Bankruptcy Article of the Week
New Median Income Figures.Again
By Tiffany Sanders
On February 1, 2008, new median income figures took effect. If you're feeling like we just had this conversation, you're not far off. It's been less than four months since the median income table changed on October 15, 2007…but even during those few short months, calculations weren't stable. Revised National Standards for Allowable Living Expenses and Local Standards for Transportation and Housing and Utilities Expenses kicked in on January 1 of this year.
In the roughly 28 months since BAPCPA took effect and the means test became a staple in the bankruptcy process, the data used to calculate eligibility has changed and changed again. New median income figures took effect on:
- October 17, 2005;
- February 13, 2006;
- October 1, 2006;
- February 1, 2007;
- October 15, 2007; and
- February 1, 2008.
The fluctuations in median income data have often been extreme, and in some states significant numbers of prospective bankruptcy petitioners find themselves suddenly eligible-or suddenly ineligible-for Chapter 7 bankruptcy with each shift.
Most recently, in October, the median income for a family of four in Alaska dropped by $7,252, while the same family size in Washington, D.C. saw a $15,179 increase. As in the past, the states were split in October, with about a third posting decreases. As of February 1, however, the news is all good for the first time. While the pace at which the calculations shift remains dizzying, the impact of the change is—for the first time—consistent.
The new median income figures applicable to cases filed after February 1 of this year are higher across the board. Every state's median income has increased, for every family size. Just as interesting is the nature of the change: while every category in every state saw an increase, the increases are modest and similar from state to state and family size to family size. While past adjustments have varied wildly from state to state, and even from one household size to another within some states, this period's numbers just aren't dramatic.
Although that means that we won't see significant numbers of prospective clients suddenly becoming eligible for Chapter 7 as we have in some states during prior adjustments, it also means that no one will be abruptly disqualified by a shift in the median income. For the first time, we're seeing a new set of median income figures that won't wreak havoc on anyone, anywhere.
John McCain on the Mortgage Foreclosure Crisis
In the last issue of The Next Chapter, we examined how the Democratic presidential candidates addressed the issue of bankruptcy reform during a debate in Las Vegas prior to reexamining the topic a couple of days later in South Carolina.
In a similar light, Senator and Presidential Candidate John McCain (R-Arizona) sounded off on a related topic—the mortgage foreclosure crisis—during a recent debate in California.
When asked about his plans for helping those adversely affected by the subprime lending mess, McCain expressed the opinion that "greedy" Wall Street investors should face some sort of penalty for their negligent practices, opining specifically that prime borrowers tricked or coerced into subprime loans should have their mortgages reevaluated.
McCain also called for increased transparency in the mortgage lending business – even going so far as to suggest one-page mortgage agreements – to prevent a similar crisis from happening in the future. For the full transcript, click here.
The Numbers Game
Speaking of total foreclosure filings, they were up 75 percent last year, according to CNN reports.
405,000 households lost their home last year, representing a 51 percent increase from the 268,532 homes that were lost to foreclosure in 2006.
So which states were hit hardest by foreclosure in 2007? Find out in this CNN foreclosure statistics article.
Sharp Increases in Unemployment Mark First Month of 2008
As we have seen with some clients, losing a job and health insurance benefits can spur people to file for bankruptcy. With that in mind, reports from the U.S. Department of Labor have shown some unusual unemployment statistics.
Though many economists predicted a steady rise in initial unemployment claims as our economy slips toward a recession, claims were on a downhill, and had decreased 51,000 since December. But the trend didn't last.
- In the week ending January 26, initial unemployment claims rose 69,000 for a total of 375,000, the highest level since October.
- The 69,000 person increase was the largest week-to-week jump since Sept. 2005, when Hurricane Katrina struck.
- Over the past four weeks (a more standardized measurement period), the average numbers of workers filing claims rose by 10,250 to 325,750.
Economists have noted that numbers at this time of the year tend to jump. To read the government release, click here.
And Then There's Bankruptcy Filings
January also saw bankruptcy filings increase by more than 30 percent as compared to the same period last year, according to American Bankruptcy Institute (ABI) analysis of data from the National Bankruptcy Research Center (NBKRC)
This increase in bankruptcy filings has already spurred the demand for bankruptcy lawyers in some areas of the country and seems to indicate that 2008 will be a busy year for us.
A Special Message from Start Fresh Today
Start Fresh Today is pleased to announce that our debtor education courses were recently approved in the Southern District of Alabama and the Western and Middle Districts of North Carolina. Thanks to the SFT team for all their hard work!
In Need of More Client Inserts?
Simply utilize our new order form to request more credit counseling and debtor education inserts for your client intake folders.
Just indicate whether you are or are not a SFT customer, fill out the required fields as indicted by a red * and click the "Submit" button.
Upon receiving your request, we will ship out your client inserts free of charge as soon as possible.
If you have any questions, please feel free to call 1-800-435-9138 or email info@startfreshtoday.com.
Kevin's Corner
Practice Management Tip of the Week:
Implementing Paid Time Off (PTO)
"The success of your business depends in large part on your employees.
"In the last newsletter, we talked about employee incentives and how creating a program that gives your employees a vested interest in your success can mean higher conversions, happier clients and more word-of-mouth referrals. But not everything you can do to build employee morale and boost your relationship with your staff requires that kind of planning and investment. Don't overlook the small changes that may make a big difference in the way your employees relate to you and feel about coming to work.
"Some of those changes might relate to the office atmosphere and the little, inexpensive perks that make it more pleasant. It's probably obvious that free coffee, the occasional lunch on the firm and similar little kindnesses can go a long way, but so can some changes that typically don't cost you a dime.
"One example is the shift from traditional sick time and vacation time to an undifferentiated block of paid time off (PTO). If the number of days allowed remains the same, your cost doesn't change and the amount of time off available to your employees doesn't change, so what difference does it make?
"The difference is in the message it sends, and in the impact it has on your relationship with your staff. First, giving blanket PTO says that it's the employee's time to use as he or she sees fit—you're not dictating what's worth taking time off for and what's not. And because you've allowed that flexibility, your staff has no reason to be dishonest with you.
"Rather than feeling compelled to claim illness or a doctor appointment in order to justify time off, your employees can make their own decisions about how to use the time provided and be straightforward about their plans. That means less tension, more trust and more respect—at possibly no cost at all."
- Kevin Chern
President, Start Fresh Today
Bush's Financial Advisory Literacy Council Leaves a Lot to Be Desired
In a move that some consider to be too late, President Bush signed an executive order on January 22 creating a 19-member Advisory Council on Financial Literacy within the Department of Treasury.
While the council will examine efforts to improve financial education for college students and working adults before dissolving after two years, some of Bush's selections to the council are, in our opinion, dubious to say the least.
Responses to Bush's Economic Stimulus Plan
While President Bush's economic stimulus plan has been met with mixed reviews and set the stage for both Democratic and Republican presidential candidates to respond with their own ideas of a stimulus plan, Harvard Law Professor Elizabeth Warren has a very poignant take on the matter.
In The Battered Athlete, Warren wonders why consumers are being asked to spend more to boost the economy when they are loaded with so much credit card debt. Warren then calls for a harder stance on abusive lender practices.
The Numbers Game, Part II
While 2008 has already witnessed an increase in bankruptcy filings during its first month as compared to twelve months ago, the last couple of weeks have provided some interesting filing totals for last year.
- For the second year in a row, Tennessee ranked first in household bankruptcies in 2007. There were more than 38,500 Tennessee bankruptcy filings last year, which have been attributed to the high rate of homeowners in the Volunteer State and a culture of Chapter 13 bankruptcy filings, at least according to this Tennesean bankruptcy story.
- Georgia had the second highest personal bankruptcy filing rate in 2007. There were 48,227 Georgia bankruptcy filings last year, an increase of 24 percent from 2006.
Check out the ten states with the highest rate of 2007 personal bankruptcy filings, as reported by the Atlanta Journal Constitution.