Total Bankruptcy

Most states have legislated credit report freeze statutes in the last few years as a tool consumers can use to protect themselves from identity theft. Now California courts have ruled one agency may ignore a freeze placed by a consumer and issue a report of that consumer's personal information to any landlord requesting it.

U.D. Registry is now legally allowed to provide information about prospective tenants to landlords even if the prospective tenant has placed a "freeze" on his or her credit report. The report may include social security numbers, previous addresses, tax information, rental records and judgments all of which could be used by an identity thief. The freeze statutes were enacted to allow consumers to protect this very same information, however the California Appellate court ruled most of this information was already available in public records.

U.D. Registry successfully convinced the court that the First Amendment to the Constitution of the United States of America protects the reporting service it provides.

Will this ruling impact identity theft? Will other states bring similar cases and will those courts rule similarly?

Credit card companies lobbied for nearly a decade. Congress debated numerous versions of the bill. Then, on October 17, 2005, the "new bankruptcy law" took effect. The deceptively-named Bankruptcy Abuse Prevention and Consumer Protection Act had a sudden, dramatic impact--in the weeks leading up to the effective date of the new bankruptcy law, hundreds of thousands of people rushed to file for bankruptcy protection. Some of these people might have otherwise waited months to file. Some might never have filed at all.

Then, immediately after the new law took effect, filings screeched nearly to a halt. The phones stopped ringing in bankruptcy attorney's offices. Bankruptcy courts received a trickle of filings, at best. Trustees found themselves without work. And then a surprising thing happened.

Well, surprising to the credit industry, and perhaps to Congress. It came as no surprise to consumer bankruptcy attorneys, or to economic experts who had been pointing out for years that making the bankruptcy process more complicated wouldn't do a thing to solve the underlying problem.

One year after the bankruptcy reforms, bankruptcy filings are gaining momentum. They haven't quite reached pre-law-change levels yet, but they're climbing every quarter, and that shouldn't come as surprise: Congress and the credit industry complicated the bankruptcy process in an attempt to discourage filings, but they didn't provide bankruptcy petitioners with any new options. People are still facing huge uninsured medical bills. More than a hundred thousand workers lose their jobs to mass layoffs every month. The minimum wage hasn't increased in eleven years. And just as they always have, those people often find that there's no realistic alternative to bankruptcy. The credit counseling agencies that work with them are finding that, too.

So after ten years of work, lobbying, debating, voting, and rewriting, we're right where we started. Except, of course, that filing for bankruptcy is a bit more expensive and time consuming than it used to be.

We expected problems when the new Vantage credit scoring system launched, using a different three-digit scale than the one consumers and lenders have become familiar with. However, we though the problems would come in the form of customer confusions, the need for clarification as to which scoring system was being applied, and other complications inherent in having two similar but distinct systems operating side by side.

This week, the Fair Isaac Corporation, creator of the commonly used FICO scores, filed suit against the three major credit bureaus, Experien, Equifax and TransUnion. The lawsuit alleges that the bureaus have unlawfully joined forces to prevent Fair Isaac from competing, and that they have used false and misleading claims to market their new Vantage score system to creditors.

As the first anniversary of the "new bankruptcy law" approaches, the National Association of Consumer Bankruptcy Attorneys (NACBA) has surveyed 700 bankruptcy attorneys about their experiences with the new law. While the new law creates additional hurdles and obstacles, more than 90% of attorneys report little or no substantive difference.

The credit card industry lobbied hard for the change in the bankruptcy law, painting a picture of irresponsible debtors running up high credit card bills and then opting out of repayment. However, Henry Sommer, President of NACBA, points out that the means test intended to screen out those debtors has instead demonstrated that very few bankruptcy petitioners have the ability to repay their debts. In addition, the NACBA survey indicated that fewer than 10% of consumer bankruptcy cases were linked to consumer spending issues.

A Des Moines bankruptcy petitioner is headed to jail after admitting on television that she defrauded Des Moines bankruptcy courts. The woman said in a televised interview that she'd discharged about $70,000 in credit card debt in her Iowa bankruptcy case, but kept her car, furniture, clothing and money for Botox injections. In addition to a jail term, the Des Moines woman will have to pay back the discharged debt.

One of the many unfortunate impacts of the 2005 bankruptcy reform was that filing for bankruptcy protection became more expensive for consumers. Then, just six months later, bankruptcy filing fees and administrative costs increased again. Now, less than a year after the initial increase, the House of Representatives has approved yet another increase in bankruptcy filing fees. The increase is before the Senate now.

Since the first quarter 2006 bankruptcy statistics were released, newspapers across the country have been headlining stories with lines like "Bankruptcy Filings Plummet!", but the comparison of 1st quarter 2006 statistics with 1st quarter 2005 statistics paints a very misleading picture.

In November, 2005 (the first full month after the law change), 5,460 personal Chapter 7 cases were filed. In January, that number climbed to 13,033, and in March there were 30,626 new personal Chapter 7 filings. It's true that Chapter 7 filings are down considerably when compared to the first quarter of 2005, but with March filings totalling nearly six times the November filings, it appears that the numbers are quickly normalizing. And that's no surprise, since the law change created some additional complications, paperwork, and attorney responsibilities, but it didn't solve anyone's financial problems.

The Federal Trade Commission (FTC) today announced a settlement with Whitewing Financial Group, Inc. The FTC complaint alleged that Whitewing had purchased consumer debts--many of which were too old to be legally enforceable or had been discharged in bankruptcy--and then confused consumers about their rights, pressuring them to make payment before debts had been validated.

The FTC reports that in 2005, consumers filed 66,627 complaints against third party debt collectors. This does not include complaints filed with another agency, or the many abuses not reported when consumers succumb to pressure and simply pay the invalid or outdated debts. More than 40% of these complaints related to misrepresentation of the amount or legal status of a debt. An additional 21.5% reported harassment of the alleged debtor and/or family, friends, neighbors, and employers.

Information about the Fair Debt Collection Practices Act and its requirements is available on the FTC's website at www.ftc.gov.

The snapshot of Cumberland County, North Carolina that illustrated how bankruptcy filings are rising across the country gave us another piece of presumably represenatative data--data that matches what consumer bankruptcy attorneys have been saying for years. While the credit industry did a good job of convincing Congress that bankruptcy was a sort of financial planning for deadbeats, allowing the irresponsible to live in luxury at our expense, consumer bankruptcy attorneys have long maintained that the majority of their clients arrive in their offices as the result of some life-altering event like divorce, job loss, or major medical expenses.

Data provided to The Fayettville Observer by Consumer Credit Counseling Service indicates that in Cumberland County, the reasons for post-law-change filings broke down like this:

28%: Medical Bills
24%: Job Loss/Work Reduction
16%: Divorce/Separation
8%: Death of Spouse

That's 76% of filers. The remaining 24% were divided among legal expenses, the need to avoid foreclosure (although many of those cases may have been triggered by an event like those listed above), and financial mismanagement, which accounted for only 12% of filings.

These numbers are highly reflective of the statistics consumer bankruptcy attorneys have been suggesting for years.

Although news outlets across the country continue to report the dramatic decline in bankruptcy petitions, filings are indeed on the rise across the country. When looking solely at first quarter 2006 versus first quarter 2005, there has in fact been a significant decline. However, on a month-by-month basis filings are climbing steadily.

Concentrated data from one North Carolina country demonstrates that filings are climbing to their pre-BAPCPA levels and that the most common reasons for filing a bankruptcy petition are--as consumer bankruptcy attorneys have always maintained--life-altering events such as divorce and major medical crises.

In Cumberland County, North Carolina, the number of bankruptcy filings in a given month tended to range between 125 and 200, with the average hovering around 150. After the law change, that number dropped dramatically, just as it did across the country. However, in March of 2006 there were 87 filings in that county--more than 50% of the pre-BAPCPA average. Comparing any period in 2005 to the same period in 2006 will show a decline in 2006. However, comparison between any two post-October time periods will show an increase in the later period. No matter how the numbers are spun, in less than a year bankruptcy petitions have already begun to increase dramatically, and most experts predict that the upward trend will continue.

More than 20 experienced bankruptcy attorneys--members of the National Association of Consumer Bankruptcy Attorneys (NACBA) will hold a free workshop for victims of Hurricane Katrina.

The workshop will take place on May 20 from 3:30-6:00 p.m. in the Grand Ballroom of the New Orleans Marriott Hotel, 555 Canal Street.

NACBA Executive Director Brad Botes invites all Katrina survivors who are struggling with debt in the wake of the disaster to attend this free, no-obligation event and learn more about their rights and options.

Participants are also invited to a showing of Maxed Out, a film recently featured at the Sundance Film Festival. The film, which focuses on the "epidemic" problems within the U.S. credit industry and their impact on consumers, will be presented at the conclusion of the workshop.