Credit Slips

Highly Questionable Medical Bankruptcy Figures from Fraser Institute

The National Center for Policy Analysis (NCPA) is flogging a study from the Fraser Institute in Canada that purports to show U.S. medical bankruptcies are a "myth" because the Canadian bankruptcy rate is higher than in the United States. Reuters and BusinessWire have run the NCPA's press release as a story on their news services. Before anyone takes this study seriously, a few important facts are needed to place the Fraser Institute findings in context. To be as charitable as possible, the study's use of the bankruptcy data is extremely selective.

First, the Fraser Institute study begins by observing that advocates of a single-payor U.S. health care system use the assumption that such a system would prevent many U.S. bankruptcies because of the medical debt found among many U.S. consumers filing for bankruptcy. The study states, "We should expect to observe a lower rate of bankruptcy in Canada compared to the United States, all else being equal." First, I'm not sure that is an assumption made by advocates of a single-payor system (and I don't count myself as one of them). Second, the qualifier "all else being equal" is the whole point. There is a lot that is not equal between the U.S. and Canada, and there is no reason to expect bankruptcy rates to be precisely similar. Even on its own terms, however, the Frasier Institute study is highly suspect because of the narrow window it uses for its bankruptcy data.

The Fraser Institute study, which is really just a three-page report of existing data from government sources, used bankruptcy filing data for the calendar years 2006 and 2007 as the "most recent data." Both the Office of the Superintendent of Bankruptcy Canada and the U.S. courts have 2008 data available. For a report that carries a July 2009 date, the years 2006 and 2007 would not seem to be the most recent data available. Authors have to prepare publications in advance of their appearance, but the U.S. data were available in a press release dated March 5, 2009, and the Canadian data appear on a web page that states "modified March 11, 2009." There was surely plenty of time to use the 2008 data for a 3-page paper that has fewer data than this blog post. By limiting the data to 2006 and 2007, however, the report is able to support that the anti-health care reform agenda that the NCPA and the Fraser Institute seem to further.

The Tabb-ed Second Edition Is Out

From time to time, I'm asked to recommend a desk reference on bankruptcy law. I have long thought that it was hard to top Charles Tabb's The Law of Bankruptcy. Of late, my only hesitation was that I had thought that for too long. The first edition was more than ten years old. Still, it was a concise and well-written text that covered many timeless principles of bankruptcy law, and despite the passage of time, I still found occasion to use it .

As I was walking through our dean's suite today, it was fantastic to see a gleaming copy of the faculty's newest book proudly on display. The second edition of this wonderful treatise has just become available. The book is organized in a way that will make bankruptcy law accessible to novices. The first edition began each topic with first principles, and Tabb writes in a clear manner that makes any topic understandable. At 1,447 pages, the book also is no quick overview of bankruptcy law. I often used the first edition as a starting point on research topics.

Congratulations to Charles Tabb--my good friend, colleague, and teacher--on the arrival of this new edition. It is sure to become one of the bellwether works in the field.

Bankruptcy Filings Decline 6% in June

The most recent bankruptcy filing data from Automated Access to Court Electronic Records (AACER) show a 6.1% decline in the U.S. daily bankruptcy filing rate. The were about 124,800 bankruptcy filings in June which, spread over the 22 business days in the month, is a daily bankruptcy filing rate of 5,672. In May, the daily bankruptcy filing rate was 6,038.

I do not take the dip in bankruptcy filings as strong evidence that the end of the recession is just around the corner. First, there is the usual caution against reading too much into the ups and downs of a monthly indicator. Over the past eight months, the bankruptcy filing rate went up four time and down four times, although cumulatively the increases have been more than the decreases. (The daily filing rate is 11.7% higher than eight months ago.) Second, although the month-over-month figure is a decline, bankruptcy filings are up sharply on an annual basis. The June 2009 figure is a 32.5% increase over 2008. Over the entire year, projections show that 2009 bankruptcy filings will be 28.2% - 36.4% greater than 2008. As I discussed last month, the long-term trend is toward the same filing rate as before the 2005 bankruptcy law was adopted. Third, bankruptcy filings lag macroeconomic bad news. Yesterday's news about the jump in unemployment shows the U.S. recession is far from over, and those unemployed may show up in the bankruptcy courts much later. People do not run into bankruptcy court the day they are laid off. in our most recent empirical work from the Consumer Bankruptcy Project, more than 50% of bankruptcy filers told us they struggled for more than two years before filing bankruptcy.

Projecting forward, total 2009 U.S. bankruptcy filings will be:

• 1,404,000 filings if bankruptcy filings continue for the rest of the year at the same daily rate (5,593 per day) as they have averaged for the first six months of 2009
• 1,414,000 filings if bankruptcy filings continue at the same daily rate (5,672 per day) as they have averaged for June
  
• 1,494,000 filings if bankruptcy filings for the remaining six months of 2009 constitute the same proportion of total filings as the last six months of 2008 constituted for total filings that year (about 53.2%)

Bankruptcy as a Disqualifying Factor for Child Custody?

Several sources, including our friends over at Bankruptcy Beat, are reporting that Michael Jackson's mother, who has been awarded temporary custody of her three grandchildren, might have trouble gaining final custody because of a 1999 bankruptcy filing. Washington attorney Beth Kaufman is quoted as saying, "I think it would be a negative factor but not necessarily a disqualifier. It could indicate that she is not capable of sound financial management.”

It is often said that bankruptcy experts and family law experts don't know know as much about the other field as we should. That is certainly true for me, but I was surprised to read that a bankruptcy filing could be a negative factor for a family law court deciding a child custody matter. The Bankruptcy Code prohibits discrimination against former bankrupts, but that prohibition applies only in specific situations such as certain state licensing decisions or in employment matters. It would not prohibit a state court from considering a bankruptcy filing in a child custody matter. Still, on the question of fitness to be a parent, an old bankruptcy filing would seem to have little relevance.

In the Home Stretch

Note: The following was just sent from Credit Slips blogger Stephen Lubben: "At the GM hearing, although closing arguments may run over to tomorrow. I don't think there has been anything thus far that would prevent the sale from going forward."

Health Insurance to Go Broke With

An article in today;s New York Times chronicles how medical debt can financially ruin U.S. citizens even with health insurance. Policies with limits, often hidden from the consumer, quickly run out and leave the insured with mounds of debt. This story comes on the heels of an academic study by Credit Slips bloggers Debb Thorne and Elizabeth Warren and their co-authors, David Himmelstein and Steffie Woolhandler, showing an increase between 2001 and 2007 in the number percentage of medically related bankruptcies. I sometimes wonder how persons reading from outside the U.S. react to these sorts of stories.

Who Loses in Cuomo v. Clearing House?

Adam Levitin already posted on this week's decision in Cuomo v. Clearing House Association where the U.S. Supreme Court struck down a regulation from the Office of the Comptroller of the Currency's (OCC). The regulation preempted state enforcement of consumer protection laws against national banks and grew out of subpoenas issued by the New York attorney general. At first blush, the opinion seems to be a big victory for consumers, and it certainly is a victory. As alluded in the comments to Levitin's post, the opinion might not be as big of a victory as it seems.

The Supreme Court and What Attorneys Can Say

Some other obligations have kept me away from blogging for the past few weeks. One great thing about a group blog is having great colleagues who pick up the slack. I had wanted to say a few words about the Supreme Court's June 8 decision to hear United States v. Milavetz. At this point, the Court's announcement is old news. This post is about what is at stake in the Milavetz decision and why Credit Slips readers might want to watch this case when it gets argued in the fall.

There have been several Credit Slips posts (here and here) about the lower court decisions in Milavetz. Some issues that were raised in the lower court decisions have dropped away, and before the Supreme Court, the case will involve section 526(a)(4) of the Bankruptcy Code, a provision added by the 2005 amendments. It provides that "a debt relief agency shall not advise an assisted person or prospective assisted person to incur more debt in contemplation of such person filing a case under this title or to pay an attorney or bankruptcy petition preparer fee or charge for charge for services performed as part of preparing for or representing a debtor in a case under this title." Yes, that is language that perhaps only a lawyer could love but probably not even then. The upshot is that section 526(a)(4) aims to prohibit bankruptcy lawyers from advising clients to incur debt right before they file bankruptcy. It was not intended to prohibit bankruptcy lawyers from charging for their services, although that might be a natural reading of the language. Rather, the section also tries to prohibit lawyers from advising clients to borrow money to pay attorneys' fees for a bankruptcy filing.

Lubben Is Around to Stay

On behalf of all the regular Credit Slips bloggers, it is a pleasure to announce that Professor Stephen Lubben is joining us as a regular blogger. In associating himself with us, we are pretty sure that Lubben has thereby flunked the Groucho Marx Test. One of the other regulars wanted to convince Lubben there was some sort of equity buy-in on a small blog that features no advertising. It is best that person remain anonymous given our many posts about various forms of financial scams. Stephen, you and I instead will need to talk about the $20 blog posting fee that needs to be sent to me after each post.

As regular readers know, Lubben has been guest blogging for the past several weeks and has been focusing on the Chrysler and GM bankruptcies. Lubben's focus on corporate bankruptcy substantially adds to our existing expertise in that area. If you're not familiar with Lubben's academic work, take a gander at his SSRN page. Among his many interesting articles are a number of pieces on credit default swaps, a topic on which Lubben was writing before they got into the news.

Welcome aboard, Stephen.

As Seen on NPR's Fresh Air . . . .

I'm fond of saying that I have a face made for radio, granted not the most original line in the world but maybe that it's me and not radio. Check out Credit Slips blogger Adam Levitin grinning from ear to ear on a story page for his appearance on NPR's Fresh Air. Adam was there to discuss the recently enacted Credit Card Accountability, Responsibility, and Disclosure Act. I'm sorry that I did not know about this show in advance as I always learn something when Adam talks or writes about credit card regulation (not that I would admit it to him, so let's keep that secret). You can get the stream from the story page.

May Bankruptcy Filings Climb to Over 6,000 Per Day

According to data from Automated Access to Court Electronic Records ("AACER"), there were over 120,000 U.S. bankruptcy filings in May 2009 or 6,020 for each of the 20 business days in May. That is the first time daily bankruptcy filings have topped the 6,000 mark since the 2005 bankruptcy law was adopted.

The May filing rate represented a 2.8% increase from the previous month and a year-over-year increase of 40.9%. The April daily filing rate had declined by 2.4%, meaning the increase in May just made up for the April decline plus a little more. The pattern for 2009 is consistent with recent years with monthly up and downs through the summer but no consistent increases until later in the year. It is important not to make too much out of the month-to-month changes in the bankruptcy filing rate. It is the long-term trend that matters, and the graph to the right shows how the long-term trend is heading us back toward the daily filing rate before the 2005 law was enacted.

What's Up With This?

A financially savvy Credit Slips correspondent--but aren't they all?--wrote with the following story: "Just received a robo-call telling me that my credit card interest rates were going up, and I should press '6' for more, live information to do something about it. (Of course I pay in full each month, but I was curious.) When a guy came on the line, and began by confirming that I had pressed '6.' He immediately hung up on me when I asked him how they knew my interest rates were going up."

I got a similar telephone call (although we're on the FTC Do-Not-Call List) but was annoyed enough that I did not punch through. At best, this has "hard sell" written all over it, and at worst, it sounds like a scam. Anyone know what is going on with this one? Is it something that a state attorney general or FTC staffer should take a look at?

A Forum Shopping Update

As Bankruptcy Judge Steven Rhodes of Detroit commented in Time magazine, "There is no district in this country that has a greater stake in the outcome of a General Motors case than the Eastern District of Michigan." Exactly. And that is exactly why General Motors filed bankruptcy in New York as Chrysler did ahead of it. GM and its lawyers know and like what they will get out of a New York bankruptcy filing. They might get the same in Detroit, but why take a chance? Delaware and New York City handle most of the U.S. large corporate bankruptcies and have a long track record.

To legal eagles, the phenomenon is known as "forum shopping," a time-honored tradition of filing a case before the court where you are most likely to prevail. The place where a case is filed is known as its "venue," and the venue rules for corporate bankruptcy filers are quite broad. In bankruptcy, a corporation can file in its state of incorporation or the location of its principal office or place of its principal assets. It also can file in any jurisdiction where an affiliate, such as a subsidiary, has filed bankruptcy. Hence, a GM-owned dealership in Harlem filed bankruptcy in New York, where it is located, and GM filed bankruptcy there a moment later as an "affiliate" of the Harlem dealership. These rules are very generous to large corporations with many subsidiaries scattered all over the country, meaning a large corporation can file almost anywhere it wants.

The End of an Aphorism

The United States will own 60% of the reorganized General Motors, meaning that what is good for General Motors is good for the United States, literally. Can you still use an aphorism that has lost its punch? Is this any more useful than observing that what is good for Microsoft is good for Bill Gates?

Sorry ... that one was too good to pass up! (And, yes, I realize that the phrase is a misquotation of what Charles Wilson actually said.)

Repealing Marquette

Senator Sheldon Whitehouse has introduced, with Senator Dick Durbin, the Empowering States' Right to Protect Consumers Act of 2009 (S. 255). The statute would repeal the thirty-one year old Marquette decision, which was the United States Supreme Court ruling that held federal law preempted state law regulating interest rates. A later decision in 1996 (Smiley v. Citibank) expanded the scope of federal preemption, holding states also lacked the power to regulate the fees charged on credit cards, and the bill would repeal Smiley as well.

Marquette effectively deregulated most consumer interest rates and led to the expansion of consumer borrowing for the past thirty years. After the Smiley decision, bank fees started to climb. Much of the "gotcha" marketing mentality from the credit card industry can be attributed to the freedom Smiley gave banks to exploit credit card fees as a revenue stream.

Some persons think interest rate and fee caps are bad idea. Fair enough. The Whitehouse bill, however, is not an interest rate cap. It merely returns the power to the states to regulate consumer lending to their citizens and harnesses the states as "laboratories of democracy" (as the saying goes). Let the states experiment with interest rate and fee caps, and we will find the right balance between exploitative market practices and overly restrictive government regulation.

AP Launches the Economic Stress Index

The Associated Press has launched the Economic Stress Index. Credit Slips readers will find it very useful and interesting. For a dataphile like myself, it's just plain cool. OK, it's not cool at all because it shows the tremendous depth and breadth of middle America's suffering. But, it shows what someone with real data know-how and computer graphic skills can do.

The Economic Stress Index "weighs three economic variables -- unemployment, foreclosures and bankruptcy -- to produce a score on a scale of 0-100 that measures how the recession is affecting a county compared to all others." You can scroll over each county and get a separate measure for each of the components or for the composite Economic Stress Index. The press release indicates the index and data will be updated monthly. Check it out.

Let's Make It Perfectly Clear About GM

In a post yesterday, Lubben referred to the role credit default swaps are playing in the GM, but let's make sure no one missed the point. So far, everyone seems to have missed a major point, and I think it may have played a role in Chrysler's failed attempt to stay out of bankruptcy court. I've been meaning to write up an expanded post on the topic, but Andrew Leonard over at Salon's How the World Works does a much better job than I would have done.

Here is the short version: GM's bondholders may make more money by forcing the company into bankruptcy with a lower payout than accepting a restructuring with a higher payout. Leonard is reporting on a recent article in the Financial Times. Read Leonard's post and the FT article. Then read Lubben's scholarly article that explains how credit default swaps work and how they can create perverse incentives in bankruptcy court.

Look for Lubben's Lucidity Here

Professor Stephen Lubben of Seton Hall has appeared in the New York Times, the Associated Press, PBS, and many other media outlets commenting on the Chrysler bankruptcy, and now he has coming back to Credit Slips. Lubben has kindly agreed to reprise his guest blogging role, commenting on Chrysler and perhaps a few other corporate reorganization topics. Lubben's detailed institutional knowledge of the corporate reorganization process always shakes up the conventional wisdom being reported elsewhere. Welcome back Stephen and many thanks for agreeing to take time out of your busy schedule to share your expertise here.

Bankruptcy Filings Dip Slightly in April

April 2009 bankruptcy filings dipped slightly from March. The 2.2% decline keeps the calendar year 2009 in line with recent historical patterns of heavy filing increases in the first part of the year followed by no changes or slight declines for the summer and fall months. The bottom line is that the latest numbers continue to indicate a filing rate well above 1.4 million filings for the year and perhaps close to 1.5 million filings.

As always, the good folks at AACER have provided the April filing data, and they report 128,720 filings for the month of April. Spread over the 22 business days in April, that is 5,851 filings per day. Although the month-over-month data show a 2.2% decline, the April 2009 filing rate is 38.1% higher than the filing rate in April 2008. 2009.

Using the data we have so far in 2009, we can make some predictions about the rest of the calendar year. The United States will see:

• 1,366,000 filings if bankruptcy filings continue for the rest of the year at the same daily rate (5,462 per day) as they have averaged for the first four months of 2009
• 1,430,000 filings if bankruptcy filings continue at the same daily rate (5,851 per day) as they have averaged for April
  
• 1,490,000 filings if bankruptcy filings for the remaining eight months of 2009 constitute the same proportion of total filings as the last eight months of 2008 constituted for total filings that year (about 69.6%)

Thank You Again to David Lander

Credit Slips guest blogger David Lander wrote me over the weekend and said he might have one more post, but before he got away, I wanted to thank him for taking time out of his busy schedule to share his expertise and thoughts with us. His posts showed his versatility, exploring important and technical interpretive points about the Uniform Commercial Code to the efficacy of debt management plans. By the way, for our nonlawyer readers who don't know about the Uniform Commercial Code, you would be surprised how much of consumer life it touches. Thanks again, David, and please come back soon.

Welcome to David Lander

St. Louis bankruptcy attorney David Lander has kindly agreed to a reprise of his guest blogging stint on Credit Slips for a few days. Lander is with the law firm of Thompson Coburn, LLP, and is well known to many U.S. bankruptcy professors because of his outreach efforts to bridge gaps between the academy and the practicing bar. He is one of the few practicing attorneys who can speak to both sophisticated consumer and bankruptcy issues. He also is an adjunct professor at St. Louis University. Lander said he had some issues involving secured lending (i.e., article 9 of the Uniform Commercial Code) that he wanted to discuss. Welcome back, David. Thank you taking time out of your busy schedule to share your expertise.

A Map that Is Cool, Useful, and Scary

Slate has a put up a map that animates first job growth and then scary job losses from January 2007 to February 2009. It's worth a look, although the sea of red at the end might cause some sleepless nights. Very few data presentations are perfect, and I do have one quibble with this one. The map shows the absolute number of job losses such that higher populations areas appear to be doing worse. Thus, the eastern part of the United States appears to have been hit the hardest, although it is also the part of the country that is more densely populated relative to the rest. In the same vein, note that southern California and the San Francisco Bay area come across as the worst hit western regions, but these are two of the largest U.S. population centers.

All in all, it's a great piece of data visualization. We've been hearing about job losses to the point where we're almost numb. This map brings those stories alive. Hat tip and thanks to my colleague, Andy Morriss, for pointing the way to this map.

Mortgage Modification Vote in Senate

Credit Slips has featured a lot of articles about a legislative proposal to give bankruptcy judges the power to modify home mortgages in chapter 13 (here, here, here, here, and here for a just a few examples). Heck, we were blogging about back this idea back in 2007. In March, the House passed H.R. 1106, the Helping Families Save Their Homes Act of 2009, which would enact this proposal into law. Since then, it has faced an uncertain future in the Senate. Yesterday, CongressDaily reported that Senate Majority Leader Harry Reid will bring the mortgage modification proposal for a floor vote in the Senate. Although this might seem like good news for supporters of the legislation, close observers of the political scene seem to be predicting defeat. Two Democratic Senators (Ben Nelson of Nebraska and Jon Tester of Montana) and Republican Senator Bob Corker of Tennessee are quoted in the CongressDaily article as being against the legislation, with Corker going so far as to say "Cram-down is dead."

If you support the legislation, however, now would be a good time to tell that to your senators -- or, in the case of Minnesota, senator. It's not over until the fat lady lets the horses out of the barn.

Finally, Some White House Interest in Credit Card Abuses

The Obama Administration today turned its attention toward abusive credit card practices. After years of presidencies that were at best indifferent or at worst supportive of the credit card industry abuses, to finally have the White House give some attention to these issues is an incredibly welcome development. Specifically, the Obama Administration has indicated it will support H.R. 627, the Credit Cardholders' Bill of Rights Act of 2009. Representatives Carolyn Maloney and Barney Frank have played a leadership role in this legislation, as they have for years with consumer credit issues, and they were able to get the bill through the House Financial Services Committee. The full House is almost certain to pass the bill, but it faces an uncertain future in the Senate.

The Credit Cardholders' Bill of Rights would end retroactive interest rate hikes and hikes without notice, put an end to double cycle billing, and limit fees and penalties. It is legislation that needs to be adopted. Not surprisingly, the bill is facing tough opposition from the financial services industry which is trotting out the usual arguments about credit restrictions and price hikes. These canards, although I know some will disagree with me about that characterization, are used every time consumer lenders face legislation that might make them play fairly. I'll let that debate play out in the comments, as it undoubtedly will.

There is one particular industry argument, however, that strikes me as particularly disingenuous. The New York Times reports that the industry is arguing the federal legislation is unnecessary because it largely duplicates recently adopted Federal Reserve rules. It is true that the legislation does have some overlap with the rules, but that is still no reason for the legislation not to go forward. First, the legislation is not identical with the Fed rules, meaning the legislation would fix some problems the Fed rules will not. Second, to point out the overlap is to beg the question of which action is the redundancy. Why aren't the Fed rules now redundant and beside the point? Third, the Fed rules won't take effect until July 1, 2010, and the legislation would take effect three months after adoption (generally speaking). Fourth and perhaps most importantly, I suspect the real reason the financial industry wants to keep the lawmaking at the Federal Reserve level is that the industry has more influence there. Once these new rules become enshrined in legislation, it will be much more difficult for the financial industry to undo them, which is as it should be.

Chapter 13 Rate Down Sharply in March

The 2005 changes to the U.S. bankruptcy law were supposed to move more debtors into chapter 13 with the idea that they would have to pay at least a portion of their debts. In March, however, the chapter 13 rate dipped below the old chapter 13 filing rate. Not only do these latest figures suggest the 2005 law is not working as its supporters promised but also that the latest spikes in bankruptcy filing rates are from persons in the most desperate financial conditions.

Of the noncommercial petitions filed in March 2009, only 25.5% were chapter 13 cases. These data come from Automated Access to Court Electronic Records (AACER), which defines a "commercial" case as one that involves a corporation, limited liability company, or similar entity, one with an employer identification number (EIN) (instead of or in addition to a Social Security number), or one with a designation such as "doing business as" (d/b/a). All other cases are noncommercial cases.

From 2001-2004, the Administrative Office of U.S. Courts (AO) reported that 29.3% of nonbusiness cases were chapter 13s. "Nonbusiness" is not the same as "noncommercial." AACER uses a better, more comprehensive definition to calculate "noncommercial" cases, but if we look at all bankruptcy cases together, the numbers don't change much. The AO reports 28.7% of all cases as a chapter 13 from 2001-2004, and 25.0% of all cases in the AACER data during March 2009 were chapter 13s.

Mortgage Symposium at Pepperdine

On Friday, Pepperdine University School of Law is hosting a symposium entitled, "Bringing Down the Curtain on the Current Mortgage Crisis and Preventing a Return Engagement." As the announcement notes, the Pepperdine Law Review is bringing top scholars and Bob Lawless to campus. OK, it doesn't actually say that explicitly, but I've always wanted such an announcement to say something like that. Besides myself, the speakers include Ann Burkhart, Rick Caruso, Deborah Dakin, Wilson Freyermuth, Sam Gerdano, Melissa Jacoby, Alex M. Johnson, Jr., Timothy Mayopoulos, Grant Nelson, Mark Scarberry, and Dale Whitman. Truly trivial question: which four were once colleagues at the University of Missouri School of Law?

The papers will be published in the Pepperdine Law Review. My contribution has been co-authored by my research assistant extraordinaire, Jeff Paulsen. Before he goes off for a two-year clerkship with Judge Jack Schmetterer in the bankruptcy court in Chicago, I wanted to take advantage of his talent work with Jeff on a scholarly piece. We have a working title of "The Missing History of Bankruptcy Mortgage Modification." The short version is that the current rule against modifying mortgages in bankruptcy is not the considered policy choice as it is often portrayed. Rather, like many things, the history is much messier, and path dependence explains a lot of it. When we have a version for SSRN, I'll post a more detailed summary.

Elizabeth Warren on The Daily Show

Credit Slips co-blogger Elizabeth Warren officially just became the coolest person I know. She will appear as tonight's guest on The Daily Show with Jon Stewart. One of the other Credit Slips co-bloggers told me that "being the coolest person I know" is not really a compliment given the company I keep. Fair enough, but I meant it is a compliment. I hope Elizabeth had fun doing the interview. Being on the The Daily Show probably surpasses my life ambition: being immortalized in one of the Wall Street Journal's pointilzed portraits. The Daily Show has come to occupy an important place in the conversation about today's problems, and I am glad that it is shining a light on some of the topics we discuss here on Credit Slips.

Newsweek also featured a profile of Elizabeth and discussed her work as chair of the Congressional Oversight Panel.

Bankruptcy Filings Rising Faster Than Expected

In March 2009, data from Automated Access to Court Electronic Records (AACER) report there were almost 131,000 total U.S. bankruptcy filings for a rate of 5,945 filings per business day. That is a 9.2% increase from February and a year-over-year increase of 38.1%. It also is a 17.0% increase from November 2008, just before the annual dip in filings during December and January.

Anyway you look at it, bankruptcy filings are rising dramatically. The 9% growth in March may not sound like much, but it is an annualized growth of 280%, meaning annual filings would almost triple if they grew 9% each month. The rate of increase also seems to be rising. It took us thirteen months to go from 3,000 filings per day to 4,000 and another nine months to go from 4,000 filings per day to 5,000. In March, we almost broke the 6,000 filings per day figure. If we go over 6,000 filings per day in April, as we appear poised to do, it will have taken only six months to break that new plateau.

Landing Claims from LandAmerica

A Richmond Times-Dispatch reporter, Emily Dooley, called me yesterday and clued me into an interesting story from the bankruptcy of LandAmerica, the Virginia based title insurance company that is in chapter 11. Her story is here, and Credit Slips readers will want to give it a look. It presents a twist on the usual story about bankruptcy claims trading.

LandAmerica had a subsidiary called LandAmerica 1031 Exchange Services, Inc., which would hold the cash earned from a real estate sale until it could be exchanged for reinvestment in property similar to the one sold. By reinvesting the cash in similar real property, U.S. tax law allows the seller to defer any tax owed from the sale profits. Continued rollovers could indefinitely defer the tax consequences. It's all governed by section 1031 of the U.S. Internal Revenue Code, which explains the name of the subsidiary.

Consumer Overindebtedness Around the World

My plan for the evening is to go in search of a giant sculpted head of Karl Marx. Fortunately, I'm in Chemnitz, Germany, where such a monument is a feature of the town square, a holdover from the days when the city was known as Karl-Marx-Stadt. Dr. Wolfram Backart has organized a wonderful conference at the Technische Universtät Chemnitz. The conference is entitled "Overindebtedness: Everyday Risk in Modern Societies? Theoretical Aspects and Empirical Findings in International Perspective" and has brought together scholars from Germany, China, Portugal, Japan, Sweden, South Africa, Finland, Canada, the United States, the United Kingdom, and Austria. Two themes have been emerging

Thank You, Professor Kilborn

In addition to Professor Weller, Credit Slips also is saying "come back again soon" to Professor Jason Kilborn. As he always does for us, Professor Kilborn has provided an international and comparative perspective on consumer indebtedness and bankruptcy. From the Middle East to eastern European, Professor Kilborn updated us on what was happening around the world. Thanks again, Jason, and please come back when your schedule permits/

Thank You, Professor Weller

Credit Slips needs to thank Professor Christian Weller again for all of his contributions and insights as a guest blogger. As an economist, his posts always add a new perspective to our other content. Thanks again, Christian, for taking the time out of your busy schedule. We very much appreciate it and hope you come back again.

Open Access Factories

This semester, I have been teaching a seminar simply called "Bailouts." This week, we have been talking about the automobile industry. One of my students, Aaron Moshiashwili, put forth an interesting idea in his written work for the week. In the seminar, I have stressed that the idea is not to save a particular company but the productive assets that company represents--a point that generalizes to many other contexts in corporate law. In other words, we shouldn't care about the logo that is on the door, but we should care about what goes on inside the building. Regardless of whether they make it or not, the automobile companies are going to create a lot of excess capacity in physical plant and human capital.

Christian Weller Again to Lend His Expertise

Professor Christian Weller, a senior fellow at the Center for American Progress and professor of public policy at the University of Massachusetts Boston, has again kindly agreed to lend his time and expertise with Credit Slips readers. As an economist, Professor Weller can offer insights that us regular bloggers often cannot offer. With all that is crashing down going on around us, it seemed a particularly good time to invite him back, and we're thrilled he can do it. Welcome back Professor Weller.

A Vignette from Champaign

Driving down one of our main thoroughfares yesterday, I drove past one of our local banks that was advertising its CD rates on the electronic sign out front. OK, nothing usual there. What was unusual was the line that appeared at the bottom of the sign "No TARP Funds." I was going to take a picture with my cell phone, but I decided that the attempt to do so while driving at 35 MPH might become the basis for one of my colleague's final exams in Torts or, worse yet, Criminal Law.

We've heard that some banks are wanting to cut ties to the TARP program because of the strings that came with it (NYT article). Out here in the heartland, the lack of a connection to TARP also seems to be perceived as a way to attract customers. This morning, I did notice that the CD rates and the accompanying TARP reference no longer was part of the sign's rotating advertisements.

Bankruptcy Mortgage Modification Getting More Attention

You know the steam is starting to pick up for the horses to close the barn door before the barn burns done while we're counting our chickens when .... let me try that again.

Bankruptcy mortgage modification is moving beyond the specialty blogs such as this. David Abromowitz over at The Huffington Post has a post up advocating passage of a bankruptcy mortgage modification bill. I'm hoping the fact that the bill is getting broader attention means the train is about to sail.

Bankruptcy Filings Spike in February 2009

The good folks at Automated Access to Court Electronic Records (AACER) sent some preliminary numbers on February 2009 bankruptcy filings, and the news is not good. The bankruptcy filing rate is at its highest rate since the 2005 changes to the U.S. bankruptcy law and are approaching the level they were at before the law's passage. The 2005 bankruptcy law made it more expensive and more hassle for consumers to use the bankruptcy system, and the return to pre-2005 bankruptcy filing levels shows how U.S. households are hurting. (A click on the image will open up a full-sized version.)

There were over 103,000 bankruptcy filings in February 2009. Spread over the 19 business days of February, the filing rate is 5,433 filings per day. The figure is a 22.0% jump over the January 2009 filing rate, although the better comparison is to the November 2008 filing rate because bankruptcy rates typically fall in December and January due to seasonal variations. As compared to November 2008, the increase is 9.8%, which is still a big jump for bankruptcy filing rates. The February 2009 filing rate represents a year-over-year increase of 29.9% as compared to February 2008.

The bottom line is that the declines in the bankruptcy filing rate we saw in December and January were temporary and due to seasonal variations. As they have for the past several years, the bankruptcy filing rate has again jumped in February. We seem to be well on our way to my predicted filing rate of 1.4 million bankruptcy filings for the 2009 calendar year. The American middle class is hurting, and its showing up in the bankruptcy courts.

A Note on Notes

When you're in court, you have to provide evidence of your case. When you're a creditor, that proof includes the fact the debtor owes the money due and should include the contract (the "note" in legalese) that the debtor signed. Bankruptcy specialists have been following this issue for a while now, and it has made its way into the New York Times today in Gretchen Morgenson's column. I recommend it as a read. And, congrats to Judge Sam Bufford and attorney R. Glen Ayers for their mention in the column. It's not often that a paper prepared for a professional meeting ends up in the New York Times, but they accomplished just that with a paper on the somewhat arcane rules that govern proof in such matters.

H/T to reader Mike Dillon for bringing the article to my attentiion.

Responding to Schwartz on Mortgage Modification

Professor Alan Schwartz of Yale University has an op-ed in today's New York Times arguing against the proposals to give bankruptcy judges the power to modify home mortgages. For our readers who do not know him, Professor Schwartz is a respected academic and bankruptcy expert, but with all due respect, I think he just gets this wrong. He makes three principal points, but none of them are a good reason not to move forward with this much-needed legislation.

First, Schwartz says that the proposal would swamp the bankruptcy courts and the nation's 300 bankruptcy judges. That seems empirically dubious given that my forecast of 1.4 million filings this year is below the number of filings in 2002 - 2004, when the annual filing rate was around 1.6 million filings and we had about the same number of bankruptcy judges. Even if the mortgage modification bill resulted in hundreds of thousands of extra filings in the short term, we still would be below the 2 million bankruptcy cases in 2005 when filings surged ahead of the draconian new bankruptcy law. The bankruptcy system survived those filing levels and should handle any increases that would come from mortgage modification.

Welcome Back to Jason Kilborn

Comparative bankruptcy law guru Jason Kilborn has kindly agreed to reprise his guest blogging role on Credit Slips. Kilborn, a professor at The John Marshall Law School in Chicago, is a regular over at the Commercial Law blog blog, but he is best known for his comparative studies of different bankruptcy systems. Kilborn's knowledge of bankruptcy laws around the world is encyclopedic.

There is a scene in Patton where Karl Malden (playing Omar Bradley) is expressing his surprise at Patton's aides for having the insignia for Patton's new rank ready-to-go, even before formal congressional approval. Malden says, "George, I think if you were named Admiral of the Turkish navy, your aides could dip into their haversacks and come up with the appropriate badges of rank." Jason, if we had a question about Turkish bankruptcy law, I bet you could come up with the appropriate priorities and distribution scheme. Thanks for taking the time to share some of your thoughts with us.

Thank You Again, Jean Braucher

We have to thank Jean Braucher for joining us a second time as a guest blogger on Credit Slips. I was about to write that we learned she was an Uniform Commercial Code article 9 "supernerd," but looking over that post I see she was careful never to say she was a supernerd. Rather, she was "calling all article 9 supernerds." That's OK, Jean, your friends all know anyway. Thanks for joining us again, and we hope we have you back again some day.

Getting to Know Suze

Last spring, during our Debtor World conference here at the University of Illinois, it was a pleasure to get to know James Scurlock, the director/producer/writer of Maxed Out. If you have not see the movie, now is a good time. WIth the credit crisis now crashing down, Scurlock has to at least be a nominee in the "I Saw It Coming" category. Scurlock has a column at Slate entitled, "If You Suze Like We Knew Suze, You Wouldn't Listen to Her Advice." Check it out.

Suze Orman's defenders have risen to her defense in the comments to Scurlock's column, slamming Scurlock for daring to question her. Scurlock started his column with an Orman quote: "'Tell me what I need to know,' people often say to me. 'Here is what you need to know,' I answer." My sense is that Orman doesn't sell financial advice as much as she sells a sense of security. Scurlock's column tells people that Orman may not have all the answers, and one of the surest ways to incur someone's scorn is to tell them the world is a more complicated place than he or she would like to believe.

Some Thoughts from Ray

While consumer credit was booming a couple of years back, I posted about one of my favorite tunes, "Master Charge," by blues legend Albert Collins. This evening, I've been sitting here writing with my iTunes list going, and a different tune hit my ears as more appropriate for today. It's "Busted" by the great Ray Charles:

Bankruptcy Filing Rate Declines for Second Straight Month: Not Necessarily Great News

The U.S. bankruptcy filing rate declined again in January 2009. This was the second straight month of declines, when bankruptcy filings are computed on a daily basis as should be done. Don't be fooled, however, into thinking the news is some suggestion that we are on the road to economic recovery. The decline is a seasonal aberration, and the data hint that the filing rate will again take off in the early spring, as has occurred in the past several years. Before we get to the likely trend, let me report the numbers.

According to data from Automated Access to Court Electronic Records (AACER), there were 89,037 bankruptcy filings spread over the twenty business days in the month of January. That is a filing rate of 4,452 filings per business day, which is a decline of 2.4% from the December 2008 rate of 4,563 filings per business day. The December 2008 rate was in turn a decline of 10.2% from the November 2008 rate of 5,078 filings per business day.

WSJ's "Bankruptcy Beat"

The Wall Street Journal has launched a new blog called "Bankruptcy Beat." The focus looks like it will be more on business than consumer bankruptcy. They describe their blog as follows: "Bankruptcy Beat provides an inside view into the latest corporate bankruptcies, companies headed for trouble and emerging trends in bankruptcy law, distressed investing and corporate restructuring." The first set of postings had a story about Kathy Cox, the Georgia School Superintendent who declared bankruptcy after $1 million on Are You Smarter than a Fifth Grader, and a story about Richard Fuld's transfer of his Florida mansion to his spouse apparently to avoid any legal liability that might arise because of his time running Lehman Brothers. It looks like the blog will have plenty to interest Credit Slips readers. I've added it to my news feed. It's worth a look.

Here Is Your Interest Rate, Except When It Isn't

Credit card companies often make you promises with fine print that nullifies the promise. The Simpsons episodes (maybe the best . . . . show . . . . ever) often will include an advertisement promising some great product with a voiceover that says something like "There is no promise the actual product will be as advertised. Too bad that only one of those is a gag.

A Credit Slips reader e-mailed with a story of how Chase had just decided to change his interest rate from a 3.99% APR to his choice of a 7.99% APR or a $10 monthly service charge and 5% of the minimum balance. This person had a great credit score, no missed payments or job loss, and the loan balance was modest (only about $1,700). Still, Chase had decided it was going to change the deal.

The 3.99% APR is a great rate, of course, and had been a "teaser" rate to get this person's business. To induce him to apply for the card, our reader had been promised a 3.99% APR on all balance transfers "until balance is paid in full." Our reader did the financially responsible thing and transferred his existing balance to this lower-rate card. He dutifully made sure he did not incur any new purchases on the card that would trigger a higher rate. Chase was apparently not making enough money on the deal and decided it was time to change the terms.

It's Not You, It's Where You Shop

A lot of stories had been circulating on the Internets and through the Google that consumers were getting hit with lower borrowing limits on the credit cards. Sometimes, they received notice the limit was lowered, and sometimes they found out only when they went to go use the card. American Express was often mentioned. A story is up at the New York Times web that delves into the mysteries of this practice. It helps answer a lot of the questions about what the heck was going on. Cutting through the rhetoric, I understand American Express to be admitting that they were cutting credit scores based on where you shopped. Sure, it was not all done on where you shopped, but it appears that was an important component. As the NYT article suggests, we know American Express was doing it--they say they have stopped--but who else is doing it?

Bankruptcy Risk Scores

People talk a lot about credit scores as if there is some magic number hanging over your head and that number is following you everywhere. Isn't there maybe even some commercial like that? Like many things, the perception about credit scores is generally correct but often wrong in the specifics. It is generally correct in that the credit score does follow you just about everywhere. One way, however, that the perception is incorrect in the specifics is that there is nothing magical about the particular scoring system that is used. It's all about the algorithm the credit scoring company uses.

What many people don't realize is that different creditors might use different internal scoring systems to make their own decisions. One such system is the "bankruptcy risk score," which purports to identify which borrowers are more likely to file bankruptcy. The credit scoring companies might tell me that this is not a "credit" score because it is trying to measure something else, but a rose by any other name .... even if these are not particularly sweet smelling roses. Jeremy Simon over at CreditCards.com recently called me about these bankruptcy risk scores, and the article he wrote is here. It's an often overlooked aspect of the credit reporting industry. You may want to check it out.

Slipstering on Midmorning

For those of you with bandwidth and time to spare on Thursday morning, you might want to catch two of us Credit Slips bloggers on Minnesota Public Radio's "Midmorning with Kerri Miller." Katie Porter and I will talk about bankruptcy and credit card debt. The streaming audio is available here. Katie and I will be on from about 9:00 - 10:00 AM tomorrow (January 29). That's Central Standard Time.

Welcome Back to Jean Braucher

Credit Slips would like to welcome back Jean Braucher, the Roger C. Henderson Professor of Law at the University of Arizona. Professor Braucher, a highly regarded expert in commercial and bankruptcy law, is an important voice in how these bodies of law should and should not consider consumer interests. I recommend her recent paper, available on SSRN, "A Guide to Interpretation of the 2005 Bankruptcy Law," which recently appeared in the American Bankruptcy Institute Law Review. Welcome back, Jean, and thanks for again agreeing to sharing your thoughts here on Credit Slips.