Dusting Off This Blog For the Next Economic Downturn

 After a morning of watching stories about the economy and China's economy turning south I decided to revive my bankruptcy contacts and restored this blog that I forgot that I had had. And so this is the first post of 2022. The first post since 2010!

But I'm in the middle of reviving my bankruptcy contact I have updated it means tax calculator so I figured it was time to update this blog also. I will occasionally drop in here and talk about caselaw and other things that relate to the means test. For now I'll just post a link to the means test which was last updated and May 15 of 2021. (The feds decided to forgo any changes in November like they typically do this year.)

New Median Income Standards increased by 3.16% — for all 50 states?! — as of May 1, 2012

Under the 2005 bankruptcy law, BAPCPA, being under the median income for your state means lots of things, including a shorter plan period if you're in Chapter 13, and if you're in Chapter 7, being below the median frees you from the burden of completing the hardest parts of the means test.

The justice department has released its new median income numbers for all 50 states, to be applied to means tests in Chapter 7 and Chapter 13 bankruptcies starting on May 1, 2012.

In an odd twist, unlike other revisions, where each state's median income figures rose and fell with it's own economic wellbeing, this latests revision of figures has an odd twist -- all 50 states for family sizes 1 through 4 has the identical percentage increase of 3.16 percent.

As of this writing is is not clear why these median income figures seem to be divorced from actual data this time around. Also not clear if this is a one time occurrence or can be expected to happend again.

LegalConsumer.com has prepared a handy widget where you can view your state's median income figures as they must be applied in the means test, and you can see what they'll rise to May 1, 2012.

Google makes Means Test Case law easier to find.

Official Google Blog: Finding the laws that govern us

Google changed everything today. Now, finally, case law research can be done by anyone, for free. Perfect for federal bankruptcy law.

This is the tool I've been waiting for! Check it out.

I've spent the day using it and integrating this into my soon-to-be-released Means Test Case Law feature to be added to my Bankruptcy Means Test Calculator on LegalConsumer.com.

Look for it soon!

Consumer late payments surge

CollectionIndustry.com reports that late payments on consumer accounts is surging.

Experian Consumer Direct, a leading provider of online direct-to-consumer credit reports, scores and monitoring, today announced the results of a recent National Score Index study showing a 16.9 percent decline from 2001 to 2006 in the rate at which consumers are opening new credit accounts and a 12.6 percent rate at which late payments of 90 days or more are increasing.

The national average credit score is 675 — 7 points lower from 2001 when it was 682.

The rate of consumers opening new accounts, including installment loans (i.e., auto and student loans) and revolving credit accounts (i.e., bank and retail credit cards), in 2006 has fallen to 41.0 percent from 49.3 percent in 2001. The rate at which consumers were 90 days or more late in payments increased 12.6 percent from 2001 (39.6 percent) to 2006 (44.6 percent).

"The drop in the rate of consumers opening new accounts in 2006 may give the appearance that they are being more conservative with regard to using credit, however this may not be the case when combined with other results from our study," said Ty Taylor, president of Experian Consumer Direct. "Although our data shows a drop in the rate of consumers opening bank credit card accounts, it also shows that their balances on other types of loans, such as installment loans, are increasing."

Bankruptcy cases fall 80 percent in Florida, but means test is "meaningless"

Reporter Harriet Johnson Brackey of the South Florida Sun-Sentinel reports that consumer fear of the new process has caused filings to drop by 80%, but that fear may be unfounded.

Lawyers say consumers fear the process will be more difficult, expensive and time-consuming than in the past -- all for the sake of getting less protection than before the law was changed. Those fears, bankruptcy experts say, are not all based on the truth.

Debtors must now pass an income test to be allowed to file for protection from creditors under Chapter 7 of the bankruptcy code, under which many debts are dismissed.

If their income is too high, most debtors now are forced to go through Chapter 13, which requires repayment of debts. This process can last five years.

As for the income test, that "has been meaningless," said bankruptcy Judge Jay A. Cristol, who presides in Florida's Southern District in Miami. The income test has applied to only one case he's handled all year, he said. For Florida, the median income is $36,796 for singles and $62,269 for a family of four.

Nationwide, too, only a "handful of cases" have hit the state median income limit, said Henry J. Sommer, editor-in-chief of LexisNexis Collier on Bankruptcy. "There never were a lot of people who could afford to pay their debts who were filing for Chapter 7."

Failure to save pay stubs can block bankruptcy eligibility

Dylan McCament of the Mount Vernon, OH News reports a large drop in filings there.

Local attorney Josh Brown said he’s noticed a huge drop in the number of people filing for bankruptcy after the law went into effect, but said the numbers are starting to bounce back.

“A lot of people have the misconception that they can’t file under the new law,” Brown said.

Local attorney D. Derk Demaree has had a similar experience.

“Things slowed down to a crawl,” he said. “They’re building up momentum again.”

He said he thinks people are aware that Chapter 7 bankruptcies are not as automatic as they used to be.

“There were a lot of people who normally I would have put them in a Chapter 7 and not thought twice about it,” Demaree said.

According to Demaree, the new laws can hold the attorneys responsible if their clients are dishonest about their personal information. Demaree said this has thrown fees wide open in some cases.

Although Brown has not seen more people funneled toward Chapter 13, he said filing for Chapter 7 has become more time-consuming and expensive. Filers have to pay for credit counseling and for a financial management class to get a discharge. The filing fee also increased. And, in general, the costs for an attorney, although these vary, also increased because the process takes more time now, Brown said.

Brown said debtors have to get a certificate verifying they successfully completed a credit counseling course before they can file. They are also required to keep their pay stubs from work for the last six months, but many don’t save the stubs. Brown said the information is required to find out whether the debtor qualifies under the means test.

Brown said Chapter 7 has not gone away; most people seeking a Chapter 7 still qualify.

“It takes more time to get a case ready,” he said. “Before (the law took effect) we could probably do everything in an hour or hour-and-a-half interview. Now the first interview alone takes an hour and a half, and there’s usually another follow-up interview that takes just as long.”

Brown said filers have to be more organized than in the past, with more documentation, but did say bankruptcy relief is still available for those who need it.

Cincinnati bankruptcy filings way down

Reporter Alexander Coolidge reports for the Cincinnati Enquirer that filings are down two thirds under the new law.

David Kruer, a bankruptcy lawyer with an office downtown, said he’s beginning to see filings return to normal volume after flood last fall that slowed to a trickle early this year. He estimates new clients filing recent are at about 80 percent of the same level they were last year before the rush.

“Bankruptcy is alive and well but there’s a bunch of painful new hoops to jump through,” he said.

Other lawyers note another development since the law change that might be keeping filings down is increased expenses. Because attorneys are required to do more in under the law, the going local rate for a Chapter 7 bankruptcy has jumped from around $700 to easily $1,000.

Filings are fewer, but is that good?

The Dallas Morning News reports that the means test is having little if any effect on curbing bankruptcies. And with good reason.

The main provision of the law is an income test and other measures designed to push more bankruptcy filers to repay at least some of their debts in Chapter 13 rather than having all their debts wiped away in Chapter 7.

But that measure is having little effect, bankruptcy attorneys and credit experts said.

"Abusers were always a very small part of that population," said Samuel J. Gerdano, executive director of the American Bankruptcy Institute in Alexandria, Va., a nonpartisan organization. "Our study that we funded in the late '90s showed only about 3 percent of the Chapter 7 population even had the ability to fund a repayment plan. That still holds today."

A survey by the bankruptcy attorneys group found that less than a third of bankruptcy attorneys are seeing an increase in forced Chapter 13 repayment filings. Fewer than one in 20 reported a major increase.

The new law also requires debtors to undergo credit counseling before they file for bankruptcy, with the hope that they can work out their debts without filing.

Credit counselors said they're not seeing much success along those lines.

"We're looking at between 3 and 6 percent who are being converted to our debt management plan," said Bonnie Peterson, director of education and marketing at Consumer Credit Counseling Service of North Central Texas. "The rest are just upside down way too much to be able to pay it back."

Bankruptcy's New Era

Kathleen Day of the Washington Post reports on the new realites under the new bankruptcy law.

Lawmakers, consumer advocates and industry executives say that much of the sudden drop in filings after Oct. 17, 2005, can be explained by the fact that 600,000 people filed in the two weeks before the law took effect, a scramble that was 10 times the normal level of filing over 10 business days in recent years.

But the filing rate for the first half of 2006, about 10,000 a week, is well below what could be attributed to last year's mad dash, surprising the lawmakers who wrote the legislation and the industry executives who lobbied for it. "So far, I think it is too soon to make firm judgments," said Sen. Charles E. Grassley (R-Iowa), one of the bill's chief architects.

more...

"It's just too early to draw any grand conclusions," said Samuel J. Gerdano, executive director of the American Bankruptcy Institute, a nonprofit, nonpartisan research group. He said one reason that lower-than-expected filings have persisted is that people might be afraid or misinformed. He has heard of anecdotal evidence that some debt collectors are incorrectly telling consumers that the new bill bars bankruptcies or makes it nearly impossible to file, though no one has studied the matter.

"It's very possible there's consumer misunderstanding about the extent bankruptcy protection's available and at what cost and at what hassle," Gerdano said.

And this interesting note...

The National Foundation for Consumer Counseling, which represents many nonprofit firms, yesterday released a survey of its members that found that the industry has been able to handle the volume so far. But the survey also found that a firm's average cost of counseling a person is $50 but that on average it can collect only $40 to pay those costs.

Credit card fees head higher

Jeanne Sahadi, CNNMoney.com senior writer reports today that, despite the credit card industries promise that bankruptcy reform would save consumers money, by allowing lower rates, the opposite, in fact, is happening.

(Shocking news!... )

The average late fee in 2005, for example, was $34, up 162 percent from $13 in 1995, the GAO found. Over-the-limit fees were $31, up 138 percent from $13 during the same period.

Penalty rates this year are almost certainly higher, since regular variable rates charged to consumers have gone up four percentage points, said Linda Sherry, Consumer Action's director of national priorities.

Credit card companies surprised, delighted by sustained drop in bankruptcy filings

Moody's Investors Service reports that credit card issuers are enjoying the effects of the new bankruptcy law. Credit card delinquency rates remain at or near a record-low level.

"Issuers and investors alike have been surprised by the magnitude and duration of the fall off in bankruptcy filings and are closely watching delinquency rates for signs of deterioration."

Drowning in credit card debt? You're not alone

David Morrill, business writer for the Tri-Valley Herald reports that SF Bay Area residents face a credit crunch, and reports on various options for dealing with it.

"Credit card debt is an issue for many. Bay Area residents carry an average of at least three credit cards with a total debt of $15,261 and monthly payments of $790, according to Experian's National Score Index."

Court quiet a year after new bankruptcy law

Orange County Register reporter Mary Ann Millbourn reports that, although filings are down, the means test is not preventing people from filing.

"One hurdle under the new law for would-be filers is a new means test based on the state median income. If someone earns more than the median, the court can require them to file Chapter 13 and pay back some of their debt. The current California median is $43,107 for a single earner and $70,172 for a family of four.

Although many bankruptcy critics saw this requirement as a way to catch cheaters who were hiding income or assets to avoid Chapter 13, it doesn't appear to have made a major difference so far.

Cerreto, the court clerk, said initial expectations were that no more than 10 percent of the filings under the new law would be forced into Chapter 13."

Drop in filings attributed to increased complexity

The L.A. Times reports an a AP story about how the burden of new rules has contributed to the drop in filings under the new law.

"It's designed to make life miserable for anybody who owes money," said Lawrence Brooke, an attorney in Alexandria. "It's a help-the-banks, squish-the-little-guy law."

Brooke is one of several lawyers in northern Virginia who have abandoned consumer bankruptcy work since the new law took effect.

"I won't have anything to do with it," he said.

Brooke said the paperwork hurdles for debtors to qualify for Chapter 7 have become insurmountable for many, and the workload and aggravation for attorneys have increased.

The income test for Chapter 7 means more forms for people to give their lawyers — tax returns and pay stubs — and more questions from a bankruptcy trustee in the mandatory public sessions that already had probed into details of a person's mortgage, bills, life insurance, child support obligations and car payments.

John Edwards: Time To Crack Down On Predatory Lenders

Former vice-presidential candidate John Edwards says on the one year anniversary of the banruptcy bill, it's high time to crack down on abusive lending practices.

"What’s especially outrageous is how predatory lenders go after African-American and other minority communities. If you are an upper-income African-American family, you are twice as likely to get a subprime loan as a lower-income white family. It’s incredible — even though you are doing better, you get a worse loan if you are African-American.""

"Rather than passing laws that punish consumers trying to make ends meet, we should be cracking down on the irresponsible lenders that prey upon them. Congress needs to start paying attention to the growing problem of predatory lenders.

Just like with the bankruptcy bill, we aren’t seeing action on Capitol Hill because financial companies are huge campaign contributors. In 2000, one of George Bush’s biggest donors was credit card giant MBNA. In 2004, it was the owner of Ameriquest’s turn."

Climbing Out of Debt

A Washington Post story about Debtors Anonymous, a 12-step program started in 1968 by Alcoholics Anonymous members who wanted to also discuss their financial problems. Founded under the name Penny Pinchers, the organization now has more than 500 regular meetings in the United States and in 13 countries.

Consumers pay price as lenders cash in

Reporter Ted Griffth in the Delware News Journal reports on the "steep rise in the cost of filing for bankruptcy."

Paying the price of going broke - New rules on bankruptcy are expensive

The Albany Times Union reports on the higher costs of having a lawyer help you file for for bankruptcy.

Experts Split on Merits of Bankruptcy Reform

An excellent article by Helen Huntley of the St. Petersburg Times, several important observations about the impact of the new law.

Misinformation is at least partly responsible for the dropoff in filings.

Only about 10 percent of bankruptcy filers make more than the median income in their state, and half those have no money left over to make debt payments. So the means test is not really the barrier that people think it is.

Bankruptcies likely to spike, experts warn

Richard Burnett reports for the Orlando Sun Sentinel that "many experts say it may be only a matter of time before going broke is thriving again, thanks largely to massive adjustable-rate-mortgage debt many took on during the housing boom." There's already signs that the growth has started. New cases in Florida's Middle District, for example, rose 31 percent from the first quarter to the second quarter this year. Last year, cases were up only 13 percent in that period.