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Archive | Washington State Bankruptcy

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Expert warns of “perfect storm” of looming home value drop. Trust the bank? Banks will determine how much further your home value falls. – reports Nick Timiraos of the WSJ

Thank you American Bankruptcy Institute! (of which I am a member) for pointing me to Nick Timiraos’ Wall Street Jornal article: Here are major sections of his "perfect storm" article about looming home price drops:

"The speed at which house prices fall over the next few months could depend less on mortgage rates and Americans’ appetite for home buying than on how banks decide to manage the huge number of foreclosed homes they own or may take from delinquent borrowers in the near future.

Unlike home owners, banks often are much quicker to slash prices to unload properties quickly.

The upshot is that, the more homes being sold by lenders, the faster prices tend to fall. That pattern was clear over the past two years: Price declines that began four years ago accelerated rapidly in 2008 as banks dumped foreclosed properties at fire-sale prices. By January 2009, the share of distressed sales had soared to 45% of all sales nationally; it was even higher in hard-hit markets such as Phoenix, according to analysts at Barclays Capital.

Even though mortgage defaults kept mounting, housing markets began to stabilize early last year as low prices and government interventions broke the downward spiral. Policy makers spurred demand for homes by holding down mortgage rates, offering tax credits for buyers, and extending low-down-payment loans through the Federal Housing Administration.

The government also attacked the supply problem. Regulators relaxed mark-to-market accounting rules, giving banks more flexibility in valuing certain real-estate assets and removing some of the impetus for banks to quickly foreclose. Meanwhile, the Obama administration put in place an ambitious program to modify mortgages.

The Home Affordable Modification Program has fallen short of its goals. So far, fewer than 500,000 loans have been modified, below the target of three million to four million. Yet the program served as a "closet moratorium" on foreclosures that stanched the flow of bank-owned homes to the market, said Ronald Temple, portfolio manager at Lazard Asset Management.

The result: The share of distressed sales fell by November to 25% of home sales, and prices stabilized. After rising in the winter, the distressed share fell to 22% in June, before bouncing to 30% in July.

The problem is that these measures are wearing off. Demand plunged this summer after tax credits expired, and unsold homes are piling up. More foreclosures could move onto the market as borrowers fall out of the loan-modification program.

"We see the perfect storm brewing with rising supply and falling demand," said Ivy Zelman, chief executive of research firm Zelman & Associates and one of the first to warn of trouble five years ago. She estimated that distressed sales could account for half of the market by year-end if traditional sales didn’t rebound.

The market does have some tailwinds: Housing starts are at all-time lows. Banks have hired more staff to manage problem loans and government entities such as Fannie Mae and Freddie Mac that own a growing share of foreclosures are less likely to deluge the market.

The next leg down in prices "isn’t going to be the foreclosure-induced freefall where you just had inventory coming out the wazoo, and it was going to be sold one way or the other," said Glenn Kelman, chief executive of Redfin Corp., a real-estate brokerage.

Prices also have come down so much already they have less distance to fall. During the housing boom, prices inflated much faster than incomes rose, thanks to speculation and lax lending. The ratio of home prices to annual incomes reached 1.6 at the end of June, which is below the ratio of 1.88 from 1989 to 2003, according to Moody’s Analytics.

By those metrics, prices are actually undervalued in markets that have already seen huge declines, such as Las Vegas, Phoenix and Los Angeles. But Moody’s data show that prices remain "significantly overvalued" elsewhere, including Boston; New York; Seattle; Orange County, Calif., and Charlotte, N.C. Markets in both camps face supply imbalances that will pressure prices for years.

The fastest cure for housing would be job creation because it would boost demand for homes while putting delinquent borrowers back on solid footing.

But if that doesn’t materialize, policy makers face a thorny question: whether to intervene if price declines accelerate beyond the 5% to 10% that most economists expect. In recent weeks, the White House has been surveying industry analysts on how to manage the inventory overhang.

Analysts at Barclays Capital estimate that some four million loans are in some stage of foreclosure or are at least 90 days past due, down slightly from a January peak.

While more tax credits aren’t likely, policy makers could still attack the supply problem by, for example, taking foreclosed homes off the market and renting them out.

Ultimately, market fundamentals will prevail "and any attempt to get around that will only be short-term," said Susan Wachter, a professor of real estate at the University of Pennsylvania’s Wharton School. But officials should be prepared to intervene anyway, she said, if psychology spurs a downward spiral "where price declines are feeding further price declines."

That leaves few attractive options. Prolonged intervention could backfire by creating uncertainty that keeps buyers on the sidelines. Extending foreclosure timelines also risks inducing more borrowers to default and live rent-free.

Letting the market take its medicine sounds more appealing than it did 18 months ago. But it risks saddling taxpayers and the banking system with billions more in losses and trapping more borrowers in homes on which they owe more than the house is worth."

Special thanks to Nick Timiraos; this post is a "cut and paste" of his work in the September 13, 2010, Wall Street Journal. Additional thanks to the American Bankruptcy Institute (of which I am a member) for pointing me to Mr. Timiraos’ work.
http://online.wsj.com/article/SB10001424052748704505804575483844277697242.html

Harrisburg is broke! Chapter 9 Bankruptcy looming for the city of Harrisburg, PA. The capital of Pennsylvania goes bust!

Special thanks to the American Bankruptcy Institute (of which I am honored to be a member) for this news flash; The city of Harrisburg, Pennsylvania makes an emergency Sunday 9/12/10 appeal for $3.6 million to avoid going bust.

"The State of Pennsylvania is speeding payments of $3.6 million to its debt-laden capital, Harrisburg, to prevent the city from defaulting on a general obligation bond, Gov. Edward G. Rendell said on Sunday, the New York Times reported today. To help the city with its cash flow, the state is fast-tracking payments, which were already in progress, of $1 million for fire protection and $2.6 million for an annual pension fund payment. This month, Harrisburg said that it did not have the money to make a scheduled bond payment of $3.3 million on Sept. 15. City Council members met in early September to discuss a possible chapter 9 filing. Governor Rendell, however, said that bankruptcy should be a last resort for Harrisburg and that missing a bond payment was not an option because a default could have repercussions for other municipalities in the state." American Bankruptcy Institute, September 12, 2010 news-flash.

Is $75,000 the magic number? Study finds no exta happiness above $75k, with one exception.

After achieving an annual household income of $75,000, more income does not correlate to greater happiness, reports a study featured in the Proceedings of the National Academy of Sciences. The "Proceedings", known as the PNAS, is the official journal of the United States National Academy of Sciences. PNAS and is an important scientific journal that printed its first issue in 1915 and continues to publish highly cited research reports, commentaries, reviews, perspectives, feature articles, profiles, letters to the editor, and actions of the Academy.

Beyond household income of $75,000 a year, money "deos nothing for hapiness, enjoyment, sadness or stress," the study concluded, as reported by Phyllis Korkki in the New York Times, on September 12, 2010.

The National Academy of Sciences was founded in 1863. The NAS is a private institution, but is recognized and prestigiously chartered by the U.S. Congress, with the goal to "investigate, examine, experiment, and report upon any subject of science or art." By 1914, the Academy was well established, and the content therein is generally regarded as well vetted.

The study, as explained by one of its authors Princeton professor (emeritus) of psychology Daniel Kahneman, relates that it’s not so much that money buys you hapiness, but that if you are miserable and earn less than $75,000 household income per year, a little money will decrease your misery…until you reach the household income annual income level of $75,000. After achieving $75,000 annual household income, adding more money will not make you any less miserable, it seems, according to the study. Says professorKahneman "the lack of money no longer hurts you after $75,000".

Professor Kahneman (a nobel laureate in economics) relates that "Many people want to make a lot of money, but the benfits of having a high income are ambiguous. Wealthy people can buy more pleasures, but studies suggest that wealthier people "seem to be less able to savor the small things in life." reports journalist P. Korkki in the Sunday, September 12, 2010, NY Times.

There may be one exception to the $75,000 rule. A 2007 article found in The Journal of Happiness Studies indicates that those people who have "strong financial aspirations" are unhappy without higher income. A study of 18-19 year old college freshmen found that those expressing a desire for a high salary generally achieved those goals 20 years later: "individuals with strong financial aspirations are socially inclined, confident, ambitious, politically conservative, traditional, conventional and relatively less able academically, but not psychologically distressed" which means that they do tend to achieve their higher financial goals and are thus made emotionally happy. It seems that some people are "hard-wired" to want more money, even from a young age, and failing to achieve that, they fail to achieve a reasonable degree of satisfaction.

Professor Kahneman seems to agree with the 2007 study, that a young person "wanting money is not a recipe for disaster, but [that same young person] wanting money and [eventually] not getting it – that’s a recipe for disaster." as quoted 9/12/2010 in the NY Times.

IDEAS FOR ACTION: NY Times Journalist P. Korkki says that the recession is causing more people to place the financial rewards of a career first; job/career satisfaction choices now often take a back seat to financial gain. Ms. Korkki notes that career counselor Nicholas Lore (founder of the Rockport Institute, a career coaching firm) warns that emphasizing higher income over satisfaction when making a career choice or job change can lead to (a) dissatisfaction and quite ironically can lead to, (b) failure to achieve the hoped for higher income. Counselor Lore relates that if you don’t like accounting but choose to become an accountant, "Chances are you’re not going to be very good at accounting," and that eventually your salary will reflect that. "Generally, people flourish when they’re doing something they like and what they’re good at."

Special thanks to NY Times journalis Phyllis Korkki for the content of this post. http://www.nytimes.com/2010/09/12/jobs/12search.html

Twelve Tricks That Some Credit Card Agreements Contain That Can Cost You Money

After writing my earlier post based on an article by Jessica Silver-Greenberg, a WSJ reporter on personal finance, I came upon a second article that is worth your attention published on 7/31/2010 in the Wall Street Journal.

I have grown fond of (and thankful for) the quality reporting by Ms. Silver-Greenberg. You can search Google or the Wall Street Journal site for her name, and find other interesting and informative articles she has written.

The title of Ms. Silver-Greenberg’s July 31st article is “The New Credit-Card Tricks“. The article is subtitled, “Just months after historic legislation banned certain billing practices, card issuers have dreamed up new ones designed to trip up consumers.”

You must read this article to understand credit card company tricks to avoid. Ms. Silver-Greenberg relates that by complaining loudly and repeated (but always without foul language I suggest), you sometimes can have trick fees reversed or lowered. For the most part, however, it is best to avoid doing business with credit card issuers engaging in the following practices:

(1) Increased annual fee.
(2) Increased cash advance and balance transfer fees.
(3) “Professional” cards.
(4) “Small Business” credit cards.
(5) “Corporate” credit cards.
(6) Inactivity fees.
(7) “Rebate” cards.
(8) Companies that accept payments “7 days a week”.
(9) Shortchanged payment grace periods.
(10) Foreign transaction fees.
(11) Low limit credit cards with “up front processing fees”.
(12) Increased minimum monthly finance charge over past historical levels.

Ideas for Action: You should never either shop for or sign up for a credit card without knowing what all of the above twelve terms mean. This way, you can ask pointed and direct questions of the credit card issuing company to ensure that the card for which you are applying will not put you at risk of falling victim to one or more of the above practices.

Read Ms. Silver-Greenberg’s July 31, 2010 WSJ article; you will not be disappointed. Instead, you will be a smarter credit consumer, empowered by learning what Ms. Silver Greenberg researched and reported.

Does Your Credit Card Provide The Protections Of The Credit Card Accountability Act of 2009?

Capital One and Citibank are out to trick you by offering cards intentionally designed to be free of the constraints imposed by the new 2009 Federal Law known as the “Credit Card Accountability and Responsibility and Disclosure Act of 2009”.

The Credit Card Accountability act of 2009 seeks to prohibit issuers from controversial billing practices such as hair-trigger interest rate increases, shortened payment cycles and inactivity fees–but the Credit Card Accountability Act of 2009 does not apply to so-called “professional cards”.

Here are the perils and tricks of accepting a credit card that is exempt from the provisions of the “Credit Card Accountability and Responsibility and Disclosure Act of 2009”:
(1) Card issuers can apply any payments in excess of the minimum to balances with the lowest interest rate; e.g., the credit card company can apply your payments to the 14.0% purchases balance without applying any of the funds to the 24% cash advance balance.

(2) Issuers are not required to provide a minimum of 21 days to pay from the date of the billing statement; e.g., you can receive your bill and then only have six or seven days to pay the bill!

(3) Issuers can raise the rates on your existing balance if they find out that you made a late payment to some other credit card, car payment or home loan; e.g., if your mortgage payment is six or seven days late because you were out of town on vacation, your credit card rate can jump from 14% to 29% without notice.

(4) Issuers can fine you with a big fee if you exceed the credit limit on the card, even if by a small amount.

(5) Issuers can change the credit card agreement terms without giving you any advance notice at all.

Since the Credit Card Accountability Act of 2009 was passed in March of 2009, companies have been inundating ordinary consumers with applications. In the first quarter of 2010, issuers mailed out 47 million professional offers, a 256% increase from the same period last year, according to the research firm Snynovate, reports Jesica Silver-Greenberg in the Wall Street Journal.

Consumer advocates note that card issuers are easing their application requirements for “professional” cards, thus turning a blind eye to those applicants who really do not own a business. A January 2010 Chase application for an “Ink From Chase Cash Business Card” asked that (1) applicants provide the name of their business (2) the nature of the business (3) the business address and to (4) provide a business Federal Tax Identification Number.

In contrast, the July 2010 application sent out by Chase for the same card had been “dumbed down” considerably. The July 2010 version of the application (a mere 6 months later) for the “Ink From Chase Cash Business Card” merely asked the applicant to check a box that said “Yes, I am a business owner” or “Yes, I am a business professional with business expenses.”

Read the full story by Jessica Silver-Greenberg of the Wall Street Journal, dated August 28, 2010.

Ideas for Action: Before considering applying for any credit card, ensure that it is a card which must offer you the full protections of the Credit Card Accountability and Responsibility and Disclosure Act of 2009. Disregard and destroy all applications which do not clearly indicate that the card for which you are applying is covered by the Credit Card Accountability act of 2009.

Fed and FDIC Testimony on Dodd-Frank Financial Reform Legislation: Lessons Learned

Federal Reserve Chairman Ben S. Bernanke praised the new Dodd-Frank financial regulation legislation and offered a frank appraisal of his mistakes since 2006 in September 2, 2010 testimony before the Congressional Financial Crisis Inquiry Commission.

It should be noted that September 15, 2008 (just next week) marks the two-year anniversary of the bankruptcy filing of Lehman Brothers. NY Times columnist Sewell Chan notes that the Lehman failure was the “nadir”, or lowest, moment of the financial crisis.

“The Dodd-Frank legislation gives the Federal Reserve Bank oversight over the largest financial institutions, including those that are not banks (such as American International Group, or “AIG” – JHM). It gave the Fed a prominent role in the Financial Stability Oversight Council, a body of regulators with the power to seize and break up a systemically important company if it threatens economic stability. The Federal Deposit Insurance Corporation would manage that [breakup] process, known as resolution.” writes Mr. Chan.

Mr. Bernanke recounted his errors, indicating that he was wrong in 2007 when declaring that the subprime mortgage crisis could be contained and would not infect nor destabilize other parts of the financial system. Mr. Bernanke denied allegations that the Federal Reserve bank was at least partly responsible for the housing price bubble by keeping interest rates too low during the 2002-2004 period. An implication of Mr. Chan’s summary of Mr. Bernanke’s testimony before Congress appears to be that Mr. Bernanke now believes that trying try to identify a “bubble” in the economy early enough is part of the Fed’s charter. If such a “bubble” could be identified early enough to justify Fed action, the Fed could decide to increase interest rates so as to slow down the growth of the bubble.

Here is the link to the interesting NY Times, September 3, 2010 article.

Ideas for Action: Few of us have the resources and knowledge available to Mr. Bernanke. However, starting to keep a family budget, carefully monitoring your spending, and creating a savings plan for both retirement and “rainy days” are among the prudent steps that we all can take to keep financial problems from becoming too big to handle.

Is Bankruptcy the same everywhere? An Irish perspective.

Is bankruptcy the same everywhere? Let’s compare Ireland with the USA. All of the statistics that follow are from 2009 data.

– Population: USA 310,178,000. Ireland: 4,178,000.

– Bankruptcies: USA: 1,572,597. Ireland: 17.

– Bankruptcies as a percentage of population: USA 0.5% (one-half of one percent); Ireland: 0.0004% (four one-millionth of one percent). In other words, USA had 12,500 percent more bankruptcies than Ireland.

The bankruptcy process in Ireland is nearly non-existent. Ireland does not offer its citizens a “fresh start” like America’s Chapter 7 bankruptcy process, nor does it offer a reasonable partial debt repayment plan like America’s Chapter 13 bankruptcy process.

In Ireland, people cannot use bankruptcy as a meaningful tool to deal with their debts. Irish debtors are vulnerable to constant lawsuits, harassment and garnishments because the Irish bankruptcy process is so strict and inflexible.

Should you file bankruptcy in Ireland, you are forced to repay creditors for at least twelve years, and only then if your creditors agree by a majority vote that such a “short” period of twelve years is reasonable, and that the amount you propose to repay is reasonable. Even worse, once you start a bankruptcy in Ireland, you cannot get out of the bankruptcy nor end it until your creditors agree by a vote that you should be allowed to exit the Irish bankruptcy system. Irish debtors have been known to be required to stay in bankruptcy, repaying their creditors, for as long as 29 years.

Reform legislation is pending in Ireland, but even the proposed law changes in Ireland are worse than what American bankruptcy law provides for its citizens today. The new Irish proposals still have no “fresh start” like America’s Chapter 7. The new Irish proposals suggest that debtors be forced to remain in bankruptcy for at least six years, repaying substantial portions of income to creditors, in what might be called an “earned start”.

“Current Irish bankruptcy laws misunderstand the nature of debt in [Ireland]. They’re designed to protect the general public from Dickensian villains who won’t pay their debts, not designed to facilitate the desperate thousands who can’t.” writes Patrick Freyne in “The Irish Times”. “It was a case of saying ‘listen, let’s make him bankrupt and don’t let him into business [for at least 12 years while he repays his debts] so others don’t lose money.’ But 90 per cent of those in trouble are honest decent people who lost money through no fault of their own.” says Irish chartered accountant Jim Stafford.

Many people are no less in debt in Ireland than are many Americans. Irish consumers had very little consumer debt in the 1980s, but this changed dramatically through the 1990s and into the 2000s. Many families and small businesses in Ireland now face the same level of debts as do struggling American families, as they have borrowed against (now disappearing) home equity and taken advantage of easy-to-obtain consumer credit such as vehicle loans and credit card loans.

Read about the Irish personal debt crisis and the historical reasons why Irish bankruptcy law is so strict and difficult.

Ideas for action: Accept the gift of what the US Government has declared available, which is a “fresh start” in Chapter 7, or a much gentler partial debt repayment in Chapter 13. While you are at it, thank God for the US of A.

American Bankruptcy Institute–14% increase in bankruptcy filings during Jan to June 2010 compared to same period in 2009

According to an article posted on the American Bankruptcy Institute website on 8/23/10:

“The total number of U.S. bankruptcies filed during the first six months of 2010 increased 14% over the same six-month period in 2009, according to data released today by the Administrative Office of the U.S. Courts.

Filings were up 20% over the past year to 1,572,597, up from 1,306,315 filed in the 12-month period ending June 30, 2009. Total filings reached 810,209 during the first half of the calendar year of 2010 (January 1-June 30), compared to 711,550 cases filed over the same period in 2009. The totals represent the highest number of filings for the first six months of a calendar year since 2005, when the Bankruptcy Code was amended.

The 422,061 new cases filed in the second quarter represent the highest total since the fourth quarter of 2005. Business filings decreased 4% for the six-month period ending June 30, 2010, to 29,059 from the first-half 2009 total of 30,333.

Chapter 11 business reorganizations registered the sharpest decrease, as the 6,152 filings during the first half of 2010 represented a 17% drop from the 7,396 total chapter 11 business filings during the first half of 2009. Chapter 7 business liquidations remained nearly unchanged, as there were 20,385 in the first half of 2010, a half percent increase from the 20,375 business chapter 7 filings during the same period in 2009.

Filings by individuals or households with consumer debt increased 15% to 781,150 for the six-month period ending June 30, 2010, as compared to the 2009 first-half total of 681,217. Consumers filing for chapter 7 protection increased 17% to 571,417 during the first half of 2010 from 489,128 during the first six months of 2009. Consumer chapter 13 filings increased as well, rising 9% as 208,778 consumers filed for chapter 13 in the first half of 2010 from 191,458 during the first half of 2009.”

Full disclosure: The Law Firm of James MaGee, Washington Bankruptcy Attorney, is a proud member and supporter of ABI, the leading national bankruptcy professional organization.

Ideas for Action: It’s no secret that many people and families are struggling in today’s economy. Bankruptcy is a Prudent Step Towards Rebuilding Your Life. You should not feel guilty or embarrassed for having filed bankruptcy. Popular folklore holds that Henry Ford filed for bankruptcy five times! Psychologists say families, relationships and marriages fail most often because of financial pressures. If financial strain is damaging your health and personal relationships, you should consider bankruptcy.

“Business” bankruptcy is often a waste of time for mom & pop businesses–just file a personal bankruptcy case and move on, says Wall Street Journal columnist

Here is the link to a short but helpful article about small business bankruptcies in The Wall Street Journal. I am pleased that what I have suggested for many years finds favor with a Wall Street Journal columnist.

With most of my small service-based business customers, including businesses as varied as residential construction and restaurants, it usually makes sense to look at a Chapter 7 Bankruptcy case filed as a personal case. I recommend this approach because in most cases, the small business’ debt is personally guaranteed by the business owners, whether the debt consists of Small Business Administration guaranteed loans, vehicle title loans or credit cards. Frequently, the business can keep right on operating, but of course you should consult with a qualified attorney before launching off into any sort of bankruptcy filing.

Ideas for Action: how do you find a qualified bankruptcy attorney? I suggest three ways.

First, ask the attorney how many cases he or she filed in the calendar year January 1, 2006 to December 31, 2006; the attorney can easily consult the computer program used to prepare the documents to find out how many cases were filed each year, and if fewer than 70 or so cases were filed by the attorney in 2006, then I say beware. You may have an attorney who just started out after the 2005 law change took effect but didn’t attend any of the important 2006 era seminars when the best education about the new 2005 law was then available.

Second, ensure that the attorney is “connected” professionally via memberships in both the American Bankruptcy Institute as well as NACBA, the National Association of Consumer Bankruptcy Attorney.

Third, ensure that over the past five years, the attorney has attended no fewer than five seminars for a total of no fewer than 50 hours of bankruptcy education since 2005.

These three suggested standards should help you ensure that you have engaged an experienced, professional attorney.

Mortgage modifications failing, meeting only 16% of intended goals, says NY Times

NY Times columnist David Streitfeld reports that the dropout rate from the Making Home Affordable Program (HAMP) is very high. 96,000 trial modifications were canceled by the lenders in July 2010. The number of canceled trial modifications now exceeds 616,000.

Those numbers are leading some housing experts to call the program, which modestly rewards lenders for modifying mortgages, a failure.

About 422,000 mortgage modifications overseen by the government were considered permanent as of July 2010, up from 389,000 in June. But the pool of candidates is shrinking rapidly. Only 17,000 trial modifications were started in July, down sharply from the 150,000 enrolled in September 2009 when the program was new according to a report by NY Times columnist David Streitfeld.

After reviewing the new data, Calculated Risk, a popular financial blog, wrote, “Those borrowers are still up to their eyeballs in debt after the modification,” and many will default again.

“My concern is that if we have another protracted housing dip, it’s going to bring the economy down.” Mr. Feder, chief executive of the real estate data firm Radar Logic explains, saying that he expects prices to ‘get whacked’  in the Fall of 2010.

“If consumers don’t think their houses are worth what they were six months ago, they’re not going to go out and spend money. I’m concerned this problem isn’t being addressed,” says Mr. Feder as quoted in the article by Mr. Streitfeld of the NY Times, published on Saturday, August 21, 2010.