Law Blog

Nearly 80% of Americans carry credit cards and about 44% of those individuals with credit cards carry credit balances.  On an annual basis, credit card companies have earned $15 billion in penalties for late fees alone!  (A New Era for Credit Cards)

President Obama attributes the practices of credit card companies to contributing to the down market economy.  While Obama expects American consumers to be responsible in paying their debt, he also expects credit card companies not to saddle already debt laden consumers with retroactive interest rate increases and other unfair credit practices.  Some of Obama’s sweeping legislation requires credit card companies: 1) to post their credit agreements online, 2) to provide 45-days advance notice if the credit card company plans to change its terms and conditions, 3) to standardize payment due dates rather than to shift payment dates to different dates each month, and 4) to apply excess payments to the highest interest rate balance first.  (White House Fact Sheet)

But, to keep the credit card companies in check, U.S. consumers will still need to proactively review their credit card records for accuracy and to (politely) challenge the credit card companies if there is a reporting error or a violation of the new White House reforms.

Americans are entitled, by law, to one free credit report per year from each of the three major credit reporting agencies: Equifax, TransUnion and Experion.  (Credit Reporting Rights)  After reviewing these reports, if there are inaccuracies, consumers have the legal right under the Fair Credit Reporting Act to dispute this information and to have it corrected, usually within 30-days. (A Summary of Your Credit Reporting Rights) Keeping your credit record accurate is important not just to obtain a mortgage or a short-term loan, but employers are also increasingly checking consumer records as part of their background screening process.  (Employers and Consumer Reports)

Even though U.S. consumers have these rights, some credit reporting agencies may be less than compliant. Always put your request for correcting reporting inaccuracies in writing, specifically identify the inaccuracy and provide verification of the reporting inaccuracy in your request for a reporting correction.  As a first step, write a demand letter.  Examples of demand letters can be found through Nolo press or through other on-line resources. (Credit Repair) When mailing a demand letter, send the letter by certified mail and keep a record of the delivery receipt so that there can be no denying that you’ve made an attempt to notify the credit reporting agency.  (7 Steps to Fixing Your Credit Report)

If these measures are ineffective, LegalMatch can help. Sometimes it is only with an attorney as your advocate that credit reporting inaccuracies can be more quickly resolved.  During the past five years, we’ve assisted nearly 2,000 consumers who have required the assistance of an attorney to correct inaccuracies in the credit reports and another 2,100 who have requested an attorney to assist them with other credit reporting issues.  It is obvious not just to our President, but to LegalMatch, that credit card companies and their reporting agencies need to be kept in check.

As the economy continues to get hit, bankruptcy filings also keep growing. Over the last 12 months LegalMatch.com has had several thousand customers come to our site seeking consumer bankruptcy attorneys. I was curious to see if our numbers matched up with those from the American Bankruptcy Institute, which tallied official federal records for consumer bankruptcy filings in 2008.  The following are LegalMatch’s top bankruptcy states: 

         State            Percentage of Total Filings

1. CA               14%
2. FL                8%
3. NY              5%
4. IL                 4%
5. TX               4%
6. VA               4%
7. OH              4%
8. MI               3%
9. AZ               3%
10. NJ              3%

Our top ten was very similar to the results from the American Bankruptcy Institute, with California leading the way in filings for 2008.

A few states are over-represented relative to their population on both lists. Florida, for instance, has significantly more consumer bankruptcy customers coming to LegalMatch.com than New York and Texas, who both outnumber Floridians substantially. Arizona and New Jersey also make the top ten despite being 14^th and 11^th in population.

Why is Florida being hit so hard? Florida is always near the top in every other negative economic indicator, such as foreclosures. Some Florida developments are beginning to resemble ghost towns full of brand new empty houses. Markets such as Florida suffer the most from boom and bust periods, which leads to higher bankruptcy rates as more and more residents run into problems from their radically devalued homes.

California may have suffered from a similar malaise; Bloomberg reported that February 2009 house prices in California dropped an average of 41% from February 2008, compared to only a 16% drop nationally over the same period. 58% of home sales during this time were foreclosure sales, surely a significant reason for the dramatic declines in value.

Looking at stats such as foreclosure rates, bankruptcy rates, and other economic statistics indicates that all these things are related. If one state is suffering in one area it is likely also suffering in another. Stay tuned to LegalMatch for more analysis of economic trends and how your state might be faring during this massive economic downturn.

It’s a common misconception that only the unemployed or unlucky have to file for bankruptcy. Now more than ever it is becoming apparent that bankruptcy can strike anyone.

Within the last 12 months, thousands of clients have come to LegalMatch.com seeking the advice of bankruptcy attorneys. These are the top fifteen reported occupations of those clients: 

Of this top 15, unemployed, retired, and disabled made up almost 50% of the total.  It shouldn’t come as much surprise that people unable to earn an income will have to file for bankruptcy. Other jobs are unsurprising as well: students will perpetually have student loan debt problems; realtors’ markets are always volatile; truck drivers and teachers simply aren’t paid a salary commensurate to their importance in society; and the self employed knew there was a risk when they decided to hang their own shingle.

Some jobs do raise an eyebrow however. Nurses, for instance, made U.S. News and World Report’s list of Top 30 Careers in 2008.

Regardless of the relative merits of the job, it harms us all when those who are disabled or those who have retired must file for bankruptcy. This is not an issue of compassion for people down on their financial luck; when people can’t pay their creditors, everyone in the food chain suffers. It may sound easy to simply blame the financial woes of the retired on poor planning, but how many of these people supposedly did everything right? They heeded the calls to invest, to have a portfolio, a 401K.  Unfortunately, so many of these once sound investments have lost tremendous value. (Or have been the victims of outright fraud.)

Those that question the wisdom of safety nets sometimes ignore the fact that these safety nets can act as an indirect “stimulus.” If a disabled worker gets SSI and can pay his bills and avoid bankruptcy, perhaps the bank that was relying on his cash has one less debt to worry about on its balance sheet. Instead of the money going from the treasury to the bank with everyone filing bankruptcy in-between (and loan markets drying up in the process), money goes from the citizen to the bank. The government still pays, but everyone else can pay their bills. (And the Feds don’t have to pay twice as much to clean up any mess.)

Safety nets, or “entitlements” as some would like to mischaracterize them, don’t just pay for the person who needs them. They help the system by helping people and banks alike avoid costly bankruptcy cases.  As we are witnessing, the ripple effects of a lot of people not being able to pay their bills costs all of us a whole lot of money.

As more and more people wind up in a credit crunch, more and more people are turning to debt consolidation as a possible way out. In the past 5 years thousands of customers have come to LegalMatch.com seeking debt consolidation attorneys.

Where are most of these cases happening? Not surprisingly, states with the highest populations have the highest numbers of cases: 

Only one state, New Jersey, managed to nudge its way past its rank of 11^th in population to 9^th place on the list. It beat out North Carolina, who does not appear on the list despite having almost 1 million more people.

California and Florida, however, seem to top other lists that are not so dependent on population. California and Florida are ranked 2^nd and 4^th  in the Nation in foreclosure rates, and also top LegalMatch’s list of states with the most disproportionate percentage of total national foreclosures to total national households. California and Florida are not alone in sharing some dubious distinctions, however: Ohio and Georgia make an appearance in another unfortunate top-ten list: top-ten highest bankruptcy rates.

All too often, one financial dilemma leads to another. Although debt consolidation does not consolidate mortgage debt, many debt consolidation programs require the debtor to take out a mortgage on their home. Although lowering monthly payments on credit card debt is important, putting up your home for a mortgage should always be considered a last resort. There is the possibility that the inordinately large number of foreclosures in California and Florida has something to do with their similarly high numbers of debt consolidation clients.

More analysis would be needed to see if a true correlation between foreclosure rates and debt consolidation statistics exist. Generally, where there is one financial dilemma, there are probably others, either in the past or looming on the horizon. The states hit hardest by this financial crisis will show high numbers of bankruptcy rates, foreclosure rates, and people with debt problems. Stay tuned for more information on where these numbers are coming from, and where they may be headed.

By filing for bankruptcy, a consumer is stating in legal terms that he cannot pay his creditors.  While creditors have the option of filing a bankruptcy petition against a consumer debtor, most bankruptcies are filed by the debtor.  According to the National Bankruptcy Research Center, 1,064,927 consumers filed for personal bankruptcy in 2008, a 33% increase from 2007.  Filings are expected to rise again in 2009 because the primary reasons for this trend – the sagging economy, housing crisis, and credit crunch – are not likely to be resolved in the near future. 

However, there were still fewer filings in 2008 than in 2005 and earlier, prior to the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA).   The BAPCPA overhauled important parts of the Bankruptcy Code, and made it more difficult for consumers to file for Chapter 7 bankruptcy.  For instance, the BAPCPA requires debtors filing for Chapter 7 to wait eight years between filings, and the BAPCPA raised the asset and income requirements needed to qualify for Chapter 7.  Consumers bringing home incomes that exceed their state’s median income level, and who can pay at least $6,000 over five years must instead file for Chapter 13.  The new law pushed Chapter 13 filings up from 24% in 2005 to 41% in 2008.

What’s the difference between Chapter 7 and Chapter 13?  By filing for Chapter 7, an individual agrees to have his assets liquidated in order to pay creditors; in return, the debtor is able to discharge some of his debts.  Under Chapter 13, the debtor keeps ownership and possession of his assets, but agrees to pay some of his future income to creditors under a debt repayment schedule.

I looked at LegalMatch.com data from 2005 to 2008 to investigate these trends for myself.  In 2005, 74% of consumer clients wished to discharge all of their debts, while only 7% wished to repay them over time.  In 2006, 66% sought to discharge their debts completely, while 12% sought to make payments.  In 2007, 65% sought to discharge all debt, while 13% sought to repay.  And in 2008, 66% sought to discharge, while 11% opted to repay.  

In sum, it appears that the BAPCPA has been successful in prompted consumers to increasingly seek repayment (Chapter 13) over total discharge (Chapter 7).  However, the law’s goal of reducing overall findings is being somewhat thwarted by the tumultuous economic climate.