What is the Relationship Between Credit Cards and Mortgage Delinquency?

Previously I mentioned this new paper on homeowners in bankruptcy in the American Bankruptcy Law Journal. The central goal of the paper was to investigate what makes homeowners more or less likely to have mortgage troubles as they head into bankruptcy. One of the notable findings is that, across all the models, credit access had a significant effect on keeping mortgages current and avoiding foreclosure initiation (specifics listed pp. 302-304). But why?

BROKE: A New Book on Consumer Debt and Bankruptcy

Just in time for New Year's resolutions on 1) reading more, 2) paring back your own debt, and 3) learning more about consumer bankruptcy to help you do your job (if you are a lawyer, judge, or academic, media, etc), the book, Broke: How Debt Bankrupts the Middle Class was released from Stanford University Press.

The book makes extensive use of the 2007 Consumer Bankruptcy Project data, providing statistics, analysis, and commentary on consumer bankruptcy and debt topics. I edited the volume, and chapter contributors are many Credit Slips regulars or guest bloggers--Jacob Hacker, Bob Lawless, Kevin Leicht, Angela Littwin, Deborah Thorne, and Elizabeth Warren--along with other top scholars.

In the next few weeks, the chapter authors will blog here at Credit Slips about the research featured in the book, but to whet your appetite, I've included a table of contents for the book after the break. The book is accessible to lay readers but its scholarly focus provides plenty of data to educate and surprise even bankruptcy experts. Working on the book, I certainly learned a great deal about timely and important topics such as how pro se debtors (those without attorneys) fare in bankruptcy, where families go after they lose their homes to foreclosure, how bankruptcy affects couple's marriages, and the ways that bankrupt households differ in their financial straits from other households of concern such as those with low assets or late payments on debt. Of course I'm biased but I think the book provides the most comprehensive overview of the consumer bankruptcy system since the enactment of the 2005 bankruptcy amendments.

In or Out of Mortgage Trouble? A Study of Bankrupt Homeowners

This is a newly published paper  in the American Bankruptcy Law Journal that I was lucky to work on with Daniel McCue and Eric Belsky at the Joint Center for Housing Studies at Harvard University. Using previously unexamined data in the 2007 Consumer Bankruptcy Project, we study what makes homeowners more or less likely to have mortgage troubles as they head into bankruptcy. Although much can be said about the econometric analysis, for now I wanted to mention quickly that the paper includes descriptive details about bankrupt homeowners (debtor-reported) such as numbers of missed mortgage payments, use of adjustable rate mortgages, mortgage broker use, mobile homes, and refinancing or home equity lines of credit. So please check it out!   

Your Government Prefers Chapter 13

Today, I went looking for the court costs payable by chapter 13 debtors who wants to convert their cases to chapter 7. I admit that like many Americans my starting point was Google. I quickly landed here, at the Bankruptcy Basics page provided by the Administrative Office of the U.S. Courts, a division of the judiciary. The site says that it "provides basic information to debtors, creditors, court personnel, the media, and the general public on different aspects of federal bankruptcy laws. It also provides individuals who may be considering bankruptcy with a basic explanation of the different chapters under which a bankruptcy case may be filed." From this description,  you might expect a factual, value-neutral description of the fundamental choice facing all consumer debtors: whether to chose chapter 7 or chapter 13. But look what I found when I read up on Chapter 7 and Chapter 13 . . .

New Resource: NCLC's Bankruptcy Mortgage Project

The National Consumer Law Center has launched a useful new resource for the bankruptcy community called the Bankruptcy Mortgage Project. See here. Those likely to find it handy include judges, consumers, trustees, mortgage servicers, attorneys, and academics. The website, created with a grant from the National Conference of Bankruptcy Judges’ Endowment for Education, collects all sorts of documents related to mortgage issues in consumer bankruptcy cases. It thus provides easy, free access to various local rules, forms, general orders, and court opinions.

A Deeper Dive into Racial Disparities in Chapter Choice and Women in Bankruptcy

Thanks again to Bob Lawless for his excellent post this morning highlighting the findings from our latest report, “Bridging the Gap II: Examining Trends and Patterns of Personal Bankruptcy in Cook County's Communities of Color." The report found evidence of racial disparities in chapter choice in Cook County, IL, as well as a disproportionately high concentration of filings among women living in communities of color. If you don’t have time to read the whole thing, check out our press release and policy brief.

If this report raised any burning questions, feel free to ask them on a conference call we will be hosting on Thursday at 11am CT (follow the link to register and get the call-in information).  If you’re shy, you can also send questions via Facebook or Twitter, and I’ll answer them on the call. I will be joined by Megan Cottrell of the Chicago Reporter.  The Reporter is an investigative magazine that published a companion piece to our report asking why these racial disparities in chapter choice might exist. I will also be joined by Woodstock Institute’s Policy and Communications Associate Katie Buitrago who will close out the call by telling the story of one bankruptcy filer, Roxie King, a grandmother of 20 from an African-American neighborhood in Chicago who went through Chapter 13 bankruptcy after being laid off from her job as an echocardiogram technician. Roxie tells her story in the video below:

One Consumer Bankruptcy System, or Many?

As Principal Investigator of the Consumer Bankruptcy Fee Study, I've been gathering "qualitative data" from attorneys, trustees and judges about how the consumer bankruptcy system is working. I have conducted over a dozen focus groups, many, many one-on-one interviews, and have been privy to myriad list-serve threads discussing the costs of BAPCPA generally and more specifically, consumer bankruptcy attorney fees.

Here is one preliminary observation: there is a huge disparity with respect to how and how much attorneys are paid, depending upon where in the country they practice. This is not a shocking revelation on its face, given the disparities in the cost of living from city to city. The data reveal, however, variations that go beyond big city=expensive, small town=cheap.

The Consumer Bankruptcy Fee Study

Thanks to Katie and my friends at Credit Slips for the guest blogging gig.  I appreciate the invitation and the opportunity.

In my next couple of posts, I am going to report on the Consumer Bankruptcy Fee Study (see Katie's post below).  Today, I'm making a pitch to the consumer debtor's attorneys who have received (or will receive) an invitation to participate in a survey about their consumer bankruptcy practices.  To date, the Consumer Debtor Attorney Fee Survey has been distributed to ~400 lawyers who represent consumer debtors.  I expect to send out a couple of additional "waves" in the next weeks.  As I said in my cover note,

Bankruptcy Robosigning Business Challenged by Debtors, Trustee

A new amended class action complaint filed on behalf of Chapter 13 debtors, with their Trustee as additional plaintiff, describes in exhaustive detail the business of Lender Processing Services and its network of creditor attorneys and mortgage servicers.  The gist is that LPS sells the dominant software product to mortgage servicers, and the software is designed to refer all foreclosure and bankruptcy cases to LPS-affiliated firms, which then share legal fees earned by litigating stay motions and claims in bankruptcy with LPS companies.  In the process, LPS firms and their nonattorney employees allegedlly produce robosigned missing mortgage assignments and bankruptcy court filings.

This colorful pleading describes LPS as Mephistopheles and the participating law firms as Faust.  Some of the practices are familiar, thanks to Judge Sigmund's decision in the Taylor case, discussed here previously.  LPS and its affiliates, of course, vigorously dispute all allegations and claim that their business is perfectly legal, and does not constitute unauthorized practice of law, although their SEC filings are considerably more ambivalent on the latter point.

More details on this and related litigation are available in this detailed report.

Can HAMP Help in Bankruptcy?

About six months ago, the government rolled out guidelines for how HAMP should work for people in bankruptcy. Given bankruptcy's historical role as a foreclosure prevention device, it never made sense to me why from its inception, HAMP did not envision ways for homeowners in existing chapter 13 cases to seek loan modifications and for people to try to obtain a loan modification as part of their chapter 13 bankruptcy. This may have just resulted from the right people not being in touch in a timely fashion. But now that HAMP is available for people in bankruptcy, does it really provide much?

Ransom Argument--Not Very Edifying

The very first case argued today, the opening day of the 2010 Supreme Court term, was Ransom v. MBNA. Ransom presents an issue at the heart of the bankruptcy means test. The question for the Court is whether an above-median-income debtor in chapter 13 who does not currently have a car payment can take the IRS allowance for vehicle “ownership expense” as part of the means test. This issue also arises in chapter 7. You can find the transcript of the oral argument here. http://www.supremecourt.gov/oral_arguments/argument_transcripts/09-907.pdf

As with any oral argument, it is hard to know what to make of it as far as prediction as to the outcome. I will refrain from critiquing the lawyers’ arguments. I will merely note that Katie Porter recently asked why the government was involved and that although an answer to that question was not forthcoming, the government lawyer did end up serving the function of presenting a simple argument that the justices could (barely) follow.

What Is the Government Interest in Bankruptcy Cases?

On Monday, the Supreme Court will hear arguments in Ransom v. MBNA, an appeal of a decision in a consumer bankruptcy case. The Bankruptcy Code requires chapter 13 debtors to commit all their "projected disposable income" to repaying their creditors. After 2005, for debtors whose income exceeds the median in their state, disposable income is determined by deducting certain expenses. In the Ransom case, the issue is whether a "debtor’s applicable monthly expense amounts specified under the National Standards and Local Standards [of the IRS]” includes the cost of ownership for a vehicle that is not encumbered by a loan or lease.The statutory language is unclear, to put it mildly, and there are plausible readings of the statute that support either permitting or denying the expense.  So why is the U.S. government throwing its weight behind MBNA Bank and arguing that debtors should not be permitted to take the ownership deduction for vehicles that a debtor owns outright? What exactly is the government's interest in this case? Why are our taxpayer dollars at work here in briefing and arguing a dispute in which the adversarial aspect of bankruptcy (debtor and creditor litigating) seems to be fully functional?

The Shadow Consumer Bankruptcy System

    Bankruptcy filings have not risen at anything like the rate at which consumer debt defaults have risen since 2007.  Part of the explanation may lie in the shadow bankruptcy system, a network of alternative service providers who purport to save debt-burdened consumers from the bankruptcy court.  While consumers being sued on delinquent credit cards and mortgages receive solicitations in the mail from bankruptcy attorneys, they are also deluged with a variety of other offers of aid.  These range from foreclosure rescue scams to a wide range of legitimate and dubious debt advice and counseling services, to debt elimination and debt settlement schemes.  While pondering this post I searched in the usual places for any good empirical data on the number of consumers participating in non-profit counseling, or the number of customers enticed by those who promise to make debt disappear, with no success.   We don't seem to know how many debtors go to these debt advice services.

The Thorne-Porter Financial Education Study

Last week, a short item was posted on a bankruptcy listserv about the excellent new paper by Deborah Thorne and Katherine Porter, Debtors’ Assessments of Bankruptcy Financial Education, available on ssrn.com.  Despite the insights of the paper about the wisdom (or lack thereof) of the requirement of financial management education in bankruptcy and about how to improve the education as long as it remains a condition for bankruptcy discharge, the listserv item (predictably) unleashed a lot of venting by consumer bankruptcy attorneys.  I share their pain, but I still feel strongly that the paper is extremely valuable (a dream from a researcher’s point of view, for how much light it sheds).

Debt Distress: Symptoms and Treatment

From the United Kingdom comes an interesting new study, based on a survey of more than 10,000 applicants for legal aid about their problems and the means they use to address them. The study explores the linkages between overindebtedness and social exclusion.  Consumers seeking help with debt problems are much more likely to face multiple related difficulties, including employment, mental health and other civil justice problems.  This longitudinal study also reports on the duration of debt problems and the success or failure of different strategies consumers employed.  The findings support the need for a broad array of services to assist consumers overwhelmed by debt, an approach characteristic of many European consumer bankruptcy and debt adjustment systems, about which Jason Kilborn and others have written.  These coordinated social service approaches are notably absent from the US bankruptcy system, at least officially, and apart from some token counseling requirements.  

Bankruptcy and the Crisis: Why so Few?

Many thanks to Bob for the invitation to guest blog here.  Those who follow Bob's postings on bankruptcy filing numbers will have seen that U.S. consumer bankruptcy filings have been plodding upwards steadily, but only to roughly where they were before the BAPCPA bubble back in 2005.  One of the inscrutable mysteries of the financial crisis of 2007-??, which is after all a housing and consumer debt crisis, has been how few bankruptcies have been filed.  Somehow, historically unprecedented levels of consumer debt and loan defaults have not produced the surge in bankruptcy filings one would expect.