Bankruptcy Article of the Week
Courts, Attorneys and Media Turning Attention Toward Discharge Violations
How many times have you received a call from a post-bankruptcy client complaining that a debt is still listed on his credit report or that he's getting collection calls from a debt buyer or collection agency about a debt that was discharged in bankruptcy? Naturally, cleaning up your client's record isn't a high priority for creditors—not even when the law requires it—and it's no surprise that they're often slow and sloppy. But something much more sinister is at work, and it's finally getting some public attention.
BusinessWeek's November 12 cover story, "Prisoners of Debt", shines a bright light on the practice of reviving discharged debts. The simple fact that there is a market for buying debts that have already been discharged in bankruptcy indicates a serious problem: since those debts can't legally be collected, they should have no value. And that market might surprise you: though the practice brings to mind a cheap storefront without appropriate licensing, the BusinessWeek article indicates that the real players in the discharged debt market include companies owned by Bear Stearns and Lone Star Funds. Some debt purchasers directly pursue collection of the discharged debts and are able to persuade consumers to pay them through misrepresentations or simply by wearing them down. Even more pervasive, though, is the practice of simply allowing a discharged debt to linger on the consumer's credit report until the day arrives when he needs an accurate report in order to buy a home or a car or qualify for refinancing.
At that point, creditors know that many borrowers don't have the luxury of invoking the legal process and enforcing their rights—they need credit reports corrected quickly. As you probably know all too well, delays ensue if the consumer attempts to use the standard process to correct his credit report, and the creditors themselves are oddly unresponsive to the need for swift action. Often, consumers end up paying debts they don't legally owe because it's the fastest way to clean up their credit reports and move forward with a home purchase or refinancing.
There is hope, though, that exposure to the light will—in time—turn this practice to dust. The specific cases reported in the article are only the tip of the iceberg, and bankruptcy attorneys, consumer advocates and judges across the country appear to have had enough. Attorney fees in discharge violation cases often exceed the amount of the original debt, a trend that will quickly make it clear that collecting on discharged debts is a losing proposition—but only if attorneys continue to aggressively pursue violators.
Fortunately, prospects are good on that front. Max Gardner's Bankruptcy Boot Camps are training bankruptcy attorneys across the country to fight back and both the media focus on and the governmental interest in the unsavory practices of the credit and collection industries continues to grow.
The Numbers Game I
Last week, we detailed an ABI report stating that bankruptcy filings were up 45 percent through the first nine months of this year as compared to the same time period for 2006.
With that in mind, the passing of another week brought some more interesting numbers confirming a rise in bankruptcy filings once again attributed to a culprit too familiar throughout the country.
According to the U.S. Bankruptcy Court for the District of Arizona, October bankruptcy filings in the state were up 63 percent from that same time period last year.
There were 1,117 bankruptcy filings last month in Arizona. Roughly 75% of those filings (approximately 842 petitions) were for Chapter 7 bankruptcy.
Near the end of October, a Crain's New York Business report detailed that bankruptcy filings in the five boroughs of New York City were up 69% in the last year.
Once again, the increases in bankruptcy filings in these two states were attributed to the weak housing market marked by the high number of foreclosures, a topic that we've addressed in past newsletters.
The Numbers Game II
Start Fresh Today helped raise $2,000 for the Clark County Pro Bono Project during our fundraising party at the NACBA Workshop in Las Vegas nearly two weeks ago.
Thanks to all of you who attended the fundraiser and made contributions. Your generosity is truly appreciated.
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Kevin's Corner
Practice Management Tip of the Week:
"Effective law practice management is about more than just increasing revenues.
"Of course, we all want to generate new business and build revenue, but the success of your practice depends on more than just bringing new clients in the door. It's just as important to:
- Thoroughly assess the return on your marketing investments and adjust your choices;
- Reduce overhead by finding creative means to cut costs without losing what's important to you and your employees;
- Build and maintain employee morale; and
- Structure compensation and benefits packages that make sense for you and for your employees.
"Of course, taking those steps effectively requires a lot of analysis: analysis of how your current marketing outlets are (or are not) serving your needs, analysis of how your benefits packages are really working for your employees and an understanding of your particular employees and what they value most.
"Learning how to assess each of these areas and putting that knowledge into practice takes work, but it will pay off in more effective marketing; a more pleasant and efficient office that encourages conversion, client retention and word of mouth referrals; and lower operating costs.
"In the next several newsletters, we'll look at each of these areas in more detail, beginning with assessing the effectiveness of your marketing program so that you can begin to increase the return on your marketing investment."
- Kevin Chern
President, Start Fresh Today
U.S. Trustee Update
Two weeks ago in Issue 13 of our newsletter, we wrote about the House Judiciary Committee's Subcommittee on Administrative and Commercial Law's hearing on the U.S. Trustee Program. That article detailed one man's comparison of the U.S. Trustree Program to a "pit bull" in terms of being more of an adversary to consumer debtors rather than a neutral advisor.
With such context in mind, the bankruptcy lawyer Max Gardner recently obtained a statement from Mark A. Redmiles, the Executive Director of the U.S. Trustree Program, indicating that the U.S. Trustee will protect consumer debtors from abusive creditor practices.
Read Redmiles' interesting statement at the National Consumer Bankruptcy Litigation Center Blog.
Did You Know.
that you can catch up on past issues of The Next Chapter: The SFT Bankruptcy Newsletter from the convenience of the Start Fresh Today Attorneys page.
That's right! There's no need to log in to your SFT account to revisit past issues of our bankruptcy newsletter.
Simply access the Attorneys page on the SFT website and click on the link in the left navigation for 'SFT Bankruptcy Newsletters.'
Doing so will take you to our 'Archives' page of previous bankruptcy newsletters, from last week's edition to our first issue back at the start of August.
Whether you want to look back at a bankruptcy practice management tip, seek more information about working in your SFT account, or reference a past bankruptcy article from one of our newsletters, this 'Archives' page is where to go.
Got questions? Feel free to call (800) 435-9138 or send us an email to info@startfreshtoday.com with any questions that you may have. Once again, we're more than glad to help out.