Kevin's Corner
Practice Management Tip:
Dealing with Increased Bankruptcy Filings
"As bankruptcy filings increase dramatically across the country, you may be feeling in over your head in terms of how you're going to handle this extra workload.
"Recent numbers stand in stark contrast to the months after BAPCPA, when the volume of bankruptcy clients dropped so sharply that many consumer bankruptcy attorneys were forced to scale back and even lay off employees. According to the American Bankruptcy Institute (ABI), the 92,291 consumer bankruptcy filings this past April represented a 47.7 percent increase over the same period last year.
"Perhaps your firm has already experienced an influx of bankruptcy filings this year and has slowly been making the transition to servicing more clients. Maybe your firm is gearing up for such an increase in business but is unsure exactly what to expect.
"The logistics may be challenging during the transition, but more business is a great problem to have, especially when there are simple ways to take on more bankruptcy clients.
"A virtual bankruptcy assistant is just one of the tools available to ease the adjustment. An assistant who works remotely but can access and transfer documents electronically can help you to maintain a higher volume of clients without having to sacrifice the quality of your work.
"Best of all, a virtual assistant provides the help you need when you need it. Simply rely on your virtual assistant more or less heavily depending on your fluctuations in volume. That's especially helpful during growth periods, when it may be unclear exactly how much additional help you'll need to keep your practice running smoothly.
"Instead of having to pay additional costs like flat salaries, benefits, workers' compensation, etc., you can pay only for the services you require. A virtual bankruptcy assistant will typically cost between $300 and $450, depending upon the type of bankruptcy case, number of creditors and the complexity of the matter.
"So even if you're charging $1500-$3500 based on the type and complexity of the bankruptcy case, a virtual petition preparation assistant will allow you to budget accordingly because you'll have a fixed cost for every bankruptcy matter.
"In a lot of ways, a virtual bankruptcy assistant will allow you to streamline your practice. And as you know very well, such efficiency is a necessity when you're hoping to take on more bankruptcy clients!"
- Kevin Chern
President, Start Fresh Today
Did You Know…
that consumer spending dropped for the fourth straight month, according to a recent New York Times story?
Thank goodness the IRS has recently started sending out stimulus checks to qualified individuals under the Economic Stimulus Act of 2008.
With many Americans waiting for their rebate checks, this is a good time to remind clients that this money provides a great opportunity to catch up on past-due balances and get a fresh start.
As we've detailed before about income tax returns, you can send out a letter to your clients with a table of expected stimulus check payments and a message about how using this money wisely to catch up on their payments to you may be a turning point towards a clear financial beginning.
And you can get as creative as you want – perhaps you offer discounts to people who use their rebate check to settle on bills. Just know that the choice is yours and that the opportunity to get your client's attention and business exists.
Emphasizing Financial Literacy
April was dubbed "Financial Literacy Month" by the government. Even though this month has come and gone, we should not forget the importance of emphasizing such literacy to our clients during these tough economic times, as the following articles demonstrate:
Bankruptcy Article of the Week
Federal Reserve Proposes Sweeping Credit Card Reform
Rising bankruptcy filing statistics and mortgage foreclosure rates are perhaps the most dramatic and highly publicized signs of the dire financial times, but they aren't the only ones. Credit card delinquency rates are quietly climbing, with 1.36% of users 90 days or more past due during the fourth quarter of 2007.
In the face of those mounting delinquencies, and perhaps cognizant of the too-little-too-late response to the mortgage foreclosure crisis, the Federal Reserve recently proposed new rules to reform the industry. Predictably, the financial services industry has responded quickly and loudly, calling the proposed regulations "unprecedented regulatory intrusion into market-place pricing and product offerings."
Perhaps, given the "success" of the unregulated industry, some intrusion is overdue.
The proposed rules would prohibit companies from increasing interest rates on existing balances under most circumstances, and would force fairer allocation of payments, ending the common practice of applying payments in excess of the minimum to the lowest-rate balances first. Banks would also be required to provide a reasonable amount of time to make payments by ensuring that statements are delivered well in advance of payment due dates, and could not apply the "two-cycle" method to compute interest.
It is no surprise that the banking industry is reacting negatively. If enacted, the rules could cut deeply into sources of profit for credit card issuers, especially those that rely heavily on late fees and punitive interest rates for their revenues. And the proposal reaches beyond credit card fees: the new rules would end the practice of applying over-the-limit fees or overdraft charges when an account was only "in the red" due to a hold, whether the consumer used a credit or debit card.
There will be a 75-day comment period, so take a moment to review the highlights of the proposed rules changes and weigh in; as consumer bankruptcy attorneys we have perhaps the best available knowledge base regarding the impact of current credit-industry practices on the average working American.
U.S. Supreme Court Approves Bankruptcy Rules Changes
On April 23, the U.S. Supreme Court approved amendments to Bankruptcy Rules 1005, 1006, 1007, 1009, 1010, 1011, 1015, 1017, 1019, 1020, 2002, 2003, 2007.1, 2015, 3002, 3003, 3016, 3017.1, 3019, 4002, 4003, 4004, 4006, 4007, 4008, 5001, 5003, 6004, 7012, 7022, 7023.1, 8001, 8003, 9006, 9009, and 9024, and new Bankruptcy Rules 1021, 2007.2, 2015.1, 2015.2, 2015.3, 5008, and 6011.
The amendments and new rules have been transmitted to Congress, and will take effect without further action on December 1, 2008 unless Congress enacts legislation to reject, defer or modify the amendments. The full text of the rules and amendments transmitted by the U.S. Supreme Court is available here: Amendments to the Federal Rules of Bankruptcy Procedure.
A few rule changes worthy of note for the consumer bankruptcy practitioner:
- Caption requirements have been modified to include all aliases used within the past eight years (increased from six) and the last four digits of the debtor's social security number;
- Rule 1017 has been amended to allow for dismissal of a Chapter 7 petition for abuse on motion from any party in interest, provided that the allegations of abuse are pleaded with specificity;
- The proposed amendment to Rule 4003 allows the trustee up to one year after the closing of a case to object to fraudulent exemptions, and limits the homestead exemption when a debtor has been convicted of a felony or owes debts arising from particular causes of action;
- Proposed Rule 5008 requires the clerk to provide written notice to all creditors within ten days after filing of a petition if a presumption of abuse has arisen.
Many of the proposed new rules relate to the conduct and operation of health care businesses for the protection of patients and preservation of privacy and records.
The amendments and new rules are expected to take effect without Congressional intervention.
Due-Diligence Reminder
The U.S. Trustee Program reported last week that it found at least one material misstatement in nearly 30 percent of the bankruptcy cases it examined from debtor audits during FY 2007.
While Trustees may not take action if such errors are corrected or were committed by accident and without intention, neither we nor our clients want unnecessary complications in the bankruptcy process.
As bankruptcy lawyers, we need to continually convey to our clients the importance of truthfully and accurately disclosing all information when filing for bankruptcy. And as we prepare petitions, we further need to do our best work and make sure that what we are presenting on behalf of the debtor is in fact accurate.
Legislative Roundups
Some important pieces of legislation picked up momentum since our last newsletter, and here's a quick update on what you may have missed.
- We've previously detailed the concerns about student loan availability amidst the credit crunch. In response to such concerns, the Senate unanimously passed a bill on May 1st that was very similar to an April 18th bill which passed the House and would increase the amount of money that students can borrow in addition to allowing the Department of Education to purchase federally guaranteed loans that lenders cannot sell to private lenders. President Bush is expected to sign the Senate student lending bill after the House gave its quick approval.
- Also on May 1st, the House Financial Services Committee approved H.R. 5830, which would enable the government to finance $300 billion in distressed mortgages with the goal of helping two million Americans avoid foreclosure. The House is expected to hear this bill in full later this week and just in time - recent foreclosure stats continue to paint a bleary picture.
- On April 30th, the House Judiciary Committee considered H.R. 4044, an interesting piece of legislation that would amend BAPCPA by exempting military reservists who are called to active duty from the Chapter 7 means test for a limited period of time.
We'll keep you updated on any progress with this bill and other relevant legislation.