Bankruptcy Article of the Week
Credit Industry Targets Bankrupt Families
"The widespread efforts of creditors to lure bankrupt families into new borrowing relationships stand in stark contrast to the credit industry's portrayal of these families' propensity for honoring their obligations." - Katherine Porter
During a decade of debate, the credit industry successfully kept the bankruptcy reform focus on debtor behavior, and the result, as we know all too well, was a new bankruptcy law that heavily favored creditors and created new obstacles and expenses for debtors.
The rationale was simple: most of these debtors were deadbeats who took advantage of the system by running up debt irresponsibly and then using bankruptcy to avoid their obligations. A new post-bankruptcy study by Katherine Porter, Associate Professor of Law at the University of Iowa, seems to give lie to the credit industry's representations.
Porter's study reveals two paradoxes that call into question all of the credit industry rhetoric about unreliable debtors and the need to protect lenders from the risks associated with those "unscrupulous" borrowers. First, post-bankruptcy debtors reported greater difficulty in obtaining secured credit than unsecured credit, though secured credit is theoretically safer for the lender.
Second, and even more telling, those debtors who chose to file for Chapter 13 bankruptcy and pay some or all of their outstanding debts through that process have fewer credit opportunities than those who discharged their debt through Chapter 7!
Porter's conclusion highlights the disconnect between the credit industry's words and its actions: "Despite their disparagement of the character of bankrupt families, lenders actively solicit them as future customers. This empirical evidence suggests that the credit industry takes one view of bankruptcy debtors to Congress, the media, and public, but itself literally 'banks' on a different view of bankruptcy debtors."
Porter also revealed that:
- Nearly all debtors reported receiving offers of credit in the first months after bankruptcy;
- 96.1% of debtors received credit solicitations within one year after bankruptcy;
- Only about 25% of those debtors receiving credit solicitations in the year after bankruptcy accepted them;
- One year after bankruptcy, families reported receiving an average of 14 credit solicitations per month;
- Non-bankrupt households receive, on average, only about 1/3 as many credit solicitations as post-bankruptcy households.
Lest we think that perhaps lenders are simply sloppy in sending out their solicitations or casting the net too wide, Porter points out that nearly 88% of debtors reported that lenders had specifically referred to the debtor's bankruptcy in their solicitations.
The fact that lenders target the financially vulnerable comes as no surprise to consumer bankruptcy attorneys, but Porter's study-the first longitudinal post-bankruptcy study of its kind-provides hard data that's difficult to ignore or explain away. Perhaps this data will help shift the focus of the bankruptcy debate away from debtor behavior alone and toward a view that considers the business models and contributory behaviors of the credit industry itself in light of its actions rather than just its rhetoric.
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"Organization is essential in running a solo bankruptcy practice. StartFreshToday.com has provided me with the ability to organize the research materials I need for processing bankruptcy cases for my clients. I don't have to go to multiple sites because everything is uploaded to one central location. They have been a big help to my firm."
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Attorney at Law, San Francisco, CA
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The Numbers Game
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Kevin's Corner
Practice Management Tip of the Week:
"When answering consumer questions with the restrictions of Sections 526, 527 and 528 of the bankruptcy code in mind, speak generally without giving fact-specific advice.
"Let's say a consumer asks whether he will be able to discharge his student loan in a bankruptcy case. You would answer by saying that student loans are generally not discharged in a bankruptcy case and that you would have to sit down with him and look at his information to determine whether or not bankruptcy could eliminate his student loan.
"That's the way you want to approach such a question. And if you are unsure whether you can answer a particular question, ask yourself if your answer would be found in general information on a website or a book about bankruptcy. If the answers is 'yes,' remember that there is no law restricting you from providing general information to a consumer.
"With that said, those attorneys who answer a lot of questions generally give themselves a huge competitive advantage over those attorneys who are not willing to answer any questions before the consumer comes into their office for a consultation."
- Kevin Chern
President, Start Fresh Today
Did You Know...
you can keep track of bankruptcy case details and hearing information for each client in your SFT account?
That's right! Simply click on the box marked "Client has already filed a case" when you are setting up a new client profile in the Clients section.
This prompt will open up additional fields for you to keep track of pertinent case information, including the Case #, Filing Date, District and Court, Trustee, Judge, 341 Meeting and much more!
And if you've already created a client profile, you may still view, add or edit case information by clicking the "Edit Case Details" button in the client's profile.
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Client Inserts Are Hot Off the Presses!
Our printer recently shipped out a whole new batch of client inserts to our offices in Chicago. Once we receive the order, we will send the inserts right out to those of you who have already requested additional copies for your client intake folders.
Need more client inserts? Simply call (800) 435-9138 or feel free to send us an email at info@startfreshtoday.com with your request for more credit counseling and debtor education inserts for your clients.
Once again, all we ask is that you include your new inserts in your client intake folders. Thank you for your time!