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16

May 2010

File bankruptcy? Or pay $1,134,164 for $7,783 credit card

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Maureen O’Malley, a leading bankruptcy lawyer in Herndon, Va,  sent me this credit card disclosure.  It shows it will take $1.1 million to pay off $7783.37.  And it will take 2670 years to do it.  You can see for yourself here. (The person’s name and account number are deleted, of course, but this is for real!)

This is the worst I’ve ever seen, but I’ve seen plenty disclosures that are shocking.  This one shows the impact of the 27% interest combined with the $39 over limit fee.  Anybody can see why this person has to file bankruptcy.

At the minimum payment, this person can never pay this card off.  Well “never” is not exactly right, but it will take a million dollars and two thousand years.

The banks, who fought for the bankruptcy law of 2005, said that somehow the American people were at fault for the big jump in the number people who file bankruptcy.  Actually, the fault is with the high interest rates charged by the banks.  And by the failure of Congress to do anything about it.

Before 1978, the state governments could set a limit on interest rates charged to each state.  And they did.  (One reason for this regulation is that interest rates are hard for most of us to calculate in our heads.)

In 1978, the Supreme Court threw that out.  In Marquette Nat. Bank of Minneapolis v. First of Omaha Service Corp. (439 U.S. 299), the Supreme Court ruled that a law passed back in 1863 blocked the states from protecting their own citizens.

After 1978, if just one state raised its interest rates, banks set up in that state could charge the higher rate anywhere in the country.   South Dakota was the first state to do that.  And they invited Citibank to move there.  Delaware followed.  (That’s why so many of credit card payments are still mailed to South Dakota or Delaware.)  Interest rates skyrocketed everywhere.

That’s why people who file bankruptcy increased from about 300,000 per year in the early 1980’s, to way over a million a year today.

If Congress really wanted fewer people to file bankruptcy, it would be easy.  Cap credit card interest rates at 12%.  In four or five years, bankruptcies would be cut in half.  In five years, I’ll be 67–I’ll be ready to retire.

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26

Apr 2010

Filing Bankruptcy to Save Security Clearance

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Someone came to me today and we are filing her bankruptcy tomorrow–we hope to save her security clearance and her job.

This lady had talked to me two years ago, when she first got into financial trouble.  But she was persuaded by her friends that filing bankruptcy would cost her job.  She struggled but could not fix her financial problems.

Last Friday she was told that her security clearance had been taken away.  And that she had no job assignment and would soon have no job.  That was the bad news.

But–this is the good news, and the boss really wants to help her–if she files bankruptcy and cleans up her credit, she can reapply for her clearance.   They wanted her to do that this week.  So we are filing her case tomorrow.

What’s the lesson?  This is what I tell everyone who will listen.  Filing bankruptcy causes your clearance to be investigated.  Being behind on your debts causes your clearance to be revoked.   (You cannot be in financial trouble and keep your clearance because you are tempted to sell things that don’t belong to you.)  Nobody likes being investigated, but just being told you are out of a job is a lot worse.

This lady is doing something important for our country–and keeping her job is important for her family–so we went all out to get her forms ready to send to the court tomorrow.  Hope it works.

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26

Apr 2010

If I file bankruptcy, can I still get a mortgage modification?

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Important new regulations issued by the Obama administration say two very important things for people struggling with their debts and trying to save their homes.

First, filing bankruptcy does not affect your eligibility to apply for a mortgage loan mod.

Second, if you are in a trial modification, bankruptcy does not push you out of the trial and back to the end of the line.

Both of those are very good news.

Since the beginning of the crisis, I’ve told people to try to get their mortgage loan modification before we filed the bankruptcy.   For some people, that’s been a really long time.  (Last week we celebrated that a lady I’ve be working with since the middle of 2008 finally got a mod approved.)

Stalling the other creditors until the modification has been approved hasn’t always been easy.  Sometimes it hasn’t been possible.  So I’m glad we don’t have to do it any more.

I can also tell you that people who filed bankruptcy to fix their credit card problems back in 2008 are now telling me they are getting approved for modifications.  And I have a couple people who filed bankruptcy and moved out at the end of 2009 ask me why Bank of America sending them modification applications at their new address.   (They’d rather get some payment then foreclose.)

So how does it add up?  If you need a loan modification to save your house,  but also need protection from your credit cards or medical bills, it’s safe to file bankruptcy and still apply for the modification.

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08

Apr 2010

Before filing bankruptcy, get your money out of Wachovia

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I just found out that when you file bankruptcy, Wachovia will freeze your accounts.  That’s even if you don’t owe them any money.

So if you are thinking of filing bankruptcy, get your money out of Wachovia.

This has been the policy of Wells Fargo for several years, but there weren’t any Wells Fargo Banks in Northern Virginia.   Wells Fargo took over Wachovia in the mortgage crisis and now they are freezing people’s accounts when they file bankruptcy in Virginia, too.

I see a lot of people in this part of Virginia who bank with them.  They base this policy on this court decision from Texas.  It doesn’t persuade me, but it persuades them.

So, if you are filing for bankruptcy, get your money out of  that account.  (And turn off the direct deposit if that’s where it’s going.)

PS   Roderick Martin, a bankruptcy lawyer in Georgia, just had one of his clients hit by Wachovia freezing his bank accounts.  He sent copies of the Wachovia letter to other lawyers around the country, as a warning, and looking for ideas on what to do.  Here’s Wachovia’s letter, dated May 2010.

PS  On June 30, 2010 an important court decision–from the 9th circuit bankruptcy appellate panel–told Wells Fargo they have to stop this.  I understand though that they have appealed.

PS  Bruce White, a bankruptcy lawyer in Richmond, shared this August 2011 letter from Wachovia, explaining that they still freeze people’s accounts.  Get your money out of Wachovia.  You can see the letter here.

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28

Jan 2010

After foreclosure, do mortgage companies keep trying to collect?

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Many people ask me what happens if they walk away from the house and don’t file bankruptcy.  Do the big banks and mortgage companies really keep trying to collect the rest of their money?

Well in some states, about half, they can’t.  For example, they can’t in California and it’s very difficult in Pennsylvania.  But here in Virginia, they can and do.

The Federal Deposit Insurance keeps track of that.  (The FDIC’s job is to be sure the banks have money in the bank when you need your, so they keep track of how much the banks collect on, among other things, charged off loans.)  The FDIC reports the banks collected one billion on charged off mortgages in the first nine months of last year–up from about $750 million the year before.  Another $400 million was collected from charged off home equity loans.  And that’s how much they got–the amount they tried to get from people (who then woke up and filed bankruptcy to stop them) would be much higher.

The FDIC total does not include money collected by debt collectors who bought the foreclosed loans from the banks and then tracked down the former home owners.   What’s the bottom line?  In Virginia you can’t just give back the house and figure they will call it square.  Sooner or later, they will come after you for the rest of their money.

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21

Jan 2010

The bankruptcy cram-down and the Massachusetts election

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Today’s New York Times blames the Democratic defeat in the Massachusetts Senate election, in part on the failure of the Obama administration to help people reduce their mortgages to save their homes.  Copy this link:  http://www.nytimes.com/2010/01/21/opinion/21thur1.html

That’s the bankruptcy cram-down that candidate Barack Obama promised to support, but President Obama orphaned.  Without Presidential support, it passed the House of Representatives, but died in the Senate.  Before the election, based on his promise, I personally told a hundred people that they had a chance to save their homes if Obama was elected.  (That was my advice as their lawyer; personally, I voted for the other guy.)  Well, Obama got elected but he didn’t help and they lost their homes.

(The Washington Post January 9, 2010, had an excellent article by Kevin Huffman explaining why action is still needed, or foreclosures will continue and housing values will continue to fall.   Otherwise,  “this crisis could go on for years, dragging down the chance of real economic recovery.”  http://www.washingtonpost.com/wp-dyn/content/article/2010/01/08/AR2010010803377.html)

Obama’s failure to push the bankruptcy cram-down had at least  small impact in Massachusetts, and maybe a big one.   The small impact was that probably ten thousand homes went to foreclosure there that could have been saved.  Now, that by itself does not reverse a hundred thousand vote defeat.

The big impact would have been evidence that Obama’s recovery plan had something in it for the ordinary family.

Businesses have always been allowed to use bankruptcy to reduce what’s owed on an apartment or warehouse or office building.  Allowing people to do the same to save their homes would show that Obama’s recovery plan included something for the middle class.  Voters might would have been more willing to trust him on health care and the other issues, if he had fought for them on something they could see and understand.

So far, the only thing people can see that Obama has done is to throw money at the banks.  And that wasn’t change;  Republicans would have, and did, do the same thing.    Think it was Harry Truman who said, if there’s a choice between a Republican and a Republican, the Republican will win most every time.   That’s what happened in Massachusetts.

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NORTHERN VIRGINIA BANKRUPTCY LAW OFFICES