Bankruptcy Article of the Week
Durbin to Propose Bankruptcy Code Amendments to Help Families in Foreclosure
The National Association for Business Economics (NABE) recently released a survey indicating that its members currently view the combined effect of subprime loan defaults and excessive household/corporate debt as a greater threat to the U.S. economy than terrorism. In fact, 18% of members surveyed listed the effects of subprime loan defaults as their number one concern.
Of course, the seriousness of the subprime foreclosure crisis isn't news to any of us. In April, the National Association of Consumer Bankruptcy Attorneys (NACBA) joined the National Consumer Law Center (NCLC), the Consumer Federation of America (CFA), the National Association of Consumer Advocates (NACA) and the Center for Responsible Lending in a proposal to reform bankruptcy law to address the foreclosure crisis.
Although the proposal addresses several issues, including preservation of claims against predatory lenders and prohibition of enforcement of mandatory arbitration clauses, the key issue is the quirk in current bankruptcy law that allows the bankruptcy court to modify the rights of virtually all secured creditors except those whose claims are secured by an interest in the debtor's principal residence. Corporations can split debt secured by real property into secured and unsecured segments based on the actual value of the property, but homeowners cannot.
As Harvard Law professor and bankruptcy expert Elizabeth Warren has pointed out, the current provisions were enacted at a time when the average home buyer put 18% down and financed the balance on a 20-year fixed loan. 100% financing, adjustable rate mortgages, 50-year mortgages, and other "creative" subprime schemes were virtually unheard of in 1978, the last time the applicable piece of the bankruptcy code was revised.
The current law, as every consumer bankruptcy attorney knows all too well, is ill-equipped to address the problems of subprime borrowers, most of whom cannot hope to catch up on past-due payments while keeping newly inflated adjustable-rate payments current. As the NABE survey indicates, that's a problem for everyone, not just the millions of Americans who have lost or will soon lose their homes to foreclosure.
The applicable provision in the joint proposal is simple: delete the clause that excepts "a claim secured only by a security interest in real property that is the debtor's principal residence" from the provision allowing for modification of secured claims in a Chapter 13 plan.
Unfortunately, four months have passed and no legislation has been proposed to accomplish that simple step. Now, the New York Times is reporting that Senator Richard Durbin (D-IL) has announced that he will propose legislation to amend the bankruptcy code in order to help families in foreclosure. Details of the "Helping Families Avoid Foreclosure Act" are not yet available, but the bill is expected to provide for restructuring of mortgage debt and the extension of repayment periods in bankruptcy.
For updates on this proposed legislation, watch this space, or subscribe to The Bankruptcy Lawyers Blog.
Meet the Start Fresh Today Team!
If you've ever called in to Start Fresh Today, you may have talked to Chris Cornett. As Customer Service Manager, Chris strives to satisfy the clients that he comes in contact with by answering their questions and using their feedback to improve our overall services.
A native of Cincinnati, Ohio, Chris has worked in the bankruptcy field for more than 10 years, including the last year-and-a-half at SFT. While his previous experience was limited to working with creditors for financial institutions handling complex bankruptcy cases, Chris is literally "on the opposite side of the fence" at SFT.
"Working to assist debtor clients has given me a whole new perspective on the bankruptcy process," Cornett said. "With that said, I enjoy how innovative and forward-thinking SFT is in creating products and services to clients."
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Bakersfield, CA
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Kevin's Corner
Practice Management Tip of the Week:
"When speaking with consumers interested in learning about bankruptcy, don't think in terms of getting them to schedule an appointment with you. Rather, think about getting them to make a commitment to you.
"The difference between making an appointment and a commitment is important. It's easy for consumers to blow off an appointment with someone who just calls them back or talks to them on the phone. It's not as easy for people to blow off a commitment with someone who has gone out of his or her way to spend time with them or has otherwise made a special accommodation.
"Many prospective bankruptcy clients are under a lot of stress, and in their initial motivation are in a hurry to get the information they need. Or, the caller might just set an appointment with you in response to your urging. If you let that consumer know that you're squeezing him in to a tight schedule to meet his needs, he's more likely to make and keep his commitment to you because you've already gone out of your way for him, or at least be honest with you about his unwillingness to make a commitment at that time, saving you further inconvenience.
"An appointment is just that; an appointment, and we know appointments are meant to be broken. Mutual commitments, however, tend to be kept.
"It is human nature to reciprocate when someone extends themselves. Consumers will have a much harder time blowing off a commitment that is a reciprocation of something that you've already done for them as compared to just scheduling a time for an appointment."
- Kevin Chern
President, Start Fresh Today
How to Order More Client Inserts
Our Chicago office received the new order of client inserts late last week, and we've begun to send out the inserts to those of you who have requested additional copies for your client intake folders!
While those who've requested more credit counseling and debtor education inserts can expect to receive them soon, you may still order inserts if you haven't already done so and are running low on copies for your client intake folders.
Once again, the ordering process couldn't be any easier. Simply call (800) 435-9138 or send us an email for more inserts at info@startfreshtoday.com.
We'll ship your new inserts free of charge. All we ask is that you include your new inserts in your client intake folders. Thanks again!
Did You Know...
that client credit counseling and debtor education certificates are archived at SFT? Of course, you'll always receive your clients' certificates by email, but you can also access them from the convenience of your SFT account.
That's right. Simply log into your SFT account and click on the 'Clients' button. From here, find the name of the client that you wish to review.
After clicking on the client's name, you will see a link for the 'Document Center' on the left-hand side of the client profile. Click on the 'Document Center' link and find any documents associated with the specific client saved here in PDF format.
Got questions? Call (800) 435-9138. We're glad to help you out.