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Posted by Bill McLeod at 11:59 AM | Permalink | Comments (0) | TrackBacks (0)

In a November 17, 2005 decision, the US Bankruptcy Court in Boston found that Boston University violated the automatic stay of the Bankruptcy Code when it refused to permit a bankruptcy debtor to register for classes because the debtor owed money to BU.

The case involved a debtor who enrolled at BU in the autumn of 1999. While she received substantial financial aid during her first three years, she did not receive any aid for her senior year which was spent entirety in the African country of Niger. The costs of tuition and her air fare to Niger were paid for by BU. During that fall semester, BU sent three notices to debtor and her family but was nevertheless allowed to return to Niger in the spring because the tuition and costs had already been paid in full.

Upon her return, the debtor had one class to complete but as this class was offered only during the spring semester, she applied for and was permitted a leave of absence for the fall 2003 semester. When she attempted to register for the spring 2004 class, she was told she had to pay $38,195 then owing for her tuition and costs for the 2002-2003 academic year. Unable to come up with such a large amount of money, she applied for another leave of absence to the spring of 2005 when the course would be taught again. In the meantime, she tried to resolve the tuition issue with BU but was unsuccessful. On December 14, 2004, she filed bankruptcy under Chapter 7, listing the obligation to BU as an unsecured claim.

After filing the bankruptcy petition, she attempted to register again for her final course. BU refused. Even though she was refused, she made arrangements with the professor to attend classes, and complete tests and assignments during that Spring 2005 semester, with the hope of being allowed to register once she received her bankruptcy discharge. The discharge was received on March 28, 2005.

On March 30, 2005, the debtor filed a complaint seeking (1) a determination of whether the debt to BU was in fact dischargeable; (2) an injunction barring BU from taking any action to enforce the debt; and (3) damages, attorney’s fees and punitive damages for violating the Automatic Stay.

The first issue was easily resolved as BU did not contest the dischargeability of the debt.

On the second issue, BU admitted refusing debtor’s registration, but claimed that it was contemplating bringing an action in the Bankruptcy Court to determine the dischargeability of the debt…..even though it never did. After analyzing the case law from this and other jurisdictions, the Court rejected BU’s arguments: “BU cannot reasonably argue that the act of not allowing Debtor to register for a class and for graduation was done for any purpose other than to compel Debtor to pay her debt.” With that said, the Court found that BU violated the automatic stay of the Bankruptcy Code.

As for damages, that issue has not been resolved. An evidentiary hearing has been set for March 26, 2006.

Posted by Bill McLeod at 1:26 PM | Permalink | Comments (0) | TrackBacks (0)

You get yourself a new credit card and think, ‘hey, my kid is going off to school….I’ll give him one too.’ Or perhaps ‘I’ll give one to my elderly mother, just in case of an emergency.’ Then you encounter some financial problems, and end up defaulting on the credit card agreement. You may even contemplate bankruptcy. But you’re confident that your mom and your son won’t get stuck with the credit card bill. After all, you signed it. You applied for it. You made the decision to give it to them. Indeed, you even paid the bill….when you could. They are not going to try and collect it from them.

Think again.

Credit card companies (and the entities who buy their defaulted accounts) are arguing that authorized users are responsible because the terms and conditions of the credit card agreement specifically dictate how authorized users are treated. Sure, that might not have been on the original agreement, when you first got the card, but anyone who has used a credit card knows that terms and conditions change all the time at the will of the credit issuer. What might be permitted today might not be allowed tomorrow. In other words, it can say anything at any time: from the authorized user being responsible for what they buy, to the authorized user being responsible for the entire balance. Still want mom to have a card?

Credit card companies are also arguing that on the merchant sales slip, the consumer signs below language that reads something like “I agree to pay according to the terms and conditions of the credit card agreement.” If the terms and conditions say that the authorized user pays regardless of why, when and how, you might want your son or daughter to use cash rather than plastic as they head off to college.

Indeed, authorized users might be a little shocked when they pull their own credit report to find that your delinquent credit card account is on there. That might make make any holiday homecoming a tad more awkward.

Bottom line: read the terms and conditions. I know they are long, boring (oh, and so very boring), and at times impossible to understand. I know that they come on a small piece of paper that your credit card company intentionally stuffs into your monthly bill with adverts for radios, watches, and other trinkets which are so colorful, pretty, not needed and clearly designed to distract your attention away from reading them. But unfortunately, if those terms and conditions are not carefully read and if you do not understand exactly what you’re getting yourself into, you and your loved ones could be in for a very rude awakening if things in your financial house change.

And change is inevitable, one way or another.

Posted by Bill McLeod at 11:21 AM | Permalink | Comments (0) | TrackBacks (0)

Washington passes legislation to make bankruptcy options tougher for Americans. Senators and House Members demand that consumers be held responsible for their spending. Now Wall Street is apparently expressing concern that the economy will suffer because consumer spending is slipping.

As the Palm Springs Desert Sun reported on November 5, Wall Street’s concerns are ultimately rooted in the rather uncomfortable fact that 70% of the US gross domestic product relies on consumer spending. So if fuel bills are going up, grocery prices are going up, credit card minimum monthly payments are going up and salaries are...well…not, what’s a consumer to do?

Listen to Washington, and they tell you “be responsible” and do not spend what you don’t have. Of course, Washington, with its budget deficits ought to move away from the “do as I say, not as I do” mantra that my mom once espoused when she told me not to smoke cigarettes while she was hauling a Parliament. While the US government spends money it does not have, our leaders enacted bankruptcy reform. Wall Street on the other hand, is donning the holiday garland a little early and starting to whine that people are not spending enough. Get out there! Buy! Buy! Buy! PLEASE Buy!

Things that make ya go hmmmm.

How this will all play out is anyone’s guess. If the economy slips, slides or as the case may be plummets into a recession, will Wall Street blame Washington or the American consumer? Will Washington blame the American consumer or Wall Street? Given that we are heading into a mid-term election year, my bet would be that Washington will still blame Katrina. And who will the American consumer blame?

The issue is not uniquely American. Saturday’s Guardian Unlimited reported that personal bankruptcies in Britain are up over 40% from last year. An insolvency professional was quoted “…we live in a 'want now, have now' society where nobody saves up for anything any more. They just buy it and worry about paying for it later.” Yet Wall Street seems to be telling Americans that if we do not buy it now, we are going to pay later anyway.

Let’s assume for today that they are right. Let’s say that this slow down in consumer spending continues through the holidays. If we stumble into a recession in Q1 of 2006, will the new bankruptcy laws force consumers to struggle through an expensive and perhaps oppressive bankruptcy process to address their accumulated debt and ultimately delay any national economic recovery?

I’ll simplify it: how long and how bad will a recession be if Americans are not able to spend – as Wall Street needs them to do – because they are spending their limited resources on higher priced necessities and servicing debt. If the answer is “a long time” and/or “bad”, who gets the blame for that?

Posted by Bill McLeod at 11:20 AM | Permalink | Comments (0) | TrackBacks (0)

If you remembered my October 17 entry, I mentioned the price in gold and how I expected it to rise. Quiet whispers using the “I” word (“inflation”…shhhh!) will also mention that precious metal that tends to fare better when the dollar value goes down.

With that in mind, one might expect to hear stock tips on gold mining companies, or gold and other precious metal ETFs. One might want to check out sites that discuss gold investing, such as www.kitco.com or www.financialsense.com. However, with a bit of shock and awe (and not a good “awe” I might add), I learned that in this peculiar economy where credit card defaults are at an all-time high, the stocks investors are taking a second look at are those of (gulp) debt collection companies.

For real.

Slate.com reported this week – citing last weekend’s Barron’s (which is available on line by subscription only) that some debt-buyers are reeling in upwards of $3.00 for every $1.00 they spend buying debt. Two companies in particular, Portfolio Recovery Associates and Asta Funding both out performed the S&P 500 in the past twelve months.

For real.

I wish I had this visual of several office pools, lined with cubicles, the smell of fresh (albeit bad) coffee brewing in the air, with well trained collectors calling people during reasonable hours and in a friendly and respectful tone, entering into payment plans with people struggling with debt. Unfortunately, I know better. So when I see these facts, and when I see that these companies are managing to reap more than a 200% return on their investment, and I know that even most retail stores have only a 100% mark-up, I am forced to stand quietly and ponder.

How do they do it?

I cannot speak for the two companies mentioned in the Slate article, but I know how some of them do it. They do it any way they can, even if it means breaking the rules, or breaking the law all together.

I have just posted a substantive article on the firm’s website on the need to amend the rules of civil procedure in Massachusetts (check out your own local rules of civil procedure, you might have the same rules that need fixin’ that we do). I believe there is a loophole that debt collectors are exploiting to get the biggest bang for their buck. And I also wonder if the rules were amended to close this loophole, if it would still be worth it to own a few shares of these companies? Or, might such loopholes be just the fuel that gives them the edge over the S&P?

Huh, I wonder.

Posted by Bill McLeod at 1:58 PM | Permalink | Comments (0) | TrackBacks (0)