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Bankruptcy at the Dem's Debate

posted by Adam Levitin

I think this blog has been really good at eschewing electoral politics issues, and I don't want to be the one to change that. Serendipitously, though, during the five minutes I had the TV on watching the Democratic debate, Tim Russert asked the Democratic candidates tonight about bankruptcy reform and their past positions on bankruptcy legislation, and the occasion cries out for a blog post.

Someone (I can't remember if it was Russert or one of the candidates) tossed out the "bankruptcies are up 40% from a year ago" statistic that made me cringe. After the mad filing rush before the BAPCPA went effective, it looks like the pipeline got cleared out for a while, so a large increase from 2006 to 2007 (if maybe not 40%) is hardly surprising. Another one of these shocking and politically useful, but not very informative statistics.

But otherwise, I was pleased to see that all three candidates were able to speak intelligently about bankruptcy issues and seemed reasonably well-informed about bankruptcy's role in the social safety net. In particular, all three candidates emphasized the connection between health care costs and bankruptcy.

Russert pushed Edwards and then Clinton on their support for the BAPCPA's predecessor bill in 2001 (Obama wasn't yet in the Senate). It was amazing to see how fast and unequivocally they disavowed their earlier support. Notably, neither explained why they changed their position.

In any case, it was nice to see bankruptcy, which is often seen as a technical issue, get a little time in the limelight.


While Edwards and Clinton did support the predecessor bill to the 2005 bankruptcy reform, neither actually voted for the 2005 bill. Edwards was no longer a senator. Clinton didn't show up for the vote (and I feel like there was a good reason (President Clinton in hospital), but I may have a faulty memory.

It's too bad Russert didn't ask them about the bankruptcy modification bill. Each candidate has spent considerable time talking about their plan to help out homeowners facing foreclosure. It would have been interesting to hear how and why they see bankruptcy as either being a poor or useful solution for that group.

I didn't see the debate at all but I'd like to throw my personal experiences with both candidates out there.

I know that Prof. Porter, especially, will understand when I say that Mortgage Servicing Fraud victims, in general, are all hurtling blindly toward bankruptcy once the MSF machine targets them. That said, Sen. Clinton invited me to her Predatory Lending policy roll out back in August in Derry, NH. To confirm this, the 08/07 transcript of her speech is available on her website. Suffice it to say that the overall experience was less than satisfactory. If you'd like to know more, feel free to run me through your favorite search engine or contact me directly and I'll be happy to provide you with more info.

Several weeks ago, Sen. Clinton addressed Wall St.. During that event, the Senator stated that she was open to the possibility of indemnifying mortgage servicers from any legal action resulting from any loan modifications they performed. As I'm sure everyone here is aware of, this could be absolutely disastrous for borrowers seeking loan modifications for any reason.

I also had several opportunities to speak with Sen. Edwards, and t length with Mrs. Edwards and their daughter Cate about Mortgage Servicing Fraud. It absolutely amazed me that all three, but especially Mrs. Edwards and Cate, grasped the concept of Mortgage Servicing Fraud almost immediately. It was only toward the end of initial conversations that Mrs. Edwards is a bankruptcy attorney and that Cate is studying at Harvard Law and is involved with the Hale & Dorr Legal Clinic.

The overall mortgage policy that Sen. Edwards came out with made the most sense to me and appeared to be the most comprehensive as far as the protection of homeowners. When you look at Sen. Clinton's FEC donation list, it reads like a Who's Who of the mortgage, banking and accounting industries. I found it rather ironic that the Clinton campaign would invite me to any event but a predatory lending policy event especially given 1.) I am not a predatory lending victim and 2.) three of the five entities I have named in a $13.5 million racketeering action have contributed to her campaign (PMI, Merrill, LaSalle Bank) and a fourth contributor (CSFB) now owns the servicer (Fairbanks/SPS) that initiated the fraudulent foreclosure action against me.

In the interest of equality, I contacted Sen. Obama's campaign several times in the hope of getting a response to Mortgage Servicing Fraud issues. The Obama camp never returned my calls.

I applaud them for bringing the subject up. My family and I have personally experienced a loss of 40K in income due to jobs being taken out of the country. In order to save my pension I was forced to relocate several states away. I was only given a 3-week notice to move.

I ended up not selling my home even though I tried for 1 1/2 years. Other property in the neighborhood foreclosed and the hard hit neighborhood declined further. I attempted to work out a short sell; my lender would not return calls, or said they had not had a chance to review the file. The investor also repeatedly mailed, and phoned and was given the same response. I tried to get a deferment of payment and was even told no. We attempted for 5 months to get some response to the offer and was told for the last time they had not reviewed my file. One week later I was sent a notice foreclosure was beginning. Fraud may not be the case with the lender but they certainly did not try in good faith to work out an arrangement. I phoned them even before I was 1 month late to work out some kind of arrangement and was never assisted.

I went to an attorney and was advised that bankruptcy was the only available option I really had. I make above the median income, so had to file ch. 13. The problem I encoutered is the way the new law determines your income. My company paid me money to assist with moving. A one time event; I also received a bonus when the UAW signed the contract this summer, in addition I worked a considerable amount of overtime the last part of the year. The end result was the courts show me making $15,000 MORE then my actual W-2's for the year reported(yes that included the one time payments).

Now the problem occurs that I make to much to file ch 7 but not enough to afford the payments that I can supposedly make. I am actually in the whole by almost $1400 and if I do not get to work overtime I am severly short. I have to try to find another job that will not conflict with my main job, and never know when I am going to be required to work overtime. If I worked a normal shift it would not be a problem but I leave for work at 3:30 in the afternoon and if work over I get home between 3;30-4 AM. I have to sleep sometime. I also am required to work some weekends and do not ever really know what my schedule will actually be since they change dates so often. So the law has put me in an awkward position.

I would never have filed bankruptcy if it had not been the Mortgage co was foreclosing and trying to get a deficeincy judgement that I just can not afford to pay. The bankruptcy has also put an additional hardship as I am paying back my debts but I have a vehicle I pay 0% on. With the bankruptcy I have to pay 8% and then the 10% trustee fee on every payment! Actually giving the creditor more money then the contract they had signed with me! I was not allowed to continue to even pay on my own, and had to pay through the trustee. This is the case with a few creditors.

The way the law has been written is hurting the middle class in a major way. It is ironic that I do contribute a considerable amount of taxes each year that is used to help people in need; but when I am in need I am almost crippled. I used all my saivngs and ended up borrowing against my retirement hoping and praying the home would sell. If I was trying to abuse the bankruptcy law I would never have borrowed against my retirement.

Just because there are some who repeatedly file or abuse the system should not prevent those who are in situations they have done everything to avoid to be prevented from getting the relief and help they need. It is also interesting, what started my journey into this mess was because my employer was allowed to file bankruptcy and also told us we were going to take 50-75% wage cuts. Yet they paid the top executives Millions of dollars in bonuses-for taking the company into bankruptcy at the time they were filing.

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