2005 study was roundly criticized for these and other reasons and the authors decided to re-publish it with additional data and analysis gathered in 2007, thus addressing some of their critics and, for good measure, they increased the “medical bankruptcy” statistic from 54.5 up to a whopping 68.8. Bear in mind though, that this figure in the new study still includes people who have lost income due to illness or injury. Undoubtedly the loss of income, regardless of the cause, would be a major factor driving anyone into debt. That’s pretty obvious – no fancy study needed to convince people of this truth.

But the authors of the Harvard study don’t seem to want to put much emphasis on simple observations. They have pages and pages of data which have been carefully teased out of questionaires (not actual official documents) and interpreted to prove the link between bankruptcy and healthcare expenses. Interestingly, the results of their updated study were published anew earlier this year, just before the healthcare overhaul debate hit the fan.

The loss and reduction of health insurance coverage in this country during the past several years has been a national travesty. In some cases, it has sent honest, hardworking people further into debt. For the rest of us, it has made security seem more fleeting and difficult to obtain. For anyone with an overwhelming debt burden, whether it came from medical expenses or other sources, there can be relief. Seek the advice of a bankruptcy attorney to learn about your options.

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Published Friday, October 2, 2009 @ 6:38 am

As bad as collection agents can be in America, their efforts pale in comparison to the debt reconciliation efforts that are allowed in Dubai, the most populous state within the United Arab Emirates and the penultimate symbol of Middle Eastern opulence.

In Dubai, which is located along the southern coast of the Persian Gulf on the Arabian Peninsula, those who bounce a check, miss a rent payment or go into debt of any kind, are subject to arrest, incarceration and a quick prosecution that in many cases will mean time behind bars. Before you think this is part of some outdated law that rarely gets enforced, like many bizarre American laws that show up on funny e-mail chains–think again.

As part of a statewide effort to curb financial fraud after several years of unprecedented financial expansion, government officials are actively tracking down anyone who owes money and encouraging private citizens to do the same. To be in debt in Dubai is to be labeled a criminal.

To the government’s credit, they have been properly aggressive in nailing fraudsters and egregious scammers to the tune of well over $3 billion. However, law enforcement is also coming hard after ordinary folks who happen to fall behind on everything from rent to their checking accounts. Making matters worse is that many of those falling into financial disarray are foreigners that, for the most part, have driven the region’s exponential growth.

A real estate agent named Ali Fariq and his brother are now serving three years in jail after initially being kidnapped at the hands of an investor with whom he worked. Apparently, the investor was not too happy with her return on the deal and by force had them sign checks for $600,000 to pay her back. Knowing they did not have those funds, she promptly presented the checks to authorities to demonstrate fraud. Despite their ability to prove the checks were not theirs and signed under duress, the government recognized another opportunity to show the public that financial misdealings of any kind will not be tolerated and put the siblings in prison.

While the former is an extreme case, lenders now have a precedent by which to pursue those who owe. In some cases, all it would take to engage criminal proceedings is a one-page document proving a late payment or inadequate funds.

Global economy proponents fear such laws will hamper Dubai’s ability to bounce back after the recession. Known for its obscenely ornate resorts, vast commercial real estate developments and ability to cater to the world’s ultra-wealthy, Dubai literally established new limits for what money could buy. Its legal system, one that many deem antiquated because of its base in Egyptian civil and Islamic law, is unable to keep pace with quickly changing social systems and a financial structure that its rapid growth and foreign investment introduced.

Those who invested in Dubai from other parts of the world have typically been able to operate with the understanding that business and personal debt, while not something to be brushed off, carried with it legal protections or at the very least, more reasonable ways to be alleviated.

Arrests and prosecutions for debt have increased substantially since the global markets tumbled many months ago. Police are being torn from more serious protective efforts to tracking down those who owe what in America would be subject to a charge off or simple renegotiation. Some pressure is being applied to government to alter the laws and allow debts to be settled in civil courts, not criminal.

In the U.S. , debtors prisons were formally eliminated by federal decree in 1833. However, creditors still have some legal tools which can seriously affect you and your family. If you fail to pay a debt, you can be sued. If a judgment is obtained, the creditor can take money from your bank account and force a sale of your home or other property. But you can fight back! Bankruptcy will immediately stop a lawsuit from continuing, and put you back in control! Call a bankruptcy attorney today to learn more. In North Carolina, contact the Law Offices of John T. Orcutt to set up a free initial debt consultation. 1-800-899-1414.

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Published Thursday, October 1, 2009 @ 10:15 am

Dealing with debt collectors is no picnic. Despite increased efforts by the government to protect Americans from some of the more questionable debt collection practices, hapless consumers continue to face the rude, callous pestering of debt collectors as they struggle to stay on top of their finances. While the mental distress caused by debt collectors may be no surprise, this case may well present an issue of first impression: Dianne McLeod, a widow residing in Florida, is suing her mortgage company, Green Tree Servicing, for her husband’s wrongful death. In the suit, McLeod alleges that the illegal practices of Green Tree’s collectors led to her husband’s untimely death of heart failure at the age of 57.

Stanley McLeod worked at Sears until he suffered a heart attack while at the job in 1997. During his recovery, Stanley was unable to hold down a full time job. The McLeods began to fall behind on monthly payments for their mortgaged home in Keystone Heights, close to Gainesville, Florida.

Soon, debt collectors representing the mortgage company began to call incessantly. According to Dianne McLeod, the debt collectors called as many as nine times a day, often leaving rude and harassing messages on the family answering machine. The McLeod’s attorney, William Howard of Tampa, Florida, says he is looking forward to playing the tapes for a jury. Howard considers the tapes pretty damning evidence of the debt collector’s operating procedure and is willing to bet that a jury will be sympathetic to Dianne McLeod’s suit.

Green Tree Servicing executives, meanwhile, have called McLeod’s claim “outrageous and meritless.” Speaking on behalf of the company, Brian Corey, Green Tree’s senior vice president and acting counsel, has denied the charges that wrongdoing on the part of his company was the cause of Stanley’s death. But according to his widow, Stanley’s health, already weakened from his first heart attack, visibly suffered as calls and collection efforts from Green Tree intensified starting in August 2005. Dianne says that after Stanley would receive a call from Green Tree Servicing, or listen to a message left on their machine, his face would redden and his breathing would grow labored. Dianne believes that Stanley’s health was progressively worn down by harassment from their mortgage company, culminating in her husband’s death of heart failure in December 4, 2005.

The McLeods already had a pending suit against Green Tree for unfair debt collection practices. The suit alleged that Green Tree broke Florida collection laws by calling too often, using harassing tactics, and contacting people outside the household in an attempt to collect on the debt. Following Stanley’s death at the end of 2005, Howard added the wrongful death claim. The attorney says debt collector harassment claims like the McLeod’s are not uncommon; he personally is handling about 500 claims from other people unduly harassed by debt collectors. He believes the McLeod’s case is the first wrongful death claim to have resulted from the illegal practices of debt collectors.

As you read this amazing story, did you find yourself sympathetic to the McLeods because of first-hand experience? Do you feel like debt collectors are hounding you to death? If you are tired of dealing with the threats and rough treatment from debt collectors, contact a bankruptcy and consumer rights attorney today. In addition to the protections of the Bankruptcy laws, you may have a claim for unfair debt collection practices. In North Carolina, call the Law Offices of John T. Orcutt. 1-800-899-1414, or visit www.billsbills.com to set up an appointment online. Your first appointment is free. Don’t wait another day.

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Published Tuesday, September 29, 2009 @ 9:44 am

It has been a number of months since new laws were passed to address the aggressive marketing tactics of credit card companies and their downright crooked methods of making money through penalty fees and interest rate hikes. To date, even with some facets of the law intact, few consumers are realizing a positive impact. This is because credit card companies have used the government intervention as an excuse to increase rates and invent new fees before the real teeth of the law come into effect in February of 2010.

Thankfully, it sounds like lawmakers behind the effort have caught wind of the ongoing tactics and are now pushing to enact the laws sooner than expected, as early as December of this year.

Representative Barney Frank, chairman of the House Financial Services Committee and by no means a novice at how to get under the skin of big business, is leading the measure to get the law into action sooner. He is joined by fellow Democrat Carolyn Maloney of New York. The act also prevents credit card companies from raising interest rates unless a customer is more than 60 days late and requires the original rate to be restored after six months of on-time payments.

Aspects of the legislation considered for the proposed December 1 deadline include the requirement that credit card companies apply payments to the cardholder’s highest balance accounts first. The legislation would also put an end to the practice of “universal default” interest rate hikes. This practice allows individual lenders to increase interest rates if their customer defaults on an account with a completely different lender. When this happens, multiple credit accounts set to the default rate simultaneously, greatly increasing the chance for additional defaults and added fees.

Industry card issuers have been primarily pushing fees to address tactics consumers use to avoid higher payments, such as when a customer transfers balances from a high interest card to one that may be offering a much lower introductory rate. Discover Financial Services, which issues the Discover Card, announced an increase in balance transfer fees from three percent to five percent of the balance. On a $5,000 balance, the cost would go from $150.00 to $250.00.

In recent months, American Express, Chase, and Bank of America have all raised interest rates across the board, and have changed many account holders’ interest rates from fixed to variable. A representative from www.lowcards.com stated that their company has tracked more than 50 interest rate, fee and terms changes by eight card companies since January, which is when the bill was starting to take shape in Washington.

Rep. Frank and others in Congress are not pleased with the credit industry’s reaction to the Act, and are looking to put a stop to abusive lending practices as soon as possible. However, even with the changed effective date, consumer advocates fear that credit card issuers will simply raise the interest rates before December 1st, leaving many consumers to deal with unmanageable interest rates at a time when account balances are often at the highest– right after Christmas.

If you’re sick of the interest rate hikes, sick of the penalty fees, and want an opportunity to start fresh, call a bankruptcy attorney today. In North Carolina, call 1-800-899-1414 to set up a free initial debt consultation. Or visit www.billsbills.com, where you can fill out our confidential debt questionnaire and set up an appointment at one of our 4 convenient office locations.

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Published Wednesday, September 23, 2009 @ 10:41 pm

Say you find yourself struggling with a mountain of debt. Your paycheck seems to be spent before you even get it, as soon as you pay a bill another one arrives, and you’re starting to wonder how much longer you can deal with the stress of unmanageable debt. To make matters worse, you fall behind on your housing payment and your bank threatens you with foreclosure.

So when your phone rings and a professional sounding individual on the other end promises to stop your foreclosure or even modify your mortgage, you see it as a godsend! After all, the government has been promising to help Americans hold on to their homes. A foreclosure assistance agency may even be part of a government effort to help people just like you. As a matter of fact, nothing the “foreclosure assistance agency” says leads you to believe otherwise. Should you take the leap?

Unfortunately, as all too many have learned the hard way, there are no miracle cures when you have serious debt problems. With so many people struggling to hold on to their homes, it comes as little surprise that scammers are taking advantage of vulnerable homeowners at the worst possible time.

So how do these schemes work? In most of these scams, a company will call a homeowner and offer help in stopping a foreclosure. Some companies are little more than a call center, with no attorneys, accountants or loan specialists employed.. The companies demand a fee upfront, sometimes as much as $3000.00. Desperate homeowners will pay the fee, only to discover–often when it is too late–that the company did nothing at all to help them.  Because of this all too common model, one measure the FTC is considering is a ban on up-front fees for mortgage assistance.

Since April, the government has promised to crack down on “foreclosure assistance” outfits posing as government agencies. Now, a recent meeting of the multi-agency taskforce created by the Obama administration to address the problem of mortgage fraud updated the public on the government’s efforts.The FTC brought civil charges against two companies this week that were running foreclosure assistance scams. This brings the number of such cases this year to 22.

One of the worst aspects of this situation is that many of the companies work to create the impression in homeowners that they represent a government agency. The two companies charged this week were doing precisely that, and the government is working hard to crack down on these wrongdoers in particular. It’s your responsibility as an informed consumer to protect yourself. If you are being asked to pay a hefty upfront fee, it’s a good sign that the modification program is a scam. And remember, bankruptcy is always an option if you are behind on your mortgage. A Chapter 13 bankruptcy will catch up your missed payments over a 5 year plan, and eliminate your unsecured debts. Contact a bankruptcy attorney today to find out more. In North Carolina, contact the Law Offices of John T. Orcutt at 1-800-899-1414. Or visit www.billsbills.com to complete our confidential debt questionnaire.

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Published Wednesday, September 16, 2009 @ 10:06 pm

The four-year anniversary of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) is right around the corner. You might recall all the hype in the months leading up to the enactment of BAPCPA. This was the banking and credit industry’s seventh attempt to get the legislation on the books. They pitched BAPCPA as necessary to curb “rampant abuse” and to restore “personal responsibility and integrity” in the bankruptcy process. With the Bush Administration at the helm of a Congress chock full of conservative lawmakers, the banks and credit card companies finally clinched a large enough sympathetic audience to bring its agenda to life.

BAPCPA called for sweeping changes to the Bankruptcy Code – undoubtedly the most significant overhaul of the Code since it was enacted in 1978. The depth and complexity of the changes caused much confusion, uncertainty, and speculation about what protections would be left for consumers in the new world of consumer bankruptcy practice. This sparked a mad dash to file bankruptcy before the new laws went into effect on October 17, 2005. So what does this new world of bankruptcy practice look like four years after BAPCPA took effect? Did the banking and credit industry get its money’s worth for the billions it spent marketing the legislation?

Well, one thing’s for sure: the new laws did make it more expensive and difficult for consumers to take advantage of the protections that bankruptcy has historically provided. But one of the primary things BAPCPA’s backers hoped to achieve was to force more debtors out of Chapter 7 liquidation and into repayment plans under Chapter 13. The primary mechanism to achieve this goal was a set of eligibility thresholds for Chapter 7 based upon a person’s income – particularly BAPCPA’s now-infamous “means test.” Generally, if your income exceeds the median income for a family of your size in your state, or if your monthly disposable income is more than $100, you’re presumed ineligible for Chapter 7.

BAPCPA’s backers were betting these new rules would sharply reduce the number of Chapter 7 cases, so debtors would ultimately have to pay back more of their debt. But despite the sweeping “reform,” the numbers have remained pretty much the same. Between 1999 and 2004, before BAPCPA was enacted, the average percentage of cases filed under Chapter 13 was 29 percent. Initially, in the first year after BAPCPA, the percentage of Chapter 13 filings rose. But, by this year, the numbers had returned to pre-BAPCPA levels: in fact, during the first seven months of 2009, the average percentage of Chapter 13 cases was actually lower – 27.6 percent.

Here’s another interesting fact: The United States Trustee’s Office reviewed the Chapter 7 filings between October 17, 2005, and June 30, 2006, and determined that 94 percent of the debtors automatically qualified for Chapter 7 under the means test – based upon their income alone. Another 5.4 percent qualified when their expenses were taken into account. That is, 99.4 percent qualified for Chapter 7; only 0.6 percent were presumed abusive filers under BAPCPA’s new rules. This likely explains why the percentages of Chapter 7 and Chapter 13 cases have remained fairly consistent: the vast majority of those who file for Chapter 7 meet the new strict income requirements.

It also appears that BAPCPA credit counseling requirements have had little impact on the number of filings, other than to make the process more expensive and time-consuming. The Government Accounting Office issued a report finding that “by the time most consumers receive credit counseling, their financial situations are dire, leaving them with no viable alternative to bankruptcy.” In addition, the National Federation of Credit Counseling has found that less than four percent of potential filers choose not to file bankruptcy after attending the required counseling.

As far as the overall number of consumer bankruptcy filings, while the total number of filings dropped in the first year after BAPCPA was enacted, they have steadily climbed back to their historic levels. In fact, with the current economic downturn – which kicked in less than two years after BAPCPA came on line – so many people are seeking bankruptcy protection that the filings are beginning to rival the figures we saw during the mad dash to file before BAPCPA was enacted.

Much to the chagrin of those who footed the massive bill to push BAPCPA through Congress, the numbers show that the vast majority of those who need the protection of Chapter 7 will still seek that protection – and qualify for it. The numbers also suggest the backers’ central platform for marketing BAPCPA – that people were routinely abusing Chapter 7 – was groundless, or at least greatly exaggerated.

Bankruptcy is back! – despite the efforts of the banking and credit industry to stifle filings through BAPCPA. With the help of an experienced bankruptcy attorney, you too can use the power of bankruptcy to eliminate debts that have made your life unmanageable.

In North Carolina, contact the Law Offices of John T. Orcutt, with convenient office locations in Raleigh, Durham, Wilson, and Fayetteville. The firm offers a free debt consultation, as well as affordable payment plans for both Chapter 7 and Chapter 13 cases. Call (toll free) 1-800-899-1414 or visit www.billsbills.com for more information.

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Published Sunday, September 13, 2009 @ 10:44 am

In July, the number of people who defaulted on their credit cards dropped for the first time in several months, leaving many financial experts to wonder about the cause.

In the midst of speculation that the recession may be turning around, bankruptcy filings continue to climb and many debt management and bankruptcy attorneys cite a rise in the number of people leveraging retirement funds to stay afloat. Additionally, running contrary to the default reports is evidence supplied by some credit card issuers that in July, there was an increase in those who fell behind on payments, but have yet to reach default status.

Most of the major players in the industry, Bank of America, American Express, Capital One Financial and JPMorgan Chase, are in agreement that the number of accounts that ended up in default in July fell. Thus, there was an increase in the number of payments made on time. For some, that can be a sure sign that some aspects of the economy have improved. However, looking closer at the statistics, the correlation between the numbers and the status of the economy is not so clear.

With an estimated 6 million people living on unemployment benefits, many of the aforementioned lenders have eliminated accounts held by those in the highest risk pool. With that demographic completely out of the picture, the number of defaults will obviously decrease. In many instances, lenders are accepting less than the standard monthly minimums, which leads to more on-time payments but puts the consumer deeper in the hole. Perhaps most troubling, many cash-strapped consumers are pulling money from retirement accounts to keep from getting behind.

Overall, few experts will go on record saying that the decrease in credit card defaults is a sign of America’s improving financial health. Basically, it all comes back to unemployment. If jobs are scarce, credit card payments will be too.

There been signs of an improving home sales market. However, that can be attributed to a brief run on low-priced homes, foreclosure investing and wholesalers absorbing large tracts of unfinished or bargain homes at a discount.

Unfortunately, banking experts can cite mountains of data to suggest that in lean times, people use credit cards as cash draws. If unemployment remains a challenge, the country will continue to look to their credit lines for money to bridge months of dwindling paychecks. As summer winds down and the holiday seasons emerge from earlier-than-ever marketing campaigns designed to encourage economic stimulation, consumers are expected to once again overspend and thus tilt the growth in default numbers back to positive early in the New Year.

If the wave of holiday over-spending joins the unemployment headwinds, credit card defaults, credit bureau reporting and most likely, bankruptcies, will once again spike. Currently, bankruptcy filings are at their highest levels since before 2005, when legislation was enacted to cut back on the number of bankruptcies.

If you are behind on your credit card payments, don’t eait another day to speak with a bankruptcy attorney. In North Carolina, call the Law Offices of John T. Orcutt at 1-800-899-1414 to set up a free debt consultation.

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Published Monday, September 7, 2009 @ 7:20 pm

So let’s say you run into some financial troubles. You meet with a bankruptcy attorney to discuss your options. You’re thinking that, if you’re going to file, you should try to refinance your mortgage first to lower the payments and ease some of the pressure. You’re also thinking you might want to go ahead and replace that old clunker with a reliable car to make sure you won’t have a problem getting to work during your bankruptcy case. And let’s say the attorney agrees with you. Can he tell you that? It seems like the answer should be obvious. He’s a bankruptcy attorney. If he thinks these are things you should consider, he should be able to advise you of that, right?

Well, maybe not. Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), a “debt relief agency” can’t advise a client “to incur more debt” – like, for instance, a new home mortgage or car loan – in considering whether the client should file bankruptcy. The question then becomes, is a bankruptcy attorney a “debt relief agency?” If so, BAPCPA says he can’t advise you to take such actions; if not, he can. The distinction is important for another reason: debt relief agencies must include in all their advertisements to the general public a disclosure statement to the effect that, “We are a debt relief agency. We help people file for bankruptcy under the Bankruptcy Code.”

BAPCPA broadly defines “debt relief agency” to mean “any person who provides any bankruptcy assistance” in exchange for compensation, and carves out a list of exceptions for certain individuals and entities – attorneys not among them. The Act goes on to define “bankruptcy assistance” as any advice, counseling, or legal representation in connection with a case or proceeding under the Bankruptcy Code.

Given the sweeping definitions of these terms, bankruptcy attorneys could well be considered “debt relief agencies” under BAPCPA. This creates a predicament for attorneys in cases where it may be in the client’s best interest to incur certain debts before filing: advising the client of this could violate BAPCPA, but failing to do so could violate the attorney’s ethical obligation to assist the client in achieving the best results.

The courts are divided on this issue. The Eighth Circuit Court of Appeals is the latest to step into the fray. In that case, Milavetz, Gallop & Milavetz, P.A., a Minnesota bankruptcy law firm, sued the United States seeking declaratory relief that attorneys were not “debt relief agencies” under BAPCPA and that, if they were, both the advice restriction and the disclosure requirements were unconstitutional. The District Court agreed with the plaintiffs. But on appeal, the Eighth Circuit found the broad definition of “debt relief agency” did in fact include bankruptcy attorneys. It also upheld BAPCPA’s disclosure requirements, finding they were reasonable requirements designed to avoid potentially deceptive advertising.

However, the Eighth Circuit struck down the advice restriction as an unconstitutional restraint against free speech under the First Amendment. The court concluded that the restriction “prevents attorneys from fulfilling their duty to clients to give them appropriate and beneficial advice . . .” For example, the court explained, “it may be in the [client’s] best interest to refinance a home mortgage in contemplation of bankruptcy to lower the mortgage payments. This could free up additional funds to pay off other debts and avoid the need for filing bankruptcy altogether.”

Well, as you might expect, neither party was completely satisfied with this decision. The plaintiffs dispute the court’s conclusion that an attorney is a “debt relief agency.” The government disputes the court’s conclusion that the advice restriction is unconstitutional. Both petitioned the United States Supreme Court for review. In June, the high court granted the petitions and will decide the issue once and for all.

In the meantime, the American Bar Association (ABA) has weighed into the controversy. With more than 400,000 attorneys on its membership rolls, the ABA is the largest bar association in the country. Last week, it filed a brief with the Supreme Court in support of the plaintiffs. The ABA mounted a strong opposition to including attorneys within the definition of “debt relief agency” under BAPCPA.

“[A]n attorney’s ability to engage openly and candidly with clients, free from governmental interference, is essential to the ‘full and frank communication between attorneys and their clients’ and serves to ‘promote broader public interests in the observance of law and administration of justice,’” the ABA wrote. In step with the Eighth Circuit’s view, the ABA argued that the danger of applying the BAPCPA provision to attorneys is that it “would place attorneys in the untenable position of being statutorily prohibited from using their legal skills and judgment in determining many aspects of their representation of clients.” This would in turn prohibit an attorney from “learn[ing] the full financial picture facing the client at a time when the client can ill afford less than full disclosure.”

The Supremes are expected to decide the case in their next term.

From: The Law Offices of John T. Orcutt, with convenient office locations in Raleigh, Durham, Fayetteville, and Wilson. Call (toll free) 1 800 899 1414, to set up a free, confidential debt consultation. Visit www.billsbills.com for more information.

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Published Saturday, September 5, 2009 @ 8:16 am

Let’s say you file a Chapter 13 bankruptcy petition in a given year. You state in your petition that you owe state income taxes for the previous year and give an estimate of that amount. The bankruptcy court confirms your plan. You then file your state income tax return, showing you owe even more than you stated in the plan, and you don’t pay the taxes. You successfully complete the plan over the next few years. The bankruptcy court issues a discharge order, declaring you free of all debts under the plan. Everything seems fine: you’re ready to put your troubled financial past behind you and move on with your new life. But then you get a bill in the mail for the unpaid income taxes from the year before you filed your petition. Do you have to pay them?

The Ninth Circuit recently faced this question in Joye v. Franchise Tax Board, and it said “no.” In that case, California residents Shelli and Teresa Joye filed a Chapter 13 petition in March 2001. The Joyes listed an estimated debt of $10,000 in state income taxes for the year 2000. They had not yet filed their state income tax return, and they got an extension to file it late. The Franchise Tax Board of California (FTB) did not file a proof of claim for the taxes. The bankruptcy court approved the Joyes’ plan. Five months later, the Joyes filed their state income tax return, which showed they actually owed more than $28,000. Over the next few years, the Joyes made payments on the plan and successfully completed it in February 2004. The next month, the bankruptcy court issued the discharge order.

But then the FTB sent the Joyes a bill for the year 2000 unpaid taxes. The Joyes went back to the bankruptcy court, arguing that the FTB was in violation of the discharge order. The court agreed: it found the taxes had been properly discharged under the plan. The FTB appealed to the district court. That court also found the taxes had been discharged, but ultimately ruled in favor of the FTB. It found that prohibiting the FTB from collecting the debt would be fundamentally unfair because the state relies on the taxpayer to determine the taxes due and the Joyes did not file their return until after the period to file a proof of claim had elapsed.

It was the Joyes’ turn to appeal now, and they brought their case to the Ninth Circuit. The Joyes got the answer they wanted: the court ruled they did not have to pay the $28,000. The key to this decision was the court’s finding that the taxes did not qualify as a “post-petition” claim protected from discharge. The Bankruptcy Code allows a governmental entity to file a post-petition claim “for taxes that become payable to a governmental unit while the case is pending.” So, if the taxes became “payable” during the pendency of the case, the Joyes were on the hook. But they did not, according to the Ninth Circuit.

The court reasoned that Chapter 13 of the Bankruptcy Code is generally concerned with satisfying or discharging “claims” against a debtor. The Code defines “claim” broadly to include any right to payment, whether or not the right has actually matured or become enforceable by the time the petition is filed. Thus, the term “payable” in the context of such claims is broad enough to “refer[] to a time before the creditor’s right to payment matures into a legally enforceable prerogative.” In other words, it is enough that the claim “is capable of being paid” before the petition is filed. If it is, the claim is considered a debt that was incurred before the petition was filed and is thus included among the debts subject to discharge at the end of the plan.

The taxes the Joyes owed from the year 2000 were technically “payable” – that is, “capable of being paid” – any time after the last calendar day of that year. Regardless of when they filed the income tax return or when the taxes were actually due, the Joyes could have determined and paid the taxes as early as January 1, 2001. Because this was before the Joyes filed their petition, the debt was a pre-petition debt subject to discharge at the end of the plan.

The Ninth Circuit rejected the FTB’s argument that the taxes were “payable” on the date they were actually due. In doing so, the court noted there was a split in the federal circuits here. The Tenth Circuit has applied a similar interpretation of “payable” in resolving this issue, but the Fifth Circuit has held such taxes are “payable” when they “must be paid” – i.e., when they are actually due. In the Joyes’ case, that was months after they filed their petition.

The Ninth Circuit quickly dismissed the FTB’s alternative argument that it was denied adequate notice since the Joyes’ tax liability was undetermined until they filed their return. The court found the FTB received adequate notice through the bankruptcy court’s official notice of the petition, which informed the FTB of the deadline by which to file a claim for unpaid taxes.

So now the Joyes can rest easy in the knowledge that they can scrap the $28,000 tax bill from the state of California. This is also good news for other debtors living in the Western and mid-Western states (the states within the geographical areas subject to the jurisdiction of the Ninth and Tenth Circuits) who enter a Chapter 13 case with state income tax liability from the previous year. But this issue will surely resurface again. As more circuits weigh in on the question of when such tax claims become “payable,” the Supreme Court may have to step in to resolve it once and for all.

From: The Law Offices of John T. Orcutt, with convenient office locations in Raleigh Durham, Fayetteville, and Wilson. Call (toll free) 1-800-899-1414, to set up a free, confidential debt consultation. Visit www.billsbills.com for more information.

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