Posts Tagged ‘In the News’

As the Economy Turns…

Today, my Bankruptcy Colleague and fellow-blogger Jonathan Ginsberg wrote about The Psychology of Debt Collection: Avoid the Manipulation.

The Boston Globe reports that the Massachusetts Attorney General has filed a bill to slow down foreclosures. But the legislation would only protect those in “risky” loans. And if people keep losing their jobs, homeowners with “risky” loans will not be the only ones facing the possibility of losing their home.

Meanwhile, in Washington, a bill that would let some homeowners in Chapter 13 modify the mortgage on their principal residence has cleared the House Judiciary Committee.

While homeowners might be getting a break, recent graduates are finding it tougher and tougher to pay off student loans. An opinion piece in the Minneapolis Star Tribune suggests that a good way to stimulate the economy may be to forgive student loan debt.

The Federal Reserve however, seems to have another idea, although I am not convinced it’s a better idea. From CNNMoney.com:

The Federal Reserve is getting ready to launch a new program that should make it easier for consumers to get credit-card and auto loans — though not necessarily at lower interest rates.

Yikes.

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Student Loans: The Financial Shackles of Higher Education

Debtors with student loans have an often insurmountable burden in proving their loans are dischargeable in bankruptcy. Section 523(a)(8) requires them to show that the loans are an undue hardship and an example of how the definition of “undue hardship” lacks any common sense can be found here. Lately, many bankruptcy attorneys I have spoken to have admitted that they question the disparity in the treatment that debtors with high mortgage debt receive versus those with high student loan debt.

In its February 2, 2009 issue, Forbes looks at the issue of what it calls “The Great College Loan Hoax.”

Census figures show that college grads earn an average of $57,500 a year, which is 82% more than the $31,600 high school alumni make. Multiply the $25,900 difference by the 40 years the average person works and, sure enough, it comes to a tad over $1 million.

But anybody who has gotten a passing grade in statistics knows what’s wrong with this line of argument. A correlation between B.A.s and incomes is not proof of cause and effect. It may reflect nothing more than the fact that the economy rewards smart people and smart people are likely to go to college. To cite the extreme and obvious example: Bill Gates is rich because he knows how to run a business, not because he matriculated at Harvard. Finishing his degree wouldn’t have increased his income.

This (along with the rest of the article) is a refreshing read. I expect in the months and years to come, there will be more discussions over the trend of forcing students into a debt that is nearly impossible to shed (or for that matter, pay) while dangling the carrot of an education and with that, the promise of a better life.

According to the article, the average law school graduate will emerge with over $100,000 in student loan debt. Based on discussions with law students I have met, I do not believe that it is an inaccurate assessment. Law firms are laying off. The economy continues to sour. Jobs will be scarce – and I am meeting more and more recent graduates who find themselves forced (much like I did almost 18 years ago) to hang up a shingle and establish a practice. However, those realities will not be considered an undue hardship.

I’ll put it this way: it’s far easier to walk away (in any chapter of bankruptcy) from a few properties, a few mortgages, and hundreds of thousands of dollars or more in obligations, than it is to walk away from student loan debt. Yet the unlucky, unwise or unfortunate real estate investor likely has the benefit of the societal safety net that bankruptcy offers. It seems that there is less risk to entering into an “exotic mortgage” than to get a degree in a subject area that might – or might not – have a job waiting for me after graduation. Something doesn’t seem right about that.

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So You Think It’s a Good Time to Buy a House?

Contrary to what you may hear in advertisements, 2009 may not be a good time to buy a home unless you are planning on living there for several years. This bit of news is not actually a huge shock for me, but it is not helpful for several of my clients whose success depends – at the very least – on people buying real estate in 2009.

This is again, another reason why we need meaningful reform out of Washington soon. Undoubtedly, the proposed changes to the Bankruptcy Code which would allow judges to reduce mortgages of consumers could help. But some contend that the reform will accelerate “lenders’ losses on home-equity, automobile and credit-card loans.” I’m not so that is a particularly bad thing.

About 10 years ago, I had abdominal surgery. As luck would have it, one of the sutures that was designed to dissolve didn’t. Instead, it got infected. It was very painful.

Admittedly, I’m a big baby when it comes to pain (my staff will back that up). This pain was far too much to handle….so my friend put me into a cab and we went to the emergency room. When the doctor came in, he examined the incision, looked at me square in the eye and offered these words:

(more…)

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Keep the Bankruptcy Option on the Table

The new Congress will be introducing legislation that will allow homeowners in bankruptcy to “cram down” their mortgages on their principal residences. When a home is worth less than the amount owed on the mortgage (or as I typically see, mortgages), a cram down will enable the homeowner to reduce the amount owed to the value of the property. Currently, debtors can only do this on investment property, and on property that is not solely the primary residence of the debtor (i.e., a multi-family dwelling).

From a Reuters report:

Courts can generally cut through complex mortgage contracts more aggressively than the private sector, said Wade Henderson, head of the Leadership Conference on Civil Rights, who has testified before Congress on the issue.

“The continued erosion of the housing market has probably made adopting this proposal inevitable,” he said.

I also invite readers to check out Calculated Risk, and Tanta’s discussions on cram downs. You’ll find those links here.

The final version of what the new President will sign remains to be seen. However, any homeowner facing foreclosure should start exploring whether bankruptcy is an option now and plan ahead (and if you’re in bankruptcy, you should consider speaking with your attorney about whatever options you may have). I know that no one wants to file bankruptcy. But if it comes down to whether you can actually keep your home, you would be foolish to not keep all of your options on the table, including the option to file for bankruptcy protection.

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A Difference We Can Make This Holiday and in the Years Ahead

When I was in my third year of law school, I adopted two female kittens from a local shelter: Annie, a 9 month old yellow short hair, and Cissie, a 6 month old grey and brown tabby. Their impact on my life has been immeasurable.

Annie had these big, brown, doe-like eyes. It was her that I fell for first. She was rubbing against the cage and purring very loudly. I was allowed to open the cage and she jumped into my arms. I recall saying “oh yeah, I’ll take her.” I actually only intended to adopt one – which I think she knew because she then went back into the cage and went to Cissie, who sat towards the back of the cage looking afraid. She somehow made it known to me that they came as a pair. So I adopted them as a pair.

They had this love/hate relationship. When they loved one another, all was well with the world. When they did not….well, let’s just say it got a little crazy. Cissie was fascinated by the house plants, and Annie marveled at the looks and sounds of water going down the drain.

Cissie and Annie would lay close to me when I was studying for exams, including the bar. I did not realize that I would nervously click a pen while concentrating. I really only discovered it when I noticed Cissie looking at me while purring and chirping. She would then approach and then start batting it. She also loved the smell of my highlighters – which she would often pry away from me. And Annie would always let me know when it was time to stop studying: she would simply lay down on my books and give me a look that said “and now, it’s all about me.”

Looking back, I think it took Cissie longer to warm up to me. But eventually, she did. When I moved to Boston, I bought her a harness and would walk her in the Back Bay Fens in between Park Drive and the Fenway. She loved watching the ducks in the Muddy River and loved chattering to leashed dogs as they walked by in amazement. She hated being picked up and carried. She preferred walking by my side…or in many cases, dragging me to what she was interested in.

I had Annie for just over 11 years. Cissie stayed with me for more than 16. And yes, I think about them every day.

Today, I have Kit and Betty. Kit is about 10 – she was a stray. She lived with my mom for a few years until she passed away, and has lived with me ever since. She still has a bit of feral in her…which can sometimes make life surprising…and painful, if Bactine is not around.

With Betty – well – the story with her is this: I went into a pet store to get cat food. Many times, local pet stores will help local rescue agencies and shelters promote adoption awareness and on that day, there I was and there was some rescue group promoting its programs and its kittens. I made eye contact with this little 4 month old kitten (again, the big brown eyes). I asked if I could hold her. She looked into my eyes. And that was it. I said to myself “oh sh*t.” She chose me.

While the first meeting was in a pet store – this was no “impulse purchase” – this was an adoption – and it took some time to adopt her. They checked our references – made sure we could handle the responsibility of adopting a kitten. About two weeks later she arrived. She bonded with Kit immediately. I presume that as I sit here in my office writing this, they are hunched under the Christmas tree wondering when I am going to get home and turn it on (because I believe, much like Annie and Cissie, they understand that it really is all about them).

Now you’re probably asking “where is he going with this”: in today’s Boston Globe, there is this report how the recession/depression is not only forcing people to lose their homes, but it forcing them to surrender or abandon their animals. This is not the first report on this issue, nor is it the first time I have mentioned it here. And as the economy continues its trek into the abyss, I know it will not be the last. Things are tough all around. And it’s tough for the local shelters and rescue programs that come to the help of animals in need.

What can we do?

My animals have taught me many life lessons. And I know that animals, with their ability to give us unconditional love, can be a powerful force to bring reason, order, and a sense of truth and beauty to a complex and sometimes chaotic world. We need them as much as they need us. This is why I support the Animal Rescue League.

Since 1899, the Animal Rescue League of Boston has been dedicated to rescuing domesticated animals and wildlife from suffering, cruelty, abandonment and neglect. With Care and Adoption Centers in Boston, Dedham, and Brewster, the League is a leader in providing rescue and law enforcement services and promoting a compassionate and responsible attitude towards all living beings.

Our friends and neighbors face daunting challenges in this economy. Many are forced to make difficult decisions about their pets. Yet despite these challenges, the Animal Rescue League remains committed to provide shelter and veterinary care. For 109 years, the League has been there – in good times and in bad.

Please join me and McLeod Law Offices in supporting the League and its important mission. Together, we can help the League end overpopulation, rescue animals whose lives are at risk, and ensure that every adoption is a lasting and loving one.

Remember, it’s not just the animals; it’s the lives they touch.

Click here to donate or call 617.426.9170 x615

To learn more about the other ways you can help, click here.

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Changing Chapter 13: Some Facts on the “Pandora’s Box”

There’s been some press about a proposed change to chapter 13 that would permit debtors to modify the mortgages on their primary residence. Yesterday, I attended the briefing at the State House given by Rep. William Delahunt where the need for the legislation was discussed. He has co-sponsored a bill that would modify the anti-modification restrictions imposed by Section 1322(b)(2). Among the presenters were Massachusetts Attorney General Martha Coakley, Secretary of State William Galvin, and Harvard Law Professor Elizabeth Warren.

Currently, a chapter 13 debtor cannot modify the mortgage on their home if the note is secured by the debtor’s primary residence. This does not apply if the debtor has a multi-family dwelling, such as a two-family. This does not apply if the note is secured by the house and other property (although this may vary from state to state). This also does not apply if a debtor has a vacation home or other investment property. It applies only to those chapter 13 debtors who reside in single family homes and who have a mortgage that is secured by that single family home that they use as a primary residence.

Notwithstanding those restrictions, a chapter 13 debtor may “strip off” a second mortgage (or in some cases, a third), if the mortgage is “wholly unsecured.” A simple illustration: if the value of the property is so low that if the property were sold, there would not be funds to pay the second or third mortgage. However, if that second or third mortgage is secured by even a penny, it cannot be stripped off.

The Boston Herald quoted Kevin Cuff, Executive Director of the Massachusetts Mortgage Banks Association:

You’re opening up a Pandora’s box, a precedent to haul every mortgage back into court…Many people who got these loans should not have received them in the first place. Now you go to the courts to modify the sacred contract between homeowner and lender? It’s socialized housing.

I might agree with that position if chapter 13 debtors could not modify their vacation homes or investment properties. I might agree with that if city dwellers who reside in a unit in their multi-family home could not modify their vacation homes. But that’s not the case. The current system has a disparate impact on those chapter 13 debtors who reside in single family homes, and those who do not, and for many, those who do not reside in non-urban/rural areas. It also has a disparate impact on those middle-class debtors who do not have vacation homes or investment properties.

In addition, the legislation is being proposed because voluntary modifications are not happening. It is argued that if there is a “threat” of filing bankruptcy and modifying a mortgage in chapter 13, the lender may be more apt to modify the loan voluntarily so that the homeowner does not need to file chapter 13. It sounds like a good argument, but I honestly cannot say one way or another whether that would be the case. Of course, if the law were passed, then it would be really up to the lender to decide if they wanted to be hauled into court to be forced into a modification. The only way I think any of us can know for sure is if we give it a try. But before anyone makes a decision one way or another on this proposal, I think it’s important to know what the law currently provides, and why I do not think it is necessarily a “Pandora’s box” or “socialized housing.”

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Today’s News…

While many might be on vacation, I was too busy to pull together a Storm Preparation for today. I did however manage to find a few news items.

Remember Filene’s? This gaping hole– which looks like England after WWII – is about a block from my office. Like many of my clients, this development project is struggling. But the silver lining is that I can tell clients exactly where my office is so long as they can find this gaping hole.

It’s only a flesh wound! University of Michigan researchers say if we’re in a recession, it’s a mild one.

From Time Magazine: Apparently, there are really stupid ways to pay for an education.

LA Times: Remember that “landmark housing bill” the President signed last month? It might not work out the way they hoped.

I imagine that’s how the folks who dug that hole at Filene’s feel.

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Free Foreclosure Prevention Workshop

We are passing this information along. People who attend are encouraged to let us know how or if they found the help they need.

HOPE NOW Alliance in partnership with NeighborWorks® America, The New England Patriots Charitable Foundation and the Federal Reserve Bank of Boston will host a foreclosure prevention workshop at Gillette Stadium on Tuesday, August 12, from 1:00 PM – 8:00 PM. This event is an opportunity for homeowners who are in financial distress, or concerned about foreclosure, to sit down with their lender face-to-face, and avoid foreclosure if possible.

Borrowers can talk face-to-face with their lender and housing counselors to work out a plan for their mortgage.

Tuesday, August 12, 2008
Gillette Stadium
Fidelity Investments Clubhouse, East
One Patriot Place
Foxboro, MA

Free Parking and Public Transportation: Free transportation is available on the Commuter Rail from both South Station and Providence for borrowers attending the event. Borrowers must show the flyer to qualify for free transportation.

Click here for the flyer

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Thursdays news…

The look on his face says it all: the story behind that stray 44-pound cat from New Jersey is actually not so funny any more.

Next stop, Wonderland: who will think about the dogs?

Are we in a recession? Yes, we are. No, we’re not! Yes, we are!

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Tuesday’s News…

Shocker: BAPCPA put more profits into the pockets of credit card companies says Harvard Law Professor Elizabeth Warren.

Yesterday I blogged about honesty in the bankruptcy. Today, there’s a report out of Wichita of a former debtor who was not so honest. He’ll be taking an involuntary vacation for 33 months for bankruptcy fraud.

Living on the edge: rising gas and food prices may push struggling families into foreclosure.

MSNBC explores the high price of commuting.

Does anyone have a spare $25 billion that they aren’t using?

Despite a new Massachusetts regulation forcing lenders to wait 90 days to foreclosure on homes (it went into effect on May 1), the Boston Business Journal reports that foreclosures continue to climb.

Sign of the times: Commercial bankruptcy filing rates are going up.

Sign of the apocalypse: Batman was arrested. No joke.

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