Tag Archives: Bankruptcy

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

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.

10 Cents on the Dollar: How to pay off your home equity line of credit

NY Times columnist David Streitfeld’s article entitled, “Debts Rise, and Go Unpaid, as Bust Erodes Home Equity”, published in The New York Times on August 12, 2010, asserts that most investors expect less than 10 cents on the dollar for defaulted home equity lines of credit such as second mortgages.

“Lenders wrote off as uncollectible $11.1 billion in home equity loans and $19.9 billion in home equity lines of credit in 2009, more than they wrote of on primary mortgages, government data shows. So far this year, the trend is the same, with combined write-offs of $7.88 billion in the first quarter. Even when a lender forces a borrower to settle through legal action, it can rarely extract more than 10 cents on the dollar. ‘People got 90 cents for free,’ Mr. Combs said. ‘It rewards immorality to some extent.'” Mr. Combs is a realty lawyer in Phoenix, AZ, who tries to negotiate deals with home equity line of credit HELOC loans.

Utah Loan Servicing chief executive Clark Terry buys defaulted home equity loans from lenders, and reports that he does not pay more than $500 for any one loan, regardless of how big it is, “Anything over $15,000 to $20,000 is not collectible. Americans believe that anything they can get away with is O.K.”

The delinquency rate on home equity loans was an astonishing 4.12% in the first quarter of 2010, down slightly from the fourth quarter of 2009, when it was the highest in 26 years of such record keeping, according to Mr. Streitfeld.

Mr. Streitfeld reports that during the “great boom” homeowners nationwide borrowed a trillion dollars from banks, using the soaring value of their homes as loan security. With the money now spent, some homeowners cannot pay. Surprisingly, it seems that delinquencies on this type of debt is greater than all other types of consumer loans, including auto loans, boat loans, personal loans and even bank cards like Visa and MasterCard. Mr. Streitfeld cites info from the American Bankers Association on this point.

Ideas for Action: Is it time to contact your second mortgage company and negotiate–offering 5 to 10 cents on the dollar?

Financial Reform: Will the Dodd-Frank Financial Reform Law destroy the private mortgage industry and lead to risky government lending?

Banks lend money (a mortgage) against your house. The banks then put 1,000 mortgages or so together and sell the package of mortgages to an investor in a “pooled mortgage”. Some pooled mortgages have held a government guarantee of performance through FHA (Federal Housing Administration), Fannie Mae, or Freddie Mac, other pools were not insured because they were supposedly riskier loans, as the borrowers did not qualify under loan risk guidelines established for Fannie Mae or Freddie Mac.

Under the new rules contained in Dodd-Frank, the original lender must retain 5% of the risk in the pool if it is not a federally guaranteed (e.g. FHA, Fannie Mae or Freddie Mac) loan pool.

CNBC.com editor John Carney writes that exempting FHA, Fannie Mae and Freddie Mac from the 5.0% risk retention requirement will destroy the private mortgage industry and make the US government the unintentional backer of all mortgages:

“…a little-noticed provision of the Dodd-Frank act threatens to undermine efforts at rebuilding an innovative and healthy private sector for mortgages. Under Dodd-Frank, financial firms that securitize mortgages are required to retain 5.0% of the risk of those securities. The goal, a laudable one, is to encourage companies to more closely monitor the quality of the mortgages they securitize (sell off in pooled bundles). But it is also likely to increase the cost of affected mortgages, because banks will seek to pass on the costs of the risk to home buyers. Mortgages guaranteed by the F.H.A., however, are exempt from the 5 percent risk-retention requirement. This means that lenders will find that it costs far more, and involves more risk, to offer mortgages they back themselves than those covered with a guarantee from the agency. There’s little doubt this will lead to a huge increase int he volume of business done by the F.H.A., as banks creating securities will seek out mortgages on which they don’t have to cover the risk. Purely private mortgages will quickly be pushed out of the market.”

The complete article by Mr. Carney was published in the NY Times on August 12, 2010.

Is there a “flexible mortgage” in your future? – new thoughts and trends in mortgages – article by UCLA Law Professor Katherine V.W. Stone

Professor Katherine V.W. Stone, of UCLA law school writes that in the “old economy”, periods of joblessness were a clear sign of an unreliable borrower, but not any more, as we are in a “new economy”. Professor Stone’s article is entitled “The 30 Year Prison”, and appears in the August 12, 2010 edition of The NY Times.

Professor Stone calls for a major changes to mortgages–a “flexible” mortgage with the borrower having an option to request a two-year period of “interest only” payments. She suggests that the Federal Housing Administration require that any mortgages it insures be set up to mandate that borrowers who are involuntarily out of work be allowed to convert to an interest-only loan for up to two years. She points out that since the FHA insures almost one-third of the mortgage housing market, in short order the mortgage industry would very likely follow suit, and that this practice would become the norm for all mortgages.

Professor stone writes: “It’s not as if the 30-year self-amortizing mortgage has been around forever. In fact, it is a fairly recent invention. Before the 1930s, homes were financed by three-to-five-year balloon loans. Homeowners made interest-only payments for the duration of the loan, then typically rolled them over into new loans when they came due. During the Great Depression, however, many borrowers were unemployed when their loans came due; banks were reluctant to offer new loans, and owners had not accumulated enough money to pay off their loans. The result was a wave of foreclosures. In response the Home Owners’ Loan Corporation, created as part o the New Deal, developed a new kind of loan: instead of a few years of small payments followed by a very large one, homeowners would make regular payments of interest and principal for 30 years. In the old economy, periods of joblessness were a clear sign of an unreliable borrower. Today, they are simply a function of the job market, which flexible mortgages would take into account.”

Loan Modifications in Washington: How much is the government spending through HAMP and TARP?

Washington will get some share of the $1 billion disbursed to HUD to help with house payments so if you are unemployed and falling behind on house payments, hit HUD up for a loan.

Unfortunately, Washington homeowners get NOTHING from the recent $2 billion disbursed by the Troubled Asset Relief Program to other states. The benefited states as to the $2 billion include Alabama, Illinois, Kentucky, Mississippi, New Jersey, and Washington D.C., as part of the Hardest Hit Fund disbursements.

This $2 billion is the third large grant to the Hardest Hit Fund. Washington has not received any portion of those three grants. The Hardest Hit Fund receives disbursements from the $45.6 billion set aside for housing issues in the Troubled Asset Relief Program. Hardest Hit Fund disbursements to those favored states to date now total about $4.1 billion in three disbursement. The Hardest Hit Fund is, for now, out of money.

To date, the other funds in the $45.6 billion earmarked from TARP to be expended for housing issues include $30.6 billion for loan modification programs (such as HAMP, AKA the Housing Made Affordable Program) and $11 billion for a FHA refinancing program. Thus, there would now seem to be no funds–zero dollars–left to disburse to the Hardest Hit Fund except that, as reported by Mr. Streitfeld in the New York Times, the government has up until October 3, 2010 (the two-year anniversary of TARP) to shift the $45.6 billion in committed funds around within the housing assistance program. Perhaps the government could issue one more Hardest Hit Fund disbursement which would make house payments for people by giving them outright grants or interest free loans to make house payments while unemployed, underemployed or suffering from some other sort of financial stress or strain. If the past is a guide to future policy actions, I doubt that Washington state would be a beneficiary.

While frozen out of the $2 billion Hardest Hit Fund to date, Washingtonians may see a little benefit from the $1 billion that was just disbursed to HUD (Housing and Urban Development) from the new Financial Overhaul Law. This $1 billion HUD disbursement apparently is not part of TARP, so it is $1 billion in “new money” in addition to the $45.6 billion in TARP for housing issues. As to this $1 billion, Mr. Streitfeld reports that HUD indicates it will work with local aid groups to offer bridge loans of up to $50,000 to eligible borrowers to help them pay their mortgage principal, interest, insurance and taxes for up to 24 months by way of interest-free loans to such affected homeowners.

Mr. Streitfeld reports that between the $1 billion HUD funds from the Financial Overhaul Law and the $4.1 billion pumped into the Hardest Hit Fund in three installments, up to 400,000 borrowers could ultimately benefit. However, given the reported 14.6 million unemployed or the 3 million households contemplating foreclosure, this assistance is modest, given the size of the foreclosure problem.

Loan Modifications: Washington state homeowners are “out of luck” — no help from TARP “Hardest Hit Fund” which just received $2 billion from Obama

Congratulations Illinois and Ohio homeowners! Sorry Washington homeowners – you lose!

Washington homeowners will receive no part of the round number #3 of “Hardest Hit” funds, which includes a disbursement of $2 billion recently committed from TARP funds to help homeowners in Alabama, Illinois, Kentucky, Mississippi, New Jersey, and Washington, D.C.

The Hardest Hit Fund draws on the total $45.6 billion set aside for housing in the TARP program; the TARP program started in the fall of 2008.

Ohio announced that it would use its $172 million share of the $2 billion to aid 15,356 homeowners by helping bring delinquent mortgages current for owners experiencing hardship because of a loss of income. The assistance will last up to 12 months, according to the report by NY Times reporter David Streitfeld on August 12, 2010.

In addition to losing out in round #3, Washington state also lost out in rounds #1 and #2 of the Hardest Hit Fund.

Round #1 contained a grant of $1.5 billion in the fall of 2008 to Arizona, California, Florida, Michigan, and Nevada.

Round #2 contained a grant of $600 million to North Carolina, Ohio, Oregon, Rhode Island and, South Carolina.

Information for this blog post appears thanks to an article by Mr. David Streitfeld of the NY Times. Please see the August 12, 2010 issue, page B-1.

James MaGee Attorney | Call James H MaGee, Attorney at (253) 383-1001 to Start Fresh and Begin Building Your Financial Future Now!

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