Mortgage Servicers Gouge Debtors

A report in today's New York Times, Dubious Fees Hit Borrowers in Foreclosures, shows how mortgage servicers can profit from the foreclosure process to the detriment of not only the borrower, but the economy as a whole.

Because there is little oversight of foreclosure practices and the fees that are charged, bankruptcy specialists fear that some consumers may be losing their homes unnecessarily or that mortgage servicers, who collect loan payments, are profiting from foreclosures.

Bankruptcy specialists say lenders and loan servicers often do not comply with even the most basic legal requirements, like correctly computing the amount a borrower owes on a foreclosed loan or providing proof of holding the mortgage note in question.

Here are some of the examples from the story:

In one example, [Katherine M. Porter, associate professor of law at the University of Iowa] found that a lender had filed a claim stating that the borrower owed more than $1 million. But after the loan history was scrutinized, the balance turned out to be $60,000. And a judge in Louisiana is considering an award for sanctions against Wells Fargo in a case in which the bank assessed improper fees and charges that added more than $24,000 to a borrower’s loan.

...

On Oct. 9, the Chapter 13 trustee in Pittsburgh asked the court to sanction Countrywide, the nation’s largest loan servicer, saying that the company had lost or destroyed more than $500,000 in checks paid by homeowners in foreclosure from December 2005 to April 2007.

The trustee, Ronda J. Winnecour, said in court filings that she was concerned that even as Countrywide misplaced or destroyed the checks, it levied charges on the borrowers, including late fees and legal costs.

...

Loan servicing is extremely lucrative. Servicers, which collect payments from borrowers and pass them on to investors who own the loans, generally receive a percentage of income from a loan, often 0.25 percent on a prime mortgage and 0.50 percent on a subprime loan. Servicers typically generate profit margins of about 20 percent.

Now that big lenders are originating fewer mortgages, servicing revenues make up a greater percentage of earnings. Because servicers typically keep late fees and certain other charges assessed on delinquent or defaulted loans, “a borrower’s default can present a servicer with an opportunity for additional profit,” Ms. Porter said.

The amounts can be significant. Late fees accounted for 11.5 percent of servicing revenues in 2006 at Ocwen Financial, a big servicing company. At Countrywide, $285 million came from late fees last year, up 20 percent from 2005. Late fees accounted for 7.5 percent of Countrywide’s servicing revenue last year.

But these are not the only charges borrowers face. Others include $145 in something called “demand fees,” $137 in overnight delivery fees, fax fees of $50 and payoff statement charges of $60. Property inspection fees can be levied every month or so, and fees can be imposed every two months to cover assessments of a home’s worth.

...

Jeffrey M. Norton, a lawyer who represents the Trevinos, said that although MERS pays a flat rate of $400 or $500 to its lawyers during a foreclosure, the legal fees that it demands from borrowers are three or four times that.

...

Based on the study, mortgage creditors in the 1,733 cases put in claims for almost $6 million more than the loan debts listed by borrowers in the bankruptcy filings. The discrepancies are too big, Ms. Porter said, to be simple record-keeping errors.

Michael L. Jones, a homeowner going through a Chapter 13 bankruptcy in Louisiana, experienced such a discrepancy with Wells Fargo Home Mortgage. After being told that he owed $231,463.97 on his mortgage, he disputed the amount and ultimately sued Wells Fargo.

In April, Elizabeth W. Magner, a federal bankruptcy judge in Louisiana, ruled that Wells Fargo overcharged Mr. Jones by $24,450.65, or 12 percent more than what the court said he actually owed. The court attributed some of that to arithmetic errors but found that Wells Fargo had improperly added charges, including $6,741.67 in commissions to the sheriff’s office that were not owed, almost $13,000 in additional interest and fees for 16 unnecessary inspections of the borrowers’ property in the 29 months the case was pending.

“Incredibly, Wells Fargo also argues that it was debtor’s burden to verify that its accounting was correct,” the judge wrote, “even though Wells Fargo failed to disclose the details of that accounting until it was sued.”

And to think that this is probably just the tip of the iceberg. Examples like these show why regulation of the mortgage industry is sorely needed.

Tanta, at Calculated Risk, has her own take on the article -- including her questioning of some of the assertions made in the article.

Relief Bill for Homeowners Passes House

Relief Bill for Homeowners Advance

WASHINGTON (AP) -- Financial relief for homeowners facing foreclosure or in bankruptcy advanced in the House Thursday when the House approved legislation to help financially strapped homeowners.

The bill, passed by a 386-to-27 vote, would give a tax break to homeowners who have mortgage debt forgiven as part of a foreclosure or renegotiation of a loan. No taxes would be owed on the value of any debt forgiven or written off. Currently such debt forgiveness is taxable income.

While the measure is anticipated to reduce taxes of some strapped homeowners by $650 million, the cost to the government would be offset in part by limiting a tax break available on the sale of second homes.

...

The House vote was the latest congressional reaction to a mortgage crisis touched off this spring by a blowup in high-priced home loans for risky borrowers, throwing a pall over the economy. Foreclosures are at record highs and late payments are spiking. Lenders have been forced out of business and investors have taken huge financial hits.

An estimated 2 million to 2.5 million adjustable-rate mortgages - worth some $600 billion - will jump from low initial "teaser" rates to higher rates this year and next. Steep prepayment penalties have made it difficult for some to get out of their mortgages, and some overstretched homeowners can't afford to refinance or sell their homes.

To help offset the $650 million in tax revenue, the legislation makes it harder to get breaks on capital gains taxes for the sale of second homes. The White House supports the measure but wants mortgage relief to be in effect three years, not permanent as approved in the House. Bush also is opposed to limiting tax breaks on the sale of second homes.

The Mortgage Bankers Association expressed strong support for the bipartisan tax-relief bill but fiercely criticized another measure, opposed by Republicans on a House Judiciary subcommittee that narrowly approved passing it to the full committee.

That measure, which faces a contentious future in Congress, would revise the bankruptcy code to aid homeowners facing default and foreclosure. If enacted, it would further trim profits at hard-hit mortgage lenders.

The bill would allow judges to order mortgage lenders to ease terms for homeowners in bankruptcy proceedings. Currently, mortgage lenders can foreclose against a homeowner in default 90 days after a bankruptcy filing.

Mortgage lenders would be "terrified" of getting wrapped up in bankruptcy proceedings, said Brian Gardner, a research analyst with investment firm Keefe, Bruyette & Woods.

The MBA said in a statement: "Lenders will have no choice but to move to foreclosure right away to ensure that they are not covered by the onerous provisions of this bill. In the longer term, investors and speculators who overpaid for homes at the height of the housing bubble will have an incentive to file for bankruptcy, walk away from the loan and property, and reap an undeserved windfall."

The tax-relief bill is H.R. 3648.

The bankruptcy-related bill is H.R. 3609.

In response to the MBA, so the MBA should reap a windfall for engaging in what they knew -- or, at least, should have known -- was an overheated market (that they helped create)? Secondly, if you are in bankruptcy, where is the "windfall?" After all, isn't that a risk that lenders take when they make loans?

Cram Down

Sorry about the lack of posts, but the internet here is rather persnickety. It doesn't work half the time; and when it does work, it seems that I can't post for one reason or another. I also have the problem that sometimes I can only read one e-mail, and then it just locks up.

Anyway, back to reality...

In the news today, Bankruptcy Change Could Save 600,000 Homes:

NEW YORK (CNNMoney.com) -- One consumer group estimates that 600,000 foreclosures could be avoided over the next two years by making a simple change to the bankruptcy code.

The Center for Responsible Lending (CRL) calls it a tweak, but it could be a significant change for homeowners and the market for mortgage-backed securities.

CRL's proposal - reflected in a House bill recently introduced - would make changes to the regulations for Chapter 13 bankruptcies, which don't wipe out debts, but rather establish a repayment plan.

Under current law, when a person files for Ch. 13 bankruptcy, judges cannot reduce mortgage debt owed on a person's primary residence, although they may modify mortgages on investment property or second homes.

Under the House bill, the bankruptcy judge would have the option of reducing what the homeowner owes the lender. Say a homeowner's property is worth less than what he owes. The judge could reduce the principal to match the home's current market value as well as reduce the loan's interest rate.

The rest of the original principal would then be treated as unsecured. That means it becomes a lower priority for repayment than the borrower's secured debt, such as the newly reduced principal on his home. Unsecured debts may be discharged.

OK, indulge me while I give you some "inside" information. Allowing a debtor to pay what the collateral is worth on a secured debt is called a "cram down" in bankruptcy lawyer-speak. A recent Supreme Court case already allowed debtors to cram down the interest rate to the discount rate plus a point or two (or three) on personal items such as cars, furniture and jewelry. Before the 2005 changes, you used to be able to cram down cars, furniture and the like to their value as well. After the BAPCPA law was passed, the feeling among the debtor's counsel was that we should make car dealers "eat steel" unless they agreed to negotiate with the debtor on the price.

The proposed changes in the bankruptcy law would allow debtors to "cram down" the debt to the value of the house in the current market and it seems that they propose that the interest rate rule in Till v. SCS Credit Corp. be extended to houses as well.

I agree with the article that this is more than a tweak, but it is probably a necessary tweak. The representative for the mortgage industry is quoted in the article as saying:

If investors in mortgage debt knew that mortgages could be adjusted by the courts without the consent of the lender, that could increase their perceived risk and change their valuation.

Yes, and some would argue that that is precisely the problem. That is to say: mortgage backed securities (MBS) are not currently getting marked-to-market, but instead are getting marked-to-model.

I admit I am just a lawyer -- not an economist or Wall Street whiz kid. But if I am understanding it right, this article at Sudden Debt: Rocks, Hard Places and Pricing Models probably explains it pretty well. From Hellasious's post:

Which finally brings us to the subject of the pricing models used to issue and mark-to-model all those structured finance securities. It is quite obvious that the primary variable in all pricing models is their sensitivity to credit risk, i.e. the risk of default. During the "virtuous" cycle, when credit risk goes down, such models indicated higher prices, which were used to issue structured finance securities at higher prices and with higher proportions of readily salable AAA-A merchandise. But as the cycle turned "vicious" those models started throwing out lower prices - and when the credit risks signaled by the CDSs jumped suddenly and substantially, as happened in August, those model-calculated prices moved radically down, causing havoc in the balance sheets of existing CDO holders such as banks, SIVs and hedge funds. The trouble was further enhanced by the fact that many holders were highly leveraged, i.e. they had borrowed heavily through ABCPs and prime-bank margin to buy those securities. Judging by market action quite a lot of margin came from the yen carry tactic. Live by the sword, die by the sword...

But why did participants choose to mark-to-model instead of mark-to-market? Two reasons:

(a) Because of the fragmentation in the structured finance business there were thousands of "made to order" issues that had next to zero secondary market liquidity. Usually the issuers pledged they would maintain a secondary market, but for practical purposes this was an empty promise. Even in good times the spreads between quoted bid-offer prices routinely exceeded 5 points ($50 per $1000 face) and in tiny amounts (eg $500k). We call this "trading by appointment only". Therefore, they couldn't truly mark-to-market because there simply was no active market.

(b) During the "virtuous" cycle marking-to-model served to hide the enormous embedded fees paid by real money buyers in the new issue market. For example, pension funds bought large amounts ($50 million and more) of such securities at par, a price that routinely included 5-8% underwriting fees - an atrocious percentage for AAA-A bonds when bought in size. I know of several instances where fees even exceeded 10%. By comparison, highly rated agencies and straight corporates are issued with fees of 0.5-1%.

Which brings us to what could be the "next shoe to drop". As defaults in the mortgage and junk loan sectors rise, as they are already, the models will calculate significantly lower prices, particularly for those issues that were put together with overly optimistic default assumptions. I won't be surprised to see some issues eventually model-priced at 10-20 cents on the dollar, even if their prospects for partial recoveries mean that their true values are double that. In other words, just as the models produced "garbage" prices on the upside, they have the potential to come up with "garbage" prices on the way down.

Also, some mortgage companies don't want to negotiate precisely because they win even if all of their properties go into foreclosure, apparently. From today column by Paul Krugman in the New York Times Enron's Second Coming?:

But Countrywide made more questionable loans than anyone else — and its postbubble behavior does stand out. As Ms. Morgenson reported in yesterday’s Times, Countrywide seems peculiarly unwilling to work out deals that might let borrowers hold on to their homes — even when such a deal, by avoiding the costs of foreclosure, would actually work to the benefit of both sides.

Why block mutually beneficial deals? As the article points out, Countrywide can make money from the fees it charges on foreclosures, while the losses from mortgages that could have been saved, but weren’t, are borne by others.

I think this is an example of moral hazard at work.

Actually, changing the bankruptcy laws to allow debtors to "cram down" their mortgage debts just might be the thing we need to bring back some sanity to this insane housing market in much of the country.

Worst Is Yet To Come?

From the article Housing seer says there's worse to come:

So, with subprime mortgage losses and credit woes now the No. 1 topic in the markets, what does the former Goldman Sachs investment banker see next for the housing market and the U.S. economy?

Well, if you thought things were bad now, just wait. Think bank failures, recession, soaring default rates, home prices plunging by at least one-third and layoffs rippling across the economy. The unwinding could take five to seven years before the housing market hits bottom, he says.

As a former Wall Street insider, Mr. Talbott has a better appreciation than most for how large financial institutions operate. And what he senses now is a massive effort to conceal the extent of the toxic sludge buried beneath some of the biggest names in the business.

"Everybody is hiding and not disclosing losses," he says. "They're all winking and nodding at each other because they've all got this stuff on their books."

With 40 per cent of some banks' assets invested in residential mortgages, they won't be able to conceal their losses forever. Faced with rising defaults, banks are already pulling back on lending. The lack of credit, in turn, will exert a major drag on the economy, which for years has been fuelled by easy money. That's why Mr. Talbott says a recession in the next 12 to 18 months is a certainty.

...

The subprime meltdown has been described as a liquidity squeeze, which makes it sound like a temporary problem that can be cured with an injection of cash. But the problem is far more serious, he says.

"Giving a bank more cash doesn't solve the problem. What they're sitting on is huge losses and they can't recognize those losses without endangering their entire book equity and threatening bankruptcy and threatening a run on the banks."

I don't know if things will get that bad, but it's a potential scenario. I suspect this very scenario that could happen is what is worrying many Americans.

Bankruptcy Dichotomies

Elizabeth Warren has written about the dichotomy (i.e. hypocrisy) of protections for corporations and large debtors in bankruptcy with the protections (or lack thereof) for consumer debtors in the same situation in her post The Onion Plan.

Bankruptcy law is the final arbiter of debtor-creditor rights, but here's an interesting asymmetry in the law: If a corporation can no longer afford the mortgage on its factory, it has powerful tools to rewrite the mortgage in bankruptcy. But if a homeowner is in exactly the same trouble following an interest rate hike, those same tools are unavailable.

More details: A company that cannot pay its mortgage can declare Chapter 11 and do two things: 1) separate the mortgage into its secured and unsecured portions (called bifurcation), and 2) pay the secured portion at current market rates under a new mortgage and discharge the unsecured portion. So, for example, a $1.2 million mortgage at 12% on a factory worth only $1 million will be bifurcated into a $1 million secured mortgage at, say, 7% interest, and the remaining $.2 million can be discharged. The economic insight behind permitting this move is that the mortgage company will get 100% of the value of the property paid over time, which is a LOT better than the much lower amount it would get in foreclosure. The second insight is that this is precisely the risk the lender took: that the property would decline in value and the debtor couldn't pay. The Chapter 11 bankruptcy forces the lender to revalue the mortgage to the actual market value of the collateral.

But notice: If a homeowner can no longer afford her mortgage, the homeowner can declare bankruptcy and get rid of the credit card debt and doctor bills, but she cannot force the lender to write down the mortgage to the value of the home or to accept payments at the current market rate. All the homeowner gets is the right to make up past-due payments--in full, with interest. So, for example, a $120,000 mortgage at 12% on a home worth only $100,000 must be paid in full at 12%. In other words, homeowners get a lot less protection in bankruptcy than do businesses.

There are a lot of "asymmetries" in Chapter 11 bankruptcies and other chapters of the bankruptcy code. I have written about it before in regards to "retention bonuses" paid to corporate executives immediately before bankruptcy and consumer debtors who attempt to give assets to their relatives within a year of filing bankruptcy. These are but two examples of how the bankruptcy code works for the benefit of the wealthy in inconsistent ways to the detriment of the poor and middle-class. It shows in a glaring way why we need to change government regulation to bring more consistentcy and equality in the law's treatment of persons with disparities in income and wealth. In theory, that is always supposed to be true for persons who come before the Court. Obviously it's not.

What's Wrong With America and What Will You Do About It?

I like the question asked and the answer given. We must answer this question to determine who we are as a people. It is central to our value system as a country.

Medical Bankruptcy: Families At Risk

Click on the title to read the report.

The End of the Innocence

These are becoming turbulent times. We are constantly at war. And it's a war financed not by shared sacrifice, but by a massive debt that will be heaped upon an American populace already burdened by personal and consumer debt (at outrageous interest rates and fees). Americans feel like they are running faster but falling farther behind because of all their debt.

Things that used to be staples of the American dream are becoming out of reach. The college degree -- even a graduate degree -- no longer guarantees financial success. Schooling that used to be paid through tax dollars and scholarships have been replaced by student loans that are not dischargeable in bankruptcy if things go horribly wrong. The student loan payments become a house -- or at least a car -- payment. Such debt payments starting out in life increase the risk of failure. As I have said before, it creates a barrier to entry to American college graduates. Pensions that were part of the benefits promised by businesses to the workers can be paid to executives in bankruptcy proceedings. Health insurance that used to have some semblance of protection is now a sieve that helps almost no one, as Michael Moore's new movie SiCKO has shown.

There is a general feeling of malaise in the country. Everything is just out of whack. Our leaders, who have held themselves out to be paragons of virtue are turning out to be boors of vice. They often talk about "values," but they live lives that are the antithesis of those values. They oppose taxation to support programs to help their fellow man at their weakest, in favor of "private charities" which they do not support with their own wealth.

Frankly, I am tired of the hypocrisy. It is the very message that Jesus tried to convey in the Good Samaritan story. The Samaritans were considered a heretical group by other Jews, so by using a Samaritan for the parable, Jesus conveyed the idea that the most ungodly people could be more righteous than those who proclaimed themselves pious. Do you ever get the idea that God is trying to teach us this very same lesson all over again?

It makes me think of a song from the 1980s: Don Henley's The End of the Innocence. Some of the lines -- which I have bolded below -- have particular significance for us today. The song, originally written during the Reagan Administration, has come full circle -- although under somewhat different circumstances.

Don Henley - The End of the Innocence


Lyrics:

Remember when the days were long
And rolled beneath a deep blue sky
Didn't have a care in the world
With mommy and daddy standin' by
But "happily ever after" fails
And we've been poisoned by these fairy tales
The lawyers dwell on small details
Since daddy had to fly

But I know a place where we can go
That's still untouched by men
We'll sit and watch the clouds roll by
And the tall grass wave in the wind
You can lay your head back on the ground
And let your hair fall all around me
Offer up your best defense
But this is the end
This is the end of the innocence

O' beautiful, for spacious skies
But now those skies are threatening
They're beating plowshares into swords
For this tired old man that we elected king
Armchair warriors often fail
And we've been poisoned by these fairy tales
The lawyers clean up all details
Since daddy had to lie

But I know a place where we can go
And wash away this sin
We'll sit and watch the clouds roll by
And the tall grass wave in the wind
Just lay your head back on the ground
And let your hair spill all around me
Offer up your best defense
But this is the end
This is the end of the innocence

Who knows how long this will last
Now we've come so far, so fast
But, somewhere back there in the dust
That same small town in each of us
I need to remember this
So baby give me just one kiss
And let me take a long last look
Before we say goodbye

Just lay your head back on the ground
And let your hair fall all around me
Offer up your best defense
But this is the end
This is the end of the innocence

Reduce Stress, Lose Weight

A new study on mice has led to a theory on why Americans are becoming increasingly obese:

Previous studies have indicated that whereas acute stress can make some people lose weight, chronic stress, such as long-term job insecurity, might cause some to put on pounds.

To explore this, Zukowska and her colleagues subjected mice to chronic stress -- either standing in cold water an hour a day or being caged with a more aggressive alpha mouse for 10 minutes a day -- and then gave them standard feed or a high-fat, high-sugar diet similar to the junk-food fare many consume.

After two weeks, only the mice that were both stressed and fed the junk-food diet gained a significant amount of weight. They accumulated about twice as much fat in their bellies as non-stressed mice that consumed the same diet.

"This tells me it's not just the stress. It's the combination of stress and the high-fat, high-sugary rich diet -- that is the humongous combo. There is some kind of interaction going on," Zukowska said.

Moreover, the stressed-out junk-food eaters put on the worst kind of fat -- deposited around the abdomen and laced with hormones and other chemical signals that promote illness. After three months, the animals became obese and developed the constellation of health problems that obese humans often get -- high blood pressure, early diabetes, high cholesterol -- an increasingly common condition known as metabolic syndrome.

"By treating the mice the way humans are treated, which is introducing a chronic stress from which they cannot escape and introducing this abundance of food, we mimicked what happens in American society," Zukowska said.

I have had a suspicion for a long time that a certain segment of society is vulnerable to obesity due to stress and our fast-food diet (documented in the Morgan Spurlock movie Supersize Me). We have always had fat and skinny people, and I have never believed that you could only pin the obesity problem in America to one cause (eating too much, not exercising enough, etc); genetics plays a part.

Now we have another factor to look at: chronic stress. Americans spend all their time working to pay off debt and buying stuff that they think will make them happy. We take too little time off for vacations to enjoy life (and employers don't offer it). I think that the health problems that Americans suffer from are related to the factors of working too much, being too concerned with the acquisition of material goods, lack of proper medical attention (because of a lack of access to medical care) and an unhealthy sedentary lifestyle (partly fueled by too much stress from overwork).

A group called Take Back Your Time is trying to bring an awareness to this problem. Their website lists some factors:

Millions of Americans are overworked, over-scheduled and just plain stressed out.

* We're putting in longer hours on the job now than we did in the 1950s, despite promises of a coming age of leisure before the year 2000.

* In fact, we're working more than medieval peasants did, and more than the citizens of any other industrial country.

* Mandatory overtime is at near record levels, in spite of a recession.

* On average, we work nearly nine full weeks (350 hours) LONGER per year than our peers in Western Europe do.

* Working Americans average a little over two weeks of vacation per year, while Europeans average five to six weeks. Many of us (including 37% of women earning less than $40,000 per year) get no paid vacation at all.

Contemporary Americans complain of unprecedented levels of busyness in everyday life. They worry about frenetic schedules, hurried children, couples with no time together, families who rarely eat meals together, and an onslaught of "hidden work" from proliferating emails, junk mail, and telemarketing calls.

Michael Moore also touched on this in SiCKO.

The problems that Americans are facing are related to our values. We need to become more concerned with living the good life than acquiring possessions. That will require a complete reorganizing of our business and working priorities.

The bankruptcy epidemic in America can be traced to these two main causes: lack of a taxpayer-financed health care system and a value system that tells us to work to acquire possessions rather than working to enjoy the time we have on this earth. If we can find the will to change our priorities, we can solve both the health and financial problems in this country.

Medical Bankruptcy

Elaine Dowling wrote a short comment on her Consumer Law Updates blog regarding an article in The Buffalo News. She was responding to these statistics:

• Most medical bankruptcies were filed by people who had health insurance when their illnesses began.

• Nearly 40 percent of debtors who had a “major medical bankruptcy” had lost their insurance during the two years before filing, compared with 27 percent of filers citing no medical cause. In other words, loss of insurance is a primary path to bankruptcy.

• About 61 percent of those suffering a major medical bankruptcy went without needed doctor or dentist visits and about half failed to fill prescriptions. Both figures are significantly higher than those of respondents whose bankruptcies arose from non-medical causes.

Plainly, more than an insurance problem is at work here. Covered or not, if someone is too sick to work, he or she may lose paychecks and quickly sink into debt. And medical causes can include such behavioral issues as alcoholism and drug abuse.

Still, insurance is a key component. If you don’t have it, personal debt will rise even more quickly. What is more, illnesses that reduce the ability to work can result in loss of coverage and, with it, the ability to regain health, return to work and stanch the rising threat of financial ruin. Such is the internal contradiction of employer-provided health insurance.

Moreover, the survey results clearly show that it is not merely the lack of insurance that is a problem, but the insufficiency of insurance for those who have it. When Americans run into medical crises, their insurance may not be there for the long haul.

Elaine responded thus:

I will say that the numbers in this article don’t really match what I see in my practice. Mine are more depressing. I see far more people than this article indicates who have never had health insurance. In most cases, their employers don’t offer it. In some cases their employer offers it, but the employee’s share of the premium would be 40% or more of the employee’s gross income.

Part of it is Oklahoma; we live in a low-wage state. Part of it is the fact that employers have not had a lot of incentive to pay living wages as collective bargaining is very weak here (and, I suspect, across the country). And part of it is for the reasons that Michael Moore pointed out in his movie SiCKO.

Elaine says there are no easy answers. I disagree. It's not that the answers are not simple, it's that we don't have the will to implement them by public policy. We don't want to implement them because they will cost money (taxes that we will have to pay). But now the ounce of prevention has become the pound of cure. Health care dollars are now crowding out other important spending. (So are all the military entanglements the U.S. is engaging in around the world, but that is another topic.)


Image copied from the Center on Budget and Policy Priorities.

The neoconservative policy of Starve the Beast is also working in its perverse way. Our national debt is up to $6 trillion and the interest payments on the national debt equal almost 9% of our national budget. That may seem small, but that is just the interest. The national debt is currently equal to 38% of our Gross Domestic Product.

Deficit spending is nothing more than deferred taxation. The money that is borrowed to fund government spending today will have to be paid back somehow. Either taxes will have to be raised or the money supply will have to be inflated. We seem to be using the latter -- at least right now. But that also presents dangers due to the effect on America's financial stability around the world. At some point, the devaluation of our currency will lead Central Banks to start selling American dollars, further eroding confidence in our currency.

The ultimate point of all this is that it shows how our health care system is in serious condition and needs surgery -- and soon.

On its surface, it may seem like a national health care program would be too expensive to implement, but actually it's not. A national health care program would save money in the long term due to the implementation of the economy of scale. Furthermore, money recaptured due to no longer trying to turn a profit off of American's ill health would then be directed into productive areas. As long as the tax base was broadened to include those who are capable of paying (corporate, capital gains and estate taxes), it would be relatively painless to convert to a government-funded system. All we need is the political will.

The Aging Bankruptcy Boom

From Consumer Law Updates:

[W]henever I tell anyone my age or older that I am a Bankruptcy lawyer, I get treated to the lecture about how we shouldn’t be letting these 20 and 30 somethings go around charging every toy they want and then filing for bankruptcy. My response is not generally regarded as polite cocktail party small talk.

So, here are a few facts for you. According to a study done at the Administrative Office of the U.S. Courts (and who better to know), Americans over 55 are filing bankruptcy at a far faster rate than the general population. The culprits are mortgage and health care costs. In 1994 only 27% of all bankruptcy filers were over the age of 45. In 2002 that percentage increased to 39%. This is in stark contrast to filers under the age of 25. Only 4% of all American adults under the age of 25 filed for bankruptcy in 2002. That was down from 11% of that age group in 1999. So, the twenty-somethings are filing at less than half the rate that they were in the ’90’s; and the Boomers are filing at basically 1.5 times the rate they were in the ’90’s.

These findings are consistent with what I see in my practice. I have far more senior citizens who racked up their credit card debt in pharmacies then I do people under 35. By the upper 30’s the numbers start to pick up, but I am 42 and in the last year of the Baby Boom. Easily most of my clients are older than I am.

You can see more here.

Seven Years Of Bad Luck

This is going to be a long post, so bear with me.

June 5, 2000

It was a hot late spring day. The temperature was close to 100 degrees Fahrenheit. I had just finished all of my work at the law office and decided to head home early just after 4pm. Almost as soon as I left the office, I got a page on my pager. I stopped in at a local gas station to return the page. All of the public phones were being used so I parked my truck and waited for one to come open. One around the corner of the parking lot became available, so I started walking toward it. After walking a few steps, a guy in a large car had just hung up a pay phone that was closer to me, so I started walking toward it. However, that is when a horrific event happened to me that will stick in my mind much like September 11th, 2001 will stick in the minds of many Americans.

The driver behind the wheel of the car turned the car toward me. He then peeled out and headed right at me. Worse yet, he was looking directly at me in my eyes and he had a look of rage about him.

I had a split-second "deer in headlights" moment as I couldn't believe that some guy that I didn't even know would try to run me over with a car and with the intent to kill me. I was in the wrong place at the wrong time. When I came to my senses and realized what was happening, I turned around and started running toward my truck. I figured that the only way I was going to survive would be to jump in the bed of my pickup truck before he got to me. I almost made it. Almost. I had just leapt off my left foot and my right foot was just getting on the bumper when his front bumper caught my left leg and crushed it in between his car and my truck.

According to the damage of my back bumper, the body shop repairman estimated that the angry driver was going about 30 miles per hour when he struck me. After he hit me, I tried to move my leg, but I couldn't. I was jammed in between his car and my truck, so I couldn't move.

Then he revved the engine back up again and peeled out again. His front bumper caught my right foot and threw me backwards onto the hood of his car. He came to a stop on the side of my truck. Then he revved up his engine all the way and peeled out again. However, this time the tires were screeching very loudly. When he peeled out the first time, the tires were not screeching loudly at all. As his car started moving forward, my body was bouncing up and down on the hood. I had landed facing forward on my back with my feet dangling over the front of the car. My first thought was that he was going to drive off and I would be thrown from the car at 60 mph and be killed from the impact on the cement.

Then he started turning. He was heading straight for the gas pump. My next thought was that I would be thrown into the gas pump and be killed either by the impact or an explosion. He kept turning. At this point, I started sliding off the hood of the car and I landed smack flat on my back on the pavement. I turned and looked and saw that the white lights had come on his car, indicating that he had put the car in reverse. I tried to get up and run away, but it was at that moment that as I tried to get up on my left leg, my leg just turned sideways. It was broken. Later, when I got to the hospital, I found out that the impact had caused a compound fracture of my left tibia and fibula.

Realizing that I couldn't get up, I screamed "SOMEBODY HELP ME!" What I didn't know was that a police officer had rushed out from inside the gas station, opened his door and turned off the angry driver's engine. They then moved me to the side of the parking lot. I started to go into shock. The pain was unbearable. On a scale of 1 to 10 -- with 10 representing the most pain -- it was a 10. About 30 minutes later, the ambulance arrived. They asked me if I had a preference of which hospital to go to. I told them to take me to the closest one.

If you have never been in an ambulance when you have a broken bone and you are laying on your back, let me just tell you: it's not fun. They don't have the best shock absorbers in the world. The pain I was feeling was exacerbated by the rough ride in the ambulance.

My parents arrived at the hospital just as soon as I did. They took me to an emergency room and starting giving me painkillers. They weren't helping much. Especially when they had to move me to take the x-rays. It really was excruciating.

The police officer on the scene came by my room and told me that they had simply let the guy leave. They didn't even arrest him. I was shocked. I tried to explain to the police officer that he had done what he did "deliberately." I remember using that same word at least twice at the scene. I remember someone asking me "you mean he did it on purpose?" "Yes," I replied. My pleas went unheard. The guy was never even arrested.

According to the police report that I had read later, it said that he claimed that the accelerator had gotten stuck and that he couldn't control the car. Right. The police officer stated that he drove the car forwards and backwards three times, but the accelerator didn't stick for him.

Back in the emergency room, I was immediately prepped for surgery. The surgeon operated and cleaned the wound with distilled water. They then admitted me as an inpatient for approximately a week. I was discharged and sent home with my parents, but this was just the beginning of my ordeal.

A couple of weeks later when I returned for a follow-up exam, they cut a hole in the cast to take a look at my leg. It was dark black and deep red in color. Something was wrong. My leg had gotten infected. The doctor took a sample and sent it to the lab for testing. It turned out to be a bacteria that could not be treated with either penicillin or Keflex, your two main antibiotics. Because the infection was in the bone itself, the doctors had to fit me with a catheter to inject me with the antibiotics. The antibiotic they had to use was brand new drug in the Quinalone family. The antibiotics cost $8000 per week. I had to have a twelve week treatment intravenously and had to be sent to an internist. Once I completed the intravenous treatment, I required another 10 weeks of oral antibiotics. That cost a "mere" $100 per week.

I remember the internist telling me that I was relatively healthy and that my chances of survival were roughly 80%. When you are in that situation, you (well I) tend to think "that means I have a one-in-five chance I won't make it."

When I took the antibiotics, I had to get up first thing in the morning at 7am and load the machine that injected the medication over 30 minutes. I had to do it again at 3pm and 11pm. I remember always being afraid that I would fall asleep while waiting for the medication to finish injecting. Somehow, I made it through.

Six months and six operations later, with no health insurance and with the other driver only having the minimum $10,000 auto insurance policy, there remained approximately $100,000 in medical bills left to be paid. To make matters even worse, I had not been working for over six months due to my injuries. I believe to this day that I did not receive the best care possible. My leg is crooked because the bone did not heal straight. I believe it might be due to the fact that I was not given a walking cast to keep my leg straight. I don't know that for sure, but I still have my suspicions. The care I received did save my life and I did beat the odds in that I am able to walk (even run) again (I was in a wheelchair during the six months I was in a cast), but I became a victim twice: once by the angry driver and once by a health care system based on profit rather than one based on giving the best treatment with payment guaranteed from a common source. I don't blame the doctors or even the hospital administrators. Medical centers are a business.

Inevitably, with mounting medical bills and not having been able to work for over six months, I ended up in bankruptcy. To make the situation even more unjust, the guy who ran me down with his car had two rent houses. They were not taken to help pay my medical bills. Imagine that: I lost everything in bankruptcy and the guy who was responsible for my condition neither suffered criminally or civilly. He got to keep his rent houses and all. The defense was able to drag out the lawsuit long enough (and convince my attorney that his assets weren't worth pursuing) that he didn't lose anything.

During the time that I was in bankruptcy, my mother died of a heart attack. According to bankruptcy rules, if you are entitled to receive an inheritance while you are in bankruptcy (chapter 13) or up to soon after you are discharged (chapter 7) you must forfeit your inheritance to the bankruptcy court trustee for the benefit of your unsecured creditors. Therefore, I lost the inheritance I would otherwise have received after my mother's death.

There is a famous English maxim: "When life gives you lemons, make lemonade." I tried to apply this lesson by becoming a bankruptcy attorney. I wanted to help people who had been through what I had been through and help them in a way that many other attorneys could not. I knew what it was like.

Then disaster struck again: the Republicans came to power in both houses of Congress and the Presidency. They dealt out their wrath on many attorneys who represented lower class people: bankruptcy attorneys, plaintiff personal injury attorneys, plaintiff medical malpractice attorneys, worker's compensation plaintiff attorneys, etc. All of them saw restrictions on their practice by making it harder for people to access the courts. In most cases, the attorneys were representing people who had relatively little financial power in relation to the opposing parties.

At the time, I didn't hardly have the time to worry about the upcoming changes in the bankruptcy law. In between taking care of clients, I was taking care of my dying father. After he died, I buried myself in my work and the increased caseload that came from people wanting to file bankruptcy before the change in the law.

Once the law changed and the work started to dry up, I immediately started looking for work with a regular employer. I applied with the federal government, state government and private companies and law firms.

I tried the hardest with the federal government. Several times I applied with the Bankruptcy Trustee's office that is part of the Department of Justice when the jobs were announced at USAjobs.com. But now I wonder if I was denied a job because Monica Goodling researched my voter registration and found out I am a Democrat. I had been willing (and am still willing) to relocate to find better opportunities. So if you know someone who's hiring, let me know. Serious inquiries only, please.

There is more to this story, but suffice it to say that I have learned how people who hit rock bottom get exploited as they try to recover from bankruptcy. I have seen and experienced (and still experience) the lack of palatable choices when trying to recover from insolvency. I have discovered that people in this situation don't have enough bargaining power. In theory, two parties to a contract have equal bargaining power. In many cases, however, that is not the case. It is therefore incumbent, I believe, on our elected representatives to write laws to prevent abuse of power by the more powerful party of a contract.

The fact that I possibly was denied a position in the federal civil service only aggravates my situation. I can only wonder if my recovery after the change in the bankruptcy laws was hampered by a wrongful denial of employment with the federal government because I was a member of the "wrong" political party.

If such is the case, who will give me Justice? Who will right the wrong done not just to me, but for others in my situation? Are federal judges now so compromised by their political ideology and dependence on their political connections that they will refuse to protect workers from such an abuse of power? Even if wronged persons can be found to bring a suit, it's not what you know, it's what you can prove. Look how difficult it is for the Democratically-controlled Congress to get information from the White House. Can you imagine how much trouble it would be for a private party? And then you would have to be able to prove that the specific plaintiff was passed over only for their political affiliation.

I have done everything that wealthy and successful people say you are supposed to do to increase your chances of financial success. I have never done any illegal drugs. I have never been drunk on alcohol. I delayed gratification and got my education. I applied the work ethic and when I couldn't get a job working for someone else, I started my own law business. But what can you do when those who have power literally and figuratively break your legs and pull the rug from underneath you? Isn't it interesting that they tell you to "pull yourself up by your bootstraps" but then they take steps to knock you off your feet when you try to do just that.

It has now been seven years since that fateful day for me: Seven Years Of Bad Luck. But I have come to the conclusion that my luck won't necessarily change on its own. Someone needs to give me a helping hand so I can make it on my own once again. I think after all of my Series of Unfortunate Events I deserve some good luck.

It is for these reasons that I have come to a philosophy of life and political conviction that we need a national health care system, a strong social safety net, guaranteed protections for the worker's financial security to prevent companies from raiding worker's pensions (Barack Obama recently made this very point in a recent speech on how many companies are filing bankruptcy to avoid paying pension obligations) and a truly independent judiciary that will protect the weakest members of society. Too many people who have had bad luck have too many roadblocks preventing them from rebuilding their lives. Too many people who lack bargaining power are getting exploited in employment contracts by those who have too much bargaining power due to their money and political influence (which is partly due to their money power).

I have also come to the conclusion that while poverty does not create most problems, it does exacerbate problems that already exist. It limits the choices people have who are caught in its grip. It is like being stuck in a deep pit without a secure rope to help you climb out. And even then, many in that situation don't have the strength to make it out on their own. They need a helping hand. We need to start helping people recover from financial loss (and, for that matter, help people get up on their feet to begin with) here in America.

I am reminded of the lines in Mark Heard's song Everything Is Alright:

Just when I can touch clouds
There is rain on my fingertips
A personal apocalypse
In a land where such is not allowed
Do all the riders in these ruts
Break down and give the good things up?

Here in America, we don't tolerate failure very well -- not even when the failure is the result of circumstances beyond someone's control. We expect everyone to make it in spite of all of the stumbling blocks that might get in their way. This is a problem in our culture and this attitude needs to change.

Everyone who has become a success has achieved it because someone else helped them achieve it. No man is an island. Furthermore, those who have achieved should help uplift those who have stumbled or fallen. Sometimes they can't make it out of the pit by themselves.

72 Year Old Woman May Have To Live In Car

Elizabeth Warren relayed this story today in The Uninvited Witness:

How did this woman (let's call her Mrs. Norman--not her real name) end up in bankruptcy? She had lost her husband 18 years ago, and she had moved to another state [to] care for her older sisters who had now passed on. She had a small house and was managing the mortgage and her other expenses just fine when she got a call from the nicest lady at the bank about three years ago. The bank lady explained that Mrs. Norman was "in the wrong mortgage" because it was fixed rate and "interest was low." She said she could "switch" Mrs. Norman to a lower cost mortgage. The bank lady promised to call her when interest rates went back up and switch her back to the fixed rate mortgage. But, said Mrs. Norman, "she never called." Now Mrs. Norman's mortgage payments have shot up, and she is about to lose her home. So she filed for bankruptcy.

Of course, bankruptcy won't be able to do much for her. She can't make her mortgage payments and she can't refinance, so she will lose her home. She thinks that soon she will be living in her car. But she was will be required to get approved credit counseling before she can get a discharge.

At today's hearings, the credit industry representative trumpeted that the new credit counseling provisions were a sign of how well the bankruptcy bill is working. It will undoubtedly be a big help when Mrs. Norman's credit counselor explains how she can improve her financial management from the front seat of her 19 year old automobile.

This sounds a lot like the stories I heard today at the Ask-A-Lawyer program. Will any good come out of these stories? How long will middle class people accept such outcomes? Will they recognize who was responsible for this travesty?

Ask A Lawyer

I just finished working the Ask-A-Lawyer for Law Day (May 1st every year) on the public television tonight. I was there all day. I handled most of the bankruptcy questions all day. I made it on TV a couple of times when the TV crews came in started filming (almost always in the background). I participate in it every year. From my perspective, I get to learn from the questions that people ask and the lawyers who answer in their area of expertise. I heard some truly heartbreaking stories from people who are in debt and have no way of affording an attorney of getting out.

The situations would have tough enough under the old law, but now things are virtually impossible for them. One woman cried several times as she told me about how her husband left her with all kinds of credit card debts and now she is going to lose her house because she can't make the payments on it either. In the time since her husband left she has become disabled but it will take two years to get a settlement from the Social Security Administration.

It just goes to show that when it rains it pours.

I heard from a man who used his credit cards gambling at the local casinos. He learned the hard way that they don't build casinos on winners.

Actually, I heard several stories today of people whose husbands, wives, sons or daughters used their credit cards to gamble at the casinos and lost massive amounts of money.

I heard another man whose employee had embezzled massive amounts of money from him.

Anyway, now I'm tired after a long day of answering legal questions.

I want out of this business. I hate not being able to help people. People need to have hope for the future. Under the new bankruptcy law, people can't get out of debt and they can't bankrupt them either. I think this contributes to a casino economy mindset -- as in: "I can't get ahead unless I win a jackpot at the casino."

I honestly wonder just how popular the casinos would be if Okies made higher wages sufficient that they could save for the future.

An 18 Year Low

In a story at CNN Money, Bankruptcy filings hit 18-year low, the headline says it all. Here's what I noticed:

Those regions of the country that experienced the biggest drop in individual bankruptcy filing included parts of Louisiana, West Virginia and Oklahoma.

You don't say. [sarcasm] I would never have guessed. [/sarcasm]

Last year, nearly 600,0000 individuals filed for bankruptcy, down 71 percent (nationwide - ed.) from 2005, according to statistics released Monday by the Administrative Office of the U.S. Courts. The last time bankruptcy filings were this low was in 1988.

And it's not because debt levels are so much lower, either.

In a little bit of editorializing in its news story, the CNN Money article said this:

Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act in 2005 in an effort to prevent consumers from abusing the bankruptcy system by clearing all their debts when they might have the ability to repay at least some of them.

So far the law appears to be working as intended by lawmakers. Last year, an increasing number of individuals filed for bankruptcy under Chapter 13 of the bankruptcy code, where individuals establish a payment plan with creditor. Before the new bankruptcy law took effect, the majority of Americans filed for Chapter 7 bankruptcy, where all unsecured debts were eliminated.

No, the reason you don't have more chapter 7 filings is because the poorer folk can't afford the new attorney fees and court costs (it now costs roughly twice as much as it used to). It isn't that they have more ability to pay their debts. Just look at the states listed above hit hardest by the new law (Louisiana, West Virginia and Oklahoma). Where do these states stand in terms of income and wealth for the United States? (Answer: they are all near the bottom in terms of income and wealth)

I would agree that it did have its intended effect: to hurt the middle and lower classes by moving closer to a debt peonage system.

If we could somehow find a way to raise the income levels in the poorer states, we probably would not have as many people needing to file bankruptcy. I would like to see someone create a geographic map showing per capita income by region. I would like to also see a comparison to conservative (red) states vs. progressive (blue) states. Rural states to urban states. Somehow I think there would be a lot of correlation.

An 18 Year Low

In a story at CNN Money, Bankruptcy filings hit 18-year low, the headline says it all. Here's what I noticed:

Those regions of the country that experienced the biggest drop in individual bankruptcy filing included parts of Louisiana, West Virginia and Oklahoma.

You don't say. [sarcasm] I would never have guessed. [/sarcasm]

Last year, nearly 600,0000 individuals filed for bankruptcy, down 71 percent (nationwide - ed.) from 2005, according to statistics released Monday by the Administrative Office of the U.S. Courts. The last time bankruptcy filings were this low was in 1988.

And it's not because debt levels are so much lower, either.

In a little bit of editorializing in its news story, the CNN Money article said this:

Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act in 2005 in an effort to prevent consumers from abusing the bankruptcy system by clearing all their debts when they might have the ability to repay at least some of them.

So far the law appears to be working as intended by lawmakers. Last year, an increasing number of individuals filed for bankruptcy under Chapter 13 of the bankruptcy code, where individuals establish a payment plan with creditor. Before the new bankruptcy law took effect, the majority of Americans filed for Chapter 7 bankruptcy, where all unsecured debts were eliminated.

No, the reason you don't have more chapter 7 filings is because the poorer folk can't afford the new attorney fees and court costs (it now costs roughly twice as much as it used to). It isn't that they have more ability to pay their debts. Just look at the states listed above hit hardest by the new law (Louisiana, West Virginia and Oklahoma). Where do these states stand in terms of income and wealth for the United States? (Answer: they are all near the bottom in terms of income and wealth)

I would agree that it did have its intended effect: to hurt the middle and lower classes by moving closer to a debt peonage system.

If we could somehow find a way to raise the income levels in the poorer states, we probably would not have as many people needing to file bankruptcy. I would like to see someone create a geographic map showing per capita income by region. I would like to also see a comparison to conservative (red) states vs. progressive (blue) states. Rural states to urban states. Somehow I think there would be a lot of correlation.

New Okie Law Blog on Consumer Law

A fellow Oklahoma bankruptcy attorney, Elaine Dowling, has started her own blog on consumer law.

As if I didn't already have enough blogs to keep up with....

Seriously, she is writing about consumer law and bankruptcy issues. If you have any interest in consumer law issues, you might want to consider giving her blog a look.

Debt and Taxes

Something that has not been discussed much is how official debt obligations pushed onto the middle class -- such as student loans -- are a form of taxation. It used to be the case that scholarships and grants were used to help a student pay for a college education. Neither scholarships nor grants are used much anymore. Grants were provided through taxation and scholarships were provided by wealthy benefactors who bestowed endowments to colleges and universities so that non-wealthy students could attain a college degree.

There used to be a value system among wealthy individuals called noblesse oblige. Sadly, it does not appear that the current generation of wealthy have been taught this value system.

What few people know is that until the changes in the bankruptcy law in 2005, income tax obligations were dischargeable under certain conditions while student loan debt was not except under exceptional circumstances. In other words, it was easier for a high-earning wealthy person who didn't pay tax obligations to get rid of their tax debt than it was for a poor college graduate to discharge student loan debt. Income tax obligations were routinely wiped out in bankruptcy automatically whereas a disabled person who owed student loans would have to (and still has to) file a lawsuit against the government (known in bankruptcy court as an "adversary proceeding") in order to have a chance at getting the unsecured student loan debt discharged.

By the way, what did these non-tax-paying people do instead of paying their taxes? They lived it up: big houses, fancy cars and vacations. They often were held up as shining examples of success in their churches and communities. If their friends only knew what I knew.

As accountants and lawyers say: "All great wealth starts with a crime."

Obligations to pay for health care and pensions are still dischargeable in chapter 11 bankruptcy proceedings. Chapter 11 is a reorganization bankruptcy mainly used by corporations, but also used by wealthy (or at least seemingly wealthy) but largely-indebted individuals. That is why I have suggested that we create a national health care system and expand Social Security into a national pension system. Large corporations will deliberately underfund pension obligations because they will be able to overpay executives and pay "retention bonuses" to executives before filing for bankruptcy.

By way of analogy, if a consumer debtor did what corporations are allowed to do in chapter 11 proceedings, the bankruptcy trustee would invalidate the consumer debtor's transfer of their property and the court would probably dismiss their bankruptcy without a discharge.

We need to change health care and pension obligations to a kind of "priority debt."

For those of you unfamiliar with bankruptcy law, let me explain what I mean. There are basically three levels of debt in bankruptcy: secured, priority and unsecured non-priority.

A secured debt is one that is tied to a piece of property (such as your home mortgage and car payment). Priority debts are unsecured debts that are non-dischargeable for public policy reasons. Examples include most taxes and child support obligations. Unsecured non-priority debts are all other debt obligations such as medical bills, credit cards, payday loans and signature loans. Student loan debts are unsecured non-priority debts that are non-dischargeable except for "undue hardship."

When the Bankruptcy Abuse Reform Fiasco ("BARF"), aka BAPCPA, was passed and signed into law in 2005, it made debt obligations that middle-class taxpayers would incur harder to discharge. The court fees were increased almost 50% (from $209 to $299 for chapter 7 and from $179 to $274 for chapter 13). Attorney fees also increased by about the same percentage. I used to be able to have someone come into my office, go over their financial information, analyze it and determine if bankruptcy was a proper remedy in about an hour. Then I could prepare the paperwork in about another hour. Now things are completely different. I have to have three different meetings with the potential client: one free consultation on the ramifications of bankruptcy, wherein I have to give them disclosure forms mandated by the new law, inform them of the cost, tell them about the credit counseling requirement, etc; then I have to have a separate meeting wherein I collect their 6 months of pay stubs for the Means Test calculations (which itself takes a couple of hours); then the rest of the paperwork takes another hour or two to prepare. Then I have to re-review everything before filing as the new law creates a new liability on me personally to verify that everything they told me is true.

I've gotten a little off-topic here. But the point is that more debt obligations that used to be borne by the wealthy are being foisted onto the middle and lower classes and the only safety net -- bankruptcy -- is being restricted and made more expensive to those who have the least ability to pay. Debt obligations (student loans, medical bills and loss of pensions) are becoming a hidden tax that only middle and lower class workers pay.

The question is: how long will working class Americans be willing to accept subsidizing the lifestyles of the rich and famous by taking on their debt obligations?