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Kevin's Corner

Practice Management Tip:

The “30-Second Rule”

"In our last newsletter, I elaborated on the importance of asking affirming questions when speaking with contacts. With that said, perhaps I jumped the gun a bit in failing to detail how you get to the point of being able to develop and ask affirming questions.

"In my practice, I've had great success with the '30-second rule,' something that we briefly glazed over when talking about learning to listen back in September.

"Basically, the '30-second rule' refers to me introducing myself and then keeping quiet during the first 30 seconds of a call with a contact, serving the dual purpose of letting that contact speak what is on his or her mind and me listening for and using verbal cues as a vehicle to understand and relate to the consumer, ask empowering questions and ultimately create a connection.

"For a lot of us, it may seem natural to quickly pinpoint a consumer's problems and jump in and state how we can help him discharge his credit card debt or do something else.

"With the '30-second rule,' it's especially important to fight this inclination and sit back and listen, which will typically allow you to get a better feel of the consumer in so many different areas, including but not limited to their motivations for contacting you and how far along they are in the process.

"Remember that the more you listen, the more you learn. By adhering to the '30-second rule,' you will give yourself a better shot of understanding where contacts are coming from and how you can get them to take the next step with you in addressing their financial problems."

- Kevin Chern
President, Start Fresh Today

Did You Know…

that the average bankruptcy filer in 2007 was:

  • white;
  • married;
  • employed;
  • aged 35-44;
  • educated through high school (with some college possible); and
  • earning no more than $30,000 per year?

These demographics come from yet another recent bankruptcy report, this time from the Institute for Financial Literacy's Center for Consumer Financial Research.

According to this annual bankruptcy report, the chief reasons that people filed bankruptcy last year included:

  • being overextended on lines of credit;
  • experiencing decreases in incomes; and
  • suffering recent job losses, illnesses or injuries.

To read more about the IFL report, including its conclusions on what needs to be done to help people become more financially literate, check out this article on filing bankruptcy in 2007.

The Numbers Game on Business Bankruptcies

We've talked in the past about how business bankruptcies and mass layoffs may often be a precursor to consumers experiencing financial problems and even filing bankruptcy in time.

With that said, you'll find these latest figures on business bankruptcies especially noteworthy.

Representing the largest quarterly rise in two years, U.S. business bankruptcies jumped 17 percent in the second quarter of 2008, according to analysis by McClatchy Newspapers.

Business bankruptcies have increased during the last ten quarters, with nearly 29,000 businesses filing bankruptcy in the first half of this year.

And according to BankruptcyData.com, billion dollar bankruptcies are already at their highest levels in five years through just the first six months of 2008.

Seven U.S. companies with assets of more than a billion dollars have filed bankruptcy this year, according to a Reuters story.

The Numbers Game, Part II on U.S. Foreclosure Activity

In its Q2 2008 U.S. Foreclosure Market Report released on July 25, RealtyTrac noted that second-quarter foreclosure activity in the United States jumped 121 percent as compared to 2007.

According to the findings, there were 739,714 reported foreclosure filings on properties in the second quarter, representing a 14 percent increase from the first quarter of 2008.

Breaking this down in more detail, one in every 171 properties in the United States received a foreclosure filing during the second quarter.

States with the greatest foreclosure activity included those all-too-familiar with this crisis: Nevada, California, Florida, Ohio, Arizona and Michigan.

On the Bankruptcy Calendar

Here are some old and new events to keep in mind over the next couple of months:

Are we missing anything on this list?

Let us know by shooting an email to newsletters@startfreshtoday.com with any upcoming consumer-related bankruptcy events.

For Your Interest – The 25 Greatest Legal Movies

Whether you are or aren't a movie buff, you should check out this list of the "25 Greatest Legal Movies" as compiled by the ABA Journal.

Who knows – maybe it will provide you with a nice break during the day or stir up some memories from a movie you haven't seen in years!

Bankruptcy Article of the Week

Who Said Summer Isn’t for Hitting the Books – Bankruptcy Studies Abound

While lacking expected heat in certain areas of the country, this summer has been hot and heavy when it comes to new studies on the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).

As BAPCPA has been around for nearly three years, it's no surprise to see studies examining the effects of this flawed law in greater detail. With that said, the sheer number of studies over the last couple of weeks has been a bit overwhelming yet certainly illuminating, especially when considering the insightful information on bankruptcy reform coming from different institutions and academics.

Here are some interesting BAPCPA studies since our last bankruptcy newsletter and a recap of their findings:

GAO Report on Costs of BAPCPA

In a study entitled "Dollar Costs Associated with the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005," the United States Government Accountability Office (GAO) examined the costs and impact of this law on the Trustee Program and federal judiciary, consumers, and private trustees.

After reviewing budget information from the Trustee Program and federal judiciary, collecting attorney fees from a random yet projectable sample of bankruptcy cases, and interviewing staff from these government entities in addition to bankruptcy attorneys, consumer organizations, creditors and private trustees, here's what the GAO found:

1. Trustee Program and Federal Judiciary Revenues Are Down.

  • Trustee Program filing fee revenues fell from $74 million to $52 million between fiscal years 2005 and 2007 while federal judiciary and miscellaneous fee revenues declined from $237 million to $135 million during that time period. These declines had to do in large part with the fact that there were only 600,000 consumer bankruptcy filings in 2006 after the mass influx of filings prior to BAPCPA's inception in October 2005.
  • The Trustee Program spent approximately $72.4 million carrying out responsibilities brought on by BAPCPA for fiscal years 2005 through 2007, with most of these costs pertaining to staff time dedicated to the means test, debtor audits, data collection and reporting, and credit counseling and debtor education requirements.
  • While unable to pinpoint all costs related to BAPCPA, the federal judiciary estimated that $48 million was incurred in one-time start up costs for things like training and revising bankruptcy rules, forms and procedures.

2. Consumers Are Paying Higher Legal and Filing Fees since BAPCPA.

After examining a random sample of bankruptcy cases, the GAO estimated that:

  • the average attorney fee for a Chapter 7 bankruptcy case increased by nearly $400, from $712 in February-March 2005 to $1,078 in February-March 2007;
  • standard attorney fees for Chapter 13 cases rose in nearly all of the studied districts and divisions, with more than half of the cases witnessing an increase of 55 percent or more;
  • total Chapter 7 bankruptcy filing fees are up $90 from $209 to $299;
  • total Chapter 13 bankruptcy filing fees are up $80 from $194 to $274;
  • the number of Chapter 7 debtors filing without an attorney has declined; and
  • credit counseling and debtor education fees are typically around $100.

3. Private Trustees Are Spending More Time Administering Bankruptcy Cases.

According to the GAO report, private trustees indicated that they are spending more time and resources administering each bankruptcy case as a result of new BAPCPA requirements on documentation, verification and reporting, despite there being fewer filings since the law took effect.

Credit Card Industry Truly Benefitting from BAPCPA

Remember how the credit card industry lobbied hard for bankruptcy reform, claiming that too many people were recklessly racking up debt and using bankruptcy as an easy-way out.

Do you also remember how the credit card industry championed a new bankruptcy law as meaning fewer credit card losses for Americans?

Well, here's what's really happened for the industry and consumers after BAPCPA, as depicted in a study by Michael Simkovic of the John M. Olin Center for Economics at Harvard Law School.

In "The Effect of 2005 Bankruptcy Reforms on Credit Card Industry Profits and Prices," Simkovic finds that from April 2005 to December 2007:

1. Bankruptcy Filings and Credit Card Industry Losses Significantly Dropped.

  • There was a plunge of nearly a half million bankruptcy filings.
  • Credit card company losses dropped by 25 percent in 2006 and 15 percent in 2007 as compared to 2005.

2. Credit Card Interest Rates, Late Fees and Over-Limit Fees Increased.

  • Credit card interest rates rose by 8 percent (not surprising, when considering that interest rates account for 70 percent of credit card company revenue).
  • Credit card late fees increased by 5 percent while over-limit fees went up 17 percent.

3. The Credit Card Industry Saw Record Profits; Consumers Saw Costlier Credit.

  • The credit card industry specifically saw record profits of $10 billion in large part to the increased costs of credit for consumers.

So what does Simkovic's study tell us about BAPCPA and the credit card industry?

Nothing really new, especially when considering how we lobbied against BAPCPA and called it out back then for what it has always been: friendly to the credit card industry and less hospitable to consumers.

BAPCPA Constitutional Issues

While BAPCPA has proven advantageous for the credit card industry and less favorable for consumers, it may also leave a lot to be desired in terms of its constitutionality, at least according to a recent study by Erwin Chemerinsky of the Irvine Law School at the University of California.

In "Constitutional Issues Posed in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005," Chemerinsky doesn't attempt to provide any answers to the constitutional questions that he feels may be eventually raised with BAPCPA, including how certain rules, regulations and requirements may be in violation of the First and Tenth Amendments and other legal tenets.

To learn more about this study, check out our bankruptcy blog.

And to stay updated on the latest bankruptcy studies and news, be sure to check out these weekly bankruptcy articles.

Legislative Updates

Here are some of the legislative happenings to go down in the weeks since our last newsletter.

Bush Signs Housing Bill: After threatening to veto a housing bill that would refinance up to $300 billion in troubled mortgages into stable 30-year loans backed by the government, President Bush signed the long-awaited bill—a year in the making—on July 30.

In addition to providing $4 billion in block grant funds for local governments to purchase foreclosed properties and encouraging tax incentives to boost the slumping housing market, the housing bill will come to the aid of beleaguered mortgage giants Fannie Mae and Freddie Mac by giving the Treasury 18 months to lend to and purchase equity in them.

Bush's signature came days after Congress gathered on a rare occasion – a Saturday – to approve the bill, which now raises national debt by $800 billion to $10.6 trillion, according to a New York Times article.

Call Him Persistent: Despite having his legislation that would have allowed bankruptcy judges to modify the terms of mortgages in Chapter 13 bankruptcy cases shot down earlier this year, U.S. Senator Dick Durbin (D-IL) is back at it again, this time proposing a bill that would create a national interest rate cap on consumer credit.

As seen in Simkovic's bankruptcy study above, such a cap is probably a good idea!

Late Push for Credit Card Bill: According to CongressDaily, Democrats on the Financial Services Committee were expected on July 30 to view and mark up a bill that would fight credit card industry abuses and establish a credit cardholder's bill of rights.

Proposed by Representative Carolyn Maloney (D-NY), this credit card bill would specifically target practices within the industry that have been labeled as being abusive. Naturally, the banking and credit card industry are fighting against such a bill, which we will keep you updated on in the future.

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