Kevin's Corner
Practice Management Tip on Evaluating Settlement Offer Letters
"Here's another goldmine I picked up at Max Gardner's Bankruptcy Boot Camp at the end of August.
"In our last newsletter, we detailed how giving tape recorders to your clients could be a valuable means for them to improve their cases and even get settlements from debt collectors.
"With that in mind, you may find it useful to purchase and utilize metadata extracting software when getting an actual settlement offer letter from a collector.
"What is metadata, and why would you want to spend money on metadata software?
"Basically, metadata is the data behind the page. It is the hidden information that you cannot see but actually exists to describe, organize and document the history of the page.
"For example, if you write something in Microsoft Word or send out an e-mail to someone, there is data that exists beyond the text of the page. This is the metadata.
"With this in mind, let's say you get a settlement offer letter through e-mail.
"With such software, you could actually go beyond the text of the settlement offer and look at the metadata to examine a wide range of information, including:
- who drafted the original document;
- how long it was open;
- who reviewed the letter;
- were there track changes and who made them; and
- are there other versions of this letter (if so, what did they look like).
"Why would you be interested in such information?
"Perhaps you find through analyzing the letter's metadata that the actual settlement offer changed through the drafts. Maybe studying track changes and comments will tip the hand of collectors, tell you how much they are willing to offer, and allow you to analyze this maximum offer with what they are actually offering.
"If this proves to be the case, you may be able to keep this information when evaluating or negotiating a settlement. On the other hand, you may not even want to use this information but rather just have knowledge of it to understand who and what you're dealing with (in no way are we advocating deception for financial gain; rather, we're just preparing you for possible deceptive tactics by collectors).
"The point is that when dealing with debt collectors (who have a notorious history of being hardly upfront or honest), it couldn't hurt to understand and be prepared for what you are going against. Examining metadata may very well allow you to get a better picture of what collectors are actually thinking as opposed to what they're presenting.
"In our next newsletter, we'll expound on this point and talk about the importance of using metadata software to remove important information from your documents."
- Kevin Chern
President, Start Fresh Today
The Numbers Game on Unemployment
The rough economic outlook is especially being felt by the unemployed, as these Labor Department numbers from Thursday, September 25th reveal:
- For the week of September 14-20, jobless claims jumped by 32,000 to a seasonally-adjusted 493,000, representing the highest level since the September 11th attacks and marking a much larger figure than experts had been expecting.
- The slow economy, along with Hurricane Ike in Louisiana and Hurricane Gustav in Texas, were major culprits in this recent spike. More specifically, the Labor Department reported that there were about 50,000 more claims in those two states combined.
- The four-week average for jobless claims was at 462,500, the highest such average since early November 2001.
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Bankruptcy Article of the Week
Failed Bailout Proposal Leaves Struggling Homeowners Holding the Bag
After an intense debate in the House of Representatives, the controversial bailout plan for Wall Street was rejected earlier this week. The $700 billion plan was drafted to prevent a total meltdown of the financial markets saddled with the toxic debt of subprime mortgages. While uncertainty exists as to what is next, experts are not optimistic that any future plans will include any major relief for troubled homeowners.
Specifically, the rejected bill did not include bankruptcy relief for weary homeowners who face possible foreclosure in the crippled housing market. Since 1978, the bankruptcy laws have prohibited giving judges the discretion to adjust loans on a principal residence.
With the American economy in a tailspin and homeowners left in a crunch, many are asking the question, how did we get here? Boys and girls, can you say "creative financing?"
Owning a home has always been a quintessential factor in the "American dream." Traditionally, owning a home meant a preferred 20% down payment on the home and careful verification by the lender of the borrower's income.
In the world of creative financing, the traditional methods of home ownership became a thing of the past and the subprime mortgage was born. No verification of incomes, low or no down payments and monstrous mortgages for people already burdened with considerable debt became a recipe for disaster. Many borrowers buckled under the pressure of adjustable rate mortgages and sought protection in bankruptcy courts or saw their homes go into foreclosure.
As the housing market soured, companies that provided the financial backing for the subprime mortgages found their portfolios teeming with bad debt as homeowners defaulted on the loans. This scenario put a major squeeze on the amount of cash flow available to the lenders and contributed to the current financial woes on Wall Street.
The failed bailout plan could allow the federal government to purchase the toxic mortgages in order for the initial holders of the mortgages to present more robust balance sheets. In turn, an atmosphere of inclined lending could be created among these companies to "unclog" the current credit drain placing a choke hold on the American economy.
While the federal government works to find a solution to Wall Street's troubles, the current state of affairs brings to light the phenomenon of the "trickle up" affect – what ails Main Street America will not just cause waves on Wall Street, but also in the global economy as well. While subprime mortgage lending allowed more Americans to purchase homes, these borrowers were not equipped to repay the mortgages that Wall Street sold on the global market as a part of complex security packages.
While taxpayer dollars may eventually assist struggling financial institutions in gaining liquidity, the average American homeowner will probably see no relief as it relates to mortgage foreclosures.
During the past week, the idea that the process of rewriting burdensome loans be turned over to bankruptcy judges was a hotly contested issue. Opponents of the measure argue that lenders would be less likely to extend new credit if a borrower could go to court to have the terms changed. Supporters argue that allowing voluntary negotiations between the lender and the borrower just have not worked.
In any case, the House plans to reconvene on the bailout plan today. Whatever the outcome may be, American homeowners are simply caught in the middle where greed and gratuity have collided and financial mayhem has come home to roost.
Update: On October 1, the Senate approved a slightly modified version of the bill, which included increasing FDIC insurance on personal bank accounts from $100,000.00 to $250,000.00. The revised bill also includes tax extensions worth $110 billion dollars. Additionally, the amended version gives the U.S. Treasury the power to buy mortgage debt, but this is being seen as helping the bankruptcy industry and not homeowners. The House is expected to vote on the revised bill in the coming days.
Appeals Court: Copyright Infringement Award Is Dischargeable Through Bankruptcy
A Ninth U.S. Circuit Court of Appeals ruled last week that a judgment based on "willful" copyright infringement is not always considered a "willful or malicious" injury that would be forbidden to be discharged through bankruptcy.
The case involved a married couple charged with illegally copying movies and then selling them for profit. The company that had exclusive rights to the movie material sued the couple and received a $893,000 verdict.
The husband and wife later filed Chapter 7 bankruptcy and asked for the debt to be discharged through the bankruptcy filing.
After being bounced around in various courts and denied discharge by a bankruptcy court, the case landed at the Ninth U.S. Circuit Court of Appeals.
The judge ruled that the debt could indeed be discharged through bankruptcy because the bankruptcy court "had no way to determine whether the jury found the willful infringement based on a reckless disregard or a knowing violation" of the copyright.
For more details on the case, check out the following article:
The Presidential Candidates on the Economy During the First Debate
In case you weren't one of the 52.4 million viewers who tuned into last week's first presidential debate at the University of Mississippi, here's a snapshot of what the two presidential candidates, Senators Barack Obama (D-IL) and John McCain (R-AZ), said about the economy:
Obama: "Number One, we've got to make sure that we've got oversight over this whole process; $700 billion, potentially, is a lot of money.
Number Two, we've got to make sure that taxpayers, when they are putting their money at risk, have the possibility of getting that money back...
Number Three, we've got to make sure that none of that money is going to pad CEO bank accounts or to promote golden parachutes.
And, Number Four, we've got to make sure that we're helping homeowners, because the root problem here has to do with the foreclosures that are taking place all across the country…
Now, we also have to recognize that this is a final verdict on eight years of failed economic policies … And I think that the fundamentals of the economy have to be measured by whether or not the middle class is getting a fair shake."
McCain: "Have no doubt about the magnitude of this crisis. And we're not talking about failure of institutions on Wall Street. We're talking about failures on Main Street, and people who will lose their jobs, and their credits and their homes, if we don't fix the greatest fiscal crisis…
This [economic recovery] package has transparency in it. It has to have accountability and oversight. It has to have options for loans to failing businesses, rather than the government taking over those loans...
But I want to emphasize one point to all Americans tonight. This isn't the beginning of the end of this crisis. This is the end of the beginning, if we come out with a package that will keep these institutions stable.
And we've got a lot of work to do. And we've got to create jobs. And one of the areas, of course, is to eliminate our dependence on foreign oil."
For more news about the presidential candidates and the economy, check out the following:
- Obama Campaign Files Lawsuit Over Foreclosure Challenges;
- Democrats Purposing Reduced Exit Packages for Booted Execs;
- Bad Bank? Bad Idea;
- Obama on Bankruptcy Reform & Credit Card Debt;
- Presidential Candidates on the Economy; and
- Presidential Candidates on Housing Crisis.
On the Bankruptcy Calendar
If you live in any of the following areas, you may want to keep tabs on the following bankruptcy-related events:
- ABI – Chicago Consumer Bankruptcy Conference, Chicago, Illinois, October 13;
- ABI – Detroit Consumer Bankruptcy Conference, Troy, Michigan, November 11;
- ABI – 20th Annual Winter Leadership Conference, Tucson, Arizona, December 4-6; and
- ABI – 14th Annual Rocky Mountain Bankruptcy Conference, Denver, Colorado, January 22-23, 2009.
Are we missing anything on this list?
Let us know by shooting us an e-mail to newsletters@startfreshtoday.com with any upcoming consumer-related bankruptcy events.