Readers know that I think the pre-filing credit counseling requirement is a complete joke. Atlanta, Georgia colleague Jonathan Ginsberg compares the requirement to a sick person going to the doctor, but being told they have to shell out $50 for a health class first (just to make sure they are sick and that they really need a doctor…which actually sort of sounds like an HMO). Then, before leaving the doctor’s they have to shell out another $50 for another health class which in theory is designed to ensure they do not get sick again. I imagine it would remind them to take vitamins, drink fluids and wash their hands frequently.

I do not have a huge problem with the pre-discharge debtor education requirement per se. However, the requirement itself is difficult to take seriously.

The pre-discharge debtor education is usually approximately two hours in length. It can be done in person, on the phone or over the internet. In theory, it is a starting point where a debtor can tweak or in some cases redevelop financial management skills. It is a sort of crash course in financial literacy. In theory. This assumes however, that the same factors lead debtors to the bankruptcy court.

The Joint Bankruptcy Court/Boston Bar Association Task Force on Financial Literacy for students issued a report noting that:

the lack of financial education, especially among the younger members of our society, can pose a considerable handicap, particularly in light of the overwhelming pressures to borrow and spend in our society.

Programs like these are absolutely necessary since many young people find themselves with credit cards shortly after high school at a time when the pressure to spend is high.

But what about the debtor who finds themselves in bankruptcy because they lost their job and then they (or someone in their family) got sick and they could not afford the COBRA or health insurance payments? What about the debtor who has been struggling for years since losing a job or a suffering a reduction of income? What about the debtors who finds themselves alone after a spouse dies or after a divorce? These factors lead many – if not most debtors into bankruptcy. What about the business person who knows how to manage finances, but the business failed for one reason or another? There are people who do everything right, and yet things do go horribly wrong for completely unanticipated reasons.

For them, the debtor education course is likely to be viewed as a reinforcement of financial failure as well as an extra cost to get out a bankruptcy process they would have preferred to stay out of.

The bottom line is this: financial literacy cannot be taught in two hours. It is a life long lesson, and one that must start at an early age. A two hour course after a bankruptcy filing is a good start for folks who have never sought or learned important financial management skills. For other debtors, who are in bankruptcy for reasons far beyond their control, it is a waste of time and a waste of money.

Posted by Bill McLeod at 12:37 PM | Permalink | Comments (0) | TrackBacks (0)

Today's Boston Globe installment (the second of a four part series) focuses on the Massachusetts Court system.

[The small claims session] is a de facto arm of a fast-growing and aggressive industry that has swamped court dockets with lawsuits - cases that often lead to threats of jail for debtors.

A Globe review of proceedings and records in 20 of the state's 70 small-claims courts found that court officials and collection lawyers routinely break court rules, almost always to the detriment of the defendant. Collectors are almost never asked to prove the debts they claim; defendants are rarely informed of their rights. And debtors, usually too strapped to afford a lawyer, must contend with this legal mismatch alone.

Posted by Bill McLeod at 11:24 AM | Permalink | Comments (2) | TrackBacks (0)

Today the Boston Globe starts a four part series on the plight of consumers facing debt collectors (it also appears on the front page of the Sunday Globe. The piece describes many issues and I have written about here in the last several months. Even though I have linked it here, you'll only have access to a few pages before you're required to sign in with a user name and password. If you’re not already registered with Boston.com, you’ll need to do so. Registration costs nothing.

Posted by Bill McLeod at 11:49 AM | Permalink | Comments (0) | TrackBacks (0)

There’s a very popular news radio station in Boston that I listen to while driving since I can get traffic reports. At times, the news can get repetitive, especially on a slow news day (although there has not been one of those lately). What can also be repetitive are some commercials, and lately the airwaves have been full of commercials of mortgage companies begging customers to call them for refinancing. I recently heard one of these commercials, and it made me sick. It went something like this:

Hi Bob, how’ve you been? The last time I saw you, you were not doing so good; you did know how you were going to make your mortgage payments. Hey, is that a new boat?

It sure is, Stan. I called XYZ mortgage company, and not only did they give me a great loan to refinance my mortgage with and get me out of my debt, but I was able to take more money out to buy this boat!

Wow, Bob, maybe I should call XYZ mortgage company.

If Bob was having problems making a mortgage payment, why did he buy a boat? Now, I know the response is “because he could”, but that doesn’t make it a wise financial decision that will not have hideous financial ramifications down the road.

If Stan were a close good friend he would have reminded Bob that the real estate market is slowly descending into a black hole. Foreclosures are up, mortgage rates are also going up and inventory is not moving. Pretty soon, Bob will not have as much – or any equity to tap into to buy gas for the boat or perhaps even put a new roof on the house.

I have not identified the company nor have I identified the radio station because there’s more than one company out there with similar message, and more than one radio station playing it. If you’re a homeowner having trouble making mortgage payments, please do not let some half-baked mortgage company convince you that taking money out to purchase a boat – or any other luxury item – is a good idea. Chances are you’ll be regretting it. Remember, the more money you borrow, the more money the mortgage company makes. That’s not necessarily a good thing for you.

Posted by Bill McLeod at 11:35 AM | Permalink | Comments (0) | TrackBacks (0)

From today’s CapeNews.net:

Home foreclosures on Cape Cod, and in two Upper Cape towns in particular, have increased at a dramatic rate according to a new report from ForeclosuresMass.com.
The web site, which tracks home foreclosures for prospective home buyers through land courts, reported this week that foreclosures in Barnstable County have shown the sharpest increase over the past year of any Massachusetts county. In comparing bank foreclosures from June 1, 2005, to June 1 of this year, ForeclosuresMass.com found that foreclosures had increased 77.93 percent in that time.

What’s unclear from these figures is what percentage of these properties in foreclosure represent second homes, vacation homes or investment property (i.e. rented to tenants) and what percentage is a primary residence for the borrower.

Posted by Bill McLeod at 11:09 AM | Permalink | Comments (0) | TrackBacks (0)

This second post was prompted by Dana's comments to earlier post from this morning. While KAA's phones are busy and/or disconnected, they are apparently still trying to get money from folks by using their bank information.

Click here for Kensington Assistance Agency's website. There is a place on the site that enables viewers to "contact them" via email however, I could locate no phone number. I sent them a test email, and it appears to be working.

Please keep us posted. If you're located in Massachusetts, please contact me directly using the contact information shown at the right.

Posted by Bill McLeod at 2:47 PM | Permalink | Comments (3) | TrackBacks (0)

Months ago, I warned readers about Kensington Assistance Agency. Since then, reports have popped up all over the country with similar warnings about this outfit, such as this one from the NBC affiliate in Greenville, South Carolina.

Recently, I have been flooded with calls and emails from folks all over the country. When they call Kensington Assistance Agency, they get a fast busy signal. We do not know if they have packed up their offices and moved into another rat-hole, or if they chose not to pay their phone bill with the hundreds of dollars they have been swindling from folks who can least afford to lose it.

If you have been victimized by Kensington Assistance Agency, here’s what you should do:

Contact your local Attorney General’s Office or Office of Consumer Protection. This is usually a state agency.

Contact your local bar association and get a referral for a local attorney who concentrates in consumer protection and consumer rights. You may have rights under your local state laws.

Earlier posts:

Rip Off Alert: Another Update on Kensington Assistance Agency
Rip Off Alert! Update: Kensington Assistance Agency
Rip Off Alert!: Kensington Assistance Agency

Posted by Bill McLeod at 9:43 AM | Permalink | Comments (2) | TrackBacks (0)

According to The Sun Chronicle, foreclosures in the Attleboro-Taunton area are up 53 percent during the first half of 2006. The second half of 2006 is not looking much better.

Posted by Bill McLeod at 9:27 AM | Permalink | Comments (0) | TrackBacks (0)

How can a debt incurred in 1995 somehow be in debt collection now? It’s called “re-aging.” In other words, debt collectors may do what scientists, philosophers and politicians only wish they could do: turn back the clock. The Dallas CBS affiliate reported on this subject on Tuesday.

Posted by Bill McLeod at 9:23 AM | Permalink | Comments (0) | TrackBacks (0)

Five people have been indicted in a foreclosure scam coming out of Southern California.

From DailyBreeze.com:

The defendants visited homeowners defaulting on their mortgages and offered to stop their foreclosures with short-term loans and refinancing options. But instead of applying for refinancing, the defendants allegedly submitted loan applications to banks under the names of the homeowners.

The defendants allegedly pocketed the loan money from the banks, which were never repaid. The victimized homeowners, meanwhile, lost their property titles, according to the indictment.

Posted by Bill McLeod at 5:14 PM | Permalink | Comments (0) | TrackBacks (0)

Foreclosures continue to spike here in Massachusetts, and nationwide. There are a number of bottom-dwellers out there preying on people who may be facing a foreclosure. According to a report from today’s Winston-Salem Journal, these scams on rising all over the country. The president and chief executive of the local Better Business Bureau had this to say:

"At-risk homeowners are bombarded with offers...Just take a look at the signs at the nearest phone pole or intersection. Smooth-talking salespeople appear everywhere, eager to buy your property and promising to 'save' your home by paying off the amount that is overdue on the loan."

He said that homeowners are often talked into moving out and deeding the property over to a third party, who tells them they can rent the property with the option to buy it back later. But the rent payment is often higher than the homeowner can afford. If homeowners decide to buy back the property, the price is typically too high for them.

Posted by Bill McLeod at 12:05 PM | Permalink | Comments (0) | TrackBacks (0)

I've written a number of blog entires on the requirement under BAPCPA to obtain credit counseling before a bankruptcy petition can be filed. The requirement is a joke. From yesterday's Billings Gazette:

Some observers say the early results show that credit counseling isn't working as intended. It doesn't appear to be shifting more people into debt-management plans instead of filing for bankruptcy.

Steve Bartlett, president of an industry association called the Financial Services Roundtable, supports the law but says it's flawed.

"Early on, most of the pre-bankruptcy counseling is not especially useful because it's only occurring for people right before they go into bankruptcy," Bartlett said. "The flaw is that the bankruptcy counseling is only occurring at the end of the process when you have little option. That's not what we wanted or the agencies wanted."

The bottom line is that this requirement is only an added expense and a waste of time. But without the ticket, there is no road to financial recovery.

Posted by Bill McLeod at 1:25 PM | Permalink | Comments (0) | TrackBacks (0)

I drove to a conference in Newport, Rhode Island over the weekend. I filled my car up on Friday, and it was $3.15 a gallon. I had to fill it up again on Sunday, and the price had jumped - in just two days - to $3.29 a gallon. In California, the price of gas is hitting some residents hard. From the LA Times:

That's especially so in California, where long commutes are the norm and public transit is of little use to the masses who in recent years moved ever farther from their jobs to find affordable housing.

"For some people, their cost for gas has doubled in a short amount of time," said Susan Ulaga, senior vice president at Consumer Credit Counseling Services, a California nonprofit. "People are able to shift money around for a while, but eventually the credit card limits kick in … and once that credit is used up, they are saying, 'What do I do now?'"

A growing number of them are heading to pawnshops, said Mike Robinson, a co-owner of Orange Pawnshop in the city of Orange.

Posted by Bill McLeod at 11:01 AM | Permalink | Comments (0) | TrackBacks (0)

I may have mentioned on more than one occassion: I am not an economist. However, there are some numbers that are just not adding up.

On one hand, this sounds good: at the end of the June, the US Commerce Department reported that consumer spending rose during the month of May by 0.4 percent, after a 0.7 gain in April.

The government reported Thursday that the overall economy raced ahead at an annual rate of 5.6 percent in the January-March quarter, the fastest pace in 2 1/2 years.

So this means people are earning more, and thus spending more.

Yet on the other side of the coin, the Federal Reserve reports that consumers took on $4.4 billion more in debt in the same month.

Credit cards and other forms of revolving debt jacked up the overall number. U.S. consumers added $6.7 billion in revolving debt in May, up 10% from the prior month to a total of $812 billion.

And then, there is this factoid:

Americans' personal savings rate, the amount of saving left from disposable income, dipped to a negative 1.7 percent in May, down from a negative 1.6 percent in April. The savings rate has been negative for 12 consecutive months, meaning that Americans are dipping into savings or borrowing more to finance a spending level that is exceeding their after-tax incomes.

Posted by Bill McLeod at 4:00 PM | Permalink | Comments (0) | TrackBacks (0)

Tomorrow’s Christian Science Monitor tackles the issue I know each one of my clients struggles with at one time or another: the morality of bankruptcy.

On one hand,

Christian personal finance guru Mary Hunt has a stern message for anyone considering bankruptcy: "It's absolutely legal, but it is not moral."

But on the other,

In Psalm 37, "the psalmist is talking about [cases where] borrowing money and not repaying it becomes a business strategy," says Gary Moore, a Christian investment adviser in Sarasota, Fla. By contrast, he says, single women should not worry about declaring bankruptcy, for instance, after using credit cards to feed their children.

"Those people ought to go to bed every night knowing that God has granted them debt relief," Moore says. "And they're not, because they hear this garbage [from antidebt Christians]. That's what Jesus called placing heavy burdens on his flock."

And then there's this, which only seems to cloud the conflict even more:

[I]f restoring good credit is the goal…. Creditors like to see a recent history of bankruptcy … because it usually means an applicant has poor spending habits, has no debts, and is ineligible for bankruptcy for another five to seven years. In short, this applicant stands to be a near-term cash cow for the creditor

While I am slightly comforted by Mr. Moore's support for single mothers struggling to put food on the table in an era when the price of groceries is slowly - and for now silently rising, they are not the only group of people struggling with debt. Moreover, people who end up filing bankruptcy are not usually doing so because they want to get themselves into debt all over again.

But perhaps more importantly, this morality debtate tends to ignore a more practical issue: the fundamental fairness of consumer credit agreements. I have often compared the credit card industry to the stereotypical loan shark. Loan sharks don't have TV commercials begging us to "live richly", asking us "what's in MY wallet" or cluttering our mailbox with unwanted solicitations enticing us with miles, points, bonus gifts and teaser rates.

"I must have paid [creditors] way over $20,000 for a $5,000 debt, [and k]nowing in my heart that I paid everybody that I owed the original amount plus a reasonable amount of interest, I don't feel any guilt about having filed bankruptcy. I wish I had done it a lot sooner."

Posted by Bill McLeod at 9:44 PM | Permalink | Comments (0) | TrackBacks (0)