Bankruptcy Article of the Week
Foreclosure-Related Credit Counseling Waiver May be in the Works
A little relief may finally be in sight for bankruptcy petitioners facing foreclosure. The pre-filing credit counseling requirement put a bit of a wrinkle in the process for homeowners hoping to use the Chapter 13 bankruptcy process to save their homes. In the early days of the 2005 law, we all saw cases in which a debtor lost a home or a car or some other secured asset because he'd filed without a credit counseling certificate.
In December of 2005, a Texas Bankruptcy Judge blasted Congress for the inflexibility of the requirement, concluding:
Simply stated, if a debtor does not request the required credit counseling services from an approved nonprofit budget and credit counseling service before the petition is filed, that person is ineligible to be a debtor no matter how dire the circumstances the person finds themselves in at that moment.
With obvious reluctance (and a few choice words for the lawmakers), the Judge dismissed the case—which had been filed as an emergency measure to prevent foreclosure—saying that his hands were tied. Finally, nearly two years later, limited relief may be in sight for debtors in similar circumstances.
On October 4, the House Judiciary Committee on Commercial and Administrative Law approved H.R. 3609, a bill to amend the U.S. Bankruptcy Code. While several provisions of the bill have recently been addressed by other lawmakers, H.R. 3609 contains one unique and important section: Section 5 of the bill would eliminate the credit counseling requirement for Chapter 13 debtors who submitted certification that mortgage foreclosure proceedings had commenced with regard to the debtor's personal residence.
Specifically, Section 5 would amend §109(h) to add:
(5) The requirements of paragraph (1) shall not apply with respect to a debtor in a case under chapter 13 who submits to the court a certification that the older of a claim secured by the debtor's principle residence has initiated a judicial or non-judicial foreclosure on the debtor's principle residence.
Other provisions of the bill include removal of the language excepting debt secured by the debtor's personal residence in §1322(b)(2) and extension of the allowable repayment period for debt secured by the debtor's personal residence.
Tom Feeney (R-FL) offered an amendment that would have limited the application of the amendments to mortgages originated between 2000 and 2007, and another which would have capped eligible mortgages at $1,000,000. Both amendments failed, as did a third amendment offered by Chris Cannon (R-UT). Cannon proposed striking the credit counseling waiver provision altogether.
Another amendment, also offered by Cannon, would have limited the amount of principle a bankruptcy court could write down in a Chapter 13 case. Cannon withdrew that amendment in hopes of reaching a bipartisan solution before the bill is marked up in committee.
No date has been scheduled for the mark-up, but it could occur as early as this week.
Updates on Foreclosure Legislation
In last week's issue of The Next Chapter, we detailed how Representative Brad Miller (D-NC) had introduced legislation that would repeal a provision disallowing bankruptcy courts from modifying the terms of an existing mortgage in a move that could save up to 600,000 homes from foreclosure.
With that in mind, a different piece of foreclosure legislation passed the House of Representatives last week. H.R. 3648, the Mortgage Forgiveness Debt Relief Act of 2007, would prohibit the I.R.S. from taxing homeowners on any debt that was forgiven in a foreclosure.
After being approved in the House by a 386-27 vote, this bill still needs to be passed by the U.S. Senate and then signed by President George W. Bush in order to become a law retroactive to January 1st of this year.
The Numbers Game
There were 67,826 bankruptcy filings in September, based on preliminary figures examined by the Automated Access to Court Electronic Records (AACER).
While there were 76,959 consumer bankruptcy filings in August, the September totals actually represent a higher filing rate per day since there were only 19 business days last month as compared to 23 business days in August.
More specifically, there was a daily average of 3,541 consumer bankruptcy filings in September as compared to a daily rate of 3,346 bankruptcy filings in August.
This 5.3 percent increase represents the highest daily filing rate since the enactment of the 2005 bankruptcy law.
A Friendly Tip from the SFT Team
When setting clients up for the Pre-Filing Credit Counseling course, please let them know that they should have their financial records and documents present in order to enter all the information that they will need to proceed.
What exactly will your clients need? They should have a current pay stub or record of income, a list of monthly household and personal expenses, a list of all debts (secured and unsecured) with balances due and the creditors owed, and finally a list of all assets and liens attached.
Having this paperwork present and organized beforehand will ensure that the credit counseling process is a much quicker process for your clients.
Kevin's Corner
Practice Management Tip of the Week:
"As a consumer bankruptcy attorney, you certainly know that bankruptcy has a bad name in some circles. Overcoming the perception of stigma and the irrational fears created by the mythology surrounding bankruptcy can be one of your biggest challenges when it comes to converting information seekers into paying clients.
"What you may not know, though, is that you can combat those misconceptions about bankruptcy and promote your practice at the same time. That's right—by simply setting the record straight when and where the opportunity arises, you can market yourself and your practice.
"Some simple steps you can take to dispel prospective clients' fears, position yourself as a consumer advocate and get your name out in the community as a knowledgeable and committed consumer bankruptcy attorney all at once include:
- Taking the time to clear up common myths like 'bankruptcy ruins your credit for ten years' when speaking with a prospective client;
- Using the blog on your firm's website to explain the potential benefits of bankruptcy for consumers in financial crisis;
- Confronting misinformation - when you see misconceptions about bankruptcy and credit in your local newspaper, take a moment to write a letter to the editor correcting the mistake and providing useful information. You might also want to see if you can arrange a guest Op-Ed column to address the issue; and
- Using your website for more than attorney bios: provide articles and overviews that help people in dire financial straits see how they can begin to rebuild.
"Be polite and professional, but clear and firm. The information you provide may tip the scales for a prospective client who was misled or intimidated into inaction."
- Kevin Chern
President, Start Fresh Today
Did You Know...
that our Pre-Filing Credit Counseling and Post-Filing Debtor Education courses are available in Spanish?
That's right. Here's the 411 on how you can help your Spanish-speaking clients utilize this very beneficial feature.
Simply have your clients log in to their SFT accounts and then click on the large button for the corresponding course.
Doing so will take them to an 'Authentication' page that will allow them to take the course separately or with a spouse. Simply have your client verify the Social Security Number(s) and click on the radio button indicating that they wish to take the whole course in Spanish.
That's it! If you have any questions, please do not hesitate to call us at (800) 435-9138. You may also feel free to send us an email at info@startfreshtoday.com with any specific questions that you may have.
Need More Client Inserts?
If you are in need of more credit counseling and debtor education inserts for your client intake folders and haven't already ordered more copies from SFT, take action today.
Simply call (800) 435-9138 with your request for more inserts or take a quick moment to send an email to info@startfreshtoday.com. Upon receiving your request, we will ship your new client inserts free of any shipping charges.
All that we ask is you include your new inserts in your client intake folders. Thanks again for your cooperation and orders thus far.