Posted on

Prenups are Suddenly Hot

Hello Readers!

Way too much time as passed since my last update here.  It’s hard to believe that October is upon us and 2011 is already 3/4 over.  Jack in the Box is already offering “Holiday Shakes” and Walmart has Christmas decorations out!

A POLL OF 200 Family Law attorneys in the U.K revealed that women are increasingly seeking legal advice to inquire about or instigate prenuptial agreements.  Although men still show the greatest interest in prenuptial agreements by a wide margin, women now account for 21% of all requests or inquiries.  The lawyers polled also noted that prenuptial clients are getting younger.  Celebrity culture awareness and greater social acceptance are two explanations for these trends.  Read more here.

SPEAKING OF PRENUPS, the Associated Press reports that a bill in currently pending in Mexico City that would make prenuptial agreements mandatory! If it passes, the bill would require couples to estimate how long they believe the marriage will last and spell out in advance how child custody and visitation will be handled in the event of a divorce. 40 out of every 100 mariages in Mexico City current end in divorce.  In a city of 8.9 million people, that creates a very large family law docket.  The mandatory prenup bill is seen as a potential solution to the “torturous proceedings” that plague the current system.  According to the article, the current system is so dysfunctional, many Mexican citizens just choose to skip it and begin new families.  Technically, this creates a bigamous marriage situation and lots of problems down the road.  The Catholic church is strongly opposed to this legislation.  Full article here.

Sacramento Federal Courthouse (including Bankruptcy Court)

HOT TIP FOR people in the Sacramento area representing themselves in bankruptcy.  A few months ago the Sacramento branch of the Eastern District of California Bankruptcy Court started a “Bankruptcy Assistance Desk” to answer questions about bankruptcy.  The desk is staffed every Friday morning from 9:00 a.m. to noon by volunteer attorneys and help is provided on a first come, first serve basis.  It is located on the 6th floor in room 6-100.  Both debtors and creditors without attorneys are welcome.  I am on the volunteer attorney panel, so you might even see me there once in awhile!

MANY SACRAMENTO AREA residents are already familiar with the invaluable services WEAVE provides for victims of domestic violence and sexual assault.  On Thursday, October 13th WEAVE, in conjunction with Methodist Hospital of Sacramento will celebrate the grand opening of a brand new Wellness Center in South Sacramento.  According to WEAVE, the Wellness Center will provide “comprehensive health and social support services under one roof.”  The celebration will be from 5:00 PM to 7:00 PM with a brief program at 5:45.  Appetizers and refreshments will be served.  The address is 7600 Hospital Drive, Sacramento, CA 95823.  The deadline to RSVP was September 30th, but perhaps space is still available.  Contact Tiffany Kelly via e-mail to inquire (tkelly@weaveinc.org).

IN CASE YOU didn’t know, the William R. Ridgeway Family Relations Courthouse now offers free Wi-Fi in the public waiting areas.  This makes it somewhat more tolerable when waiting hours to file papers now.  I have tried the service on my laptop several times now and it seems to work quite well.  My only complaint is that it seems to require users to “log in” and agree to the terms of service page too frequently.

As usual, I am currently accepting new clients who reside in the greater Sacramento area in family law and bankruptcy matters.  Please contact me to set up an low cost initial consultation. The easiest and fastest way to reach me is by e-mail.  My e-mail address is mwcrosson at gmail dot com.  I normally meet with prospective clients in the afternoon or early evening and I’ll try to accommodate your work or school schedule.

Until next time …

— Michael W. Crosson

Posted on

Bankruptcy Trends and the New Shadow Economy

Personal bankruptcy filings in the US continue to rise in 2010.  Some experts believe we are on pace to exceed 1.7 million filings by year’s end, which is close to the all time record of about two million filings in 2005 before the Bankruptcy Reform Act took effect.  The revisions to the code were intended to curb the number of filings by making the bankruptcy process more restrictive, burdensome and expensive.  At the time, powerful bank and credit card lobbies persuaded Congress to pass the changes to reduce so-called abusive filings.  Few bankruptcy attorneys and judges thought the reforms were a good idea, and now in the wake of the lingering recession and housing crisis, it seems more clear than ever the changes were “bad medicine.”

But the bankruptcy filing statistics only hint at the real depth of the problem.  Perhaps even more troubling is the growing emergence of a group of Americans who are in serious financial distress but can’t be helped by filing for bankruptcy.  This group of debtors are forced into what is known as the “shadow economy” or informal bankruptcy.  It is common now for young adults facing crushing student loan debt and a hostile, shrinking job market.  Under current bankruptcy law, student loans are very rarely discharged.

Another situation where individuals facing financial hardship fail to file for bankruptcy involves homeowners trying to hang onto their homes in the face of lower wages, declining market values and higher monthly mortgage payments.  Chapter Seven is simply not very helpful in this circumstance.  Chapter Thirteen can help homeowners catch up on mortgage arrears but does not offer a complete solution to the problem.  A complete solution would entail granting bankruptcy judges the power to modify the mortgage principle.  However, recent reform efforts in this direction have failed, even though these changes have the potential to avert the tidal wave of foreclosures that have rocked the financial sector over the past three years.

For further reading on this topic, see this recent article from USA Today, “Only a fraction of those in need file for bankruptcy.“

S.O.S. — Save Our Shelter!

The Sacramento County Animal Shelter needs your support today!  Due to massive budget cuts, the shelter is desperately trying to keep it’s doors open.   

License your pets now with no late fees thru June 30th!

or DONATE TODAY!

Your donation is tax deductible and can be made online, by mail or in person.

As one of the largest shelters in California, the Sacramento County Animal Shelter cares for more than 15,000 stray, abandoned, abused and neglected animals every year, and urgently needs your help to continue providing care and services to the animals and people of our community.

You donation makes a difference!

Sacramento County Animal Care

3829 Bradshaw Road

Sacramento, CA 95827

(916) 368-7387 (PETS)

For more information on the SOS campaign, click here.

__________________

— Michael   

Posted on

Bankruptcy “Cram Down” Mortgage Bill Suffers Defeat

Yesterday, I met with prospective bankruptcy clients who were established homeowners and deep “underwater” to the tune of several hundred thousand dollars.  Since the peak of the Northern California market in 2006, their home had declined in value from about $650,000 to $350,000 according to Zillow (a great tool for getting quick and dirty estimates on property values).  The clients had heard news reports that a law had recently passed allowing the Bankruptcy Court to reduce their mortgage.  Like many other financially distressed clients I have spoken to over the last six months, they didn’t know the details of the “program” and just had vague notions that it was part of President’s Obama plan to get the economy back on track.  The troubled homeowners were partially right.  There was indeed a bill of this nature making the rounds in Congress recently.  Unfortunately, it went down in flames a couple of weeks ago on Capital Hill.

The much talked about “Mortgage Modification Cram Down” bill recently suffered a defeat in the Senate despite endorsement by President Obama.  On April 30th, the Senate vote was 45 in favor and 51 opposed after a dozen Democrats joined Republicans in opposition.  Previously a version of the bill was passed by the House 234-191 in March.  Had the bill passed, Bankruptcy Court judges would have had the power in Chapter 13 cases to lengthen mortgage terms, cut interest rates and even reduce mortgage balances for distressed homeowners.  In order to qualify, the bill required homeowners to be at least two months delinquent and have an outstanding balance of less than $729,750. In addition, if the debtors sold their home while still in bankruptcy proceedings, the borrowers would have had to split any profit with the lender in cases where the bankruptcy judge reduced the principal balance.  Note that Chapter 13 repayment plans typically last five years.

Predictable, the banking industry was strongly opposed to the proposed legislation.  It’s not hard to understand why.  The proposed changes effectively would have given the Bankruptcy Court the power to tear up existing sales contracts and rewrite them as they saw fit.  Banking lobbyists argued that the “Cram Down” bill, if passed, would destabilize home prices to an even greater degree than they are now.  Many Republicans agreed.  Arizona Republican Senator Jon Kyl, voted against the bill.  “The answer is not to incentivize bankruptcy by making it the means to save one’s home,” Kyl said.  In the first quarter of 2009, Arizona had the second highest rate of foreclosures in the nation according to RealtyTrac.  Nevada was number one with a rate five times higher than the national average.  California was number ranked three with one in every 58 housing units receiving a foreclosure filing. 

Some economists agreed that overall, the bill would have done more harm than good.  Ronald Utt, Ph.D. of The Heritage Foundation wrote, “This provision will increase the risk to lenders of all mortgages. The industry is already treating this as a permanent measure. Increased risk requires higher costs to compensate lenders, and either down payments or interest rates would have to rise, while potential borrowers with checkered credit histories would be denied access to credit. However, these costs would not rise evenly for all borrowers: Higher risk borrowers (first-time buyers and moderate-income workers) would see costs rise more and have fewer opportunities to buy a house.”

However, Oregon Bankruptcy attorney Kent Anderson recently noted that research by Adam Levitin, Ph.D. does not support this theory.  Levitin studied the effects of mortgage modifications made between 1981 and 1993 in areas where it was permitted and compared them to areas where it was not.  The conclusion?  There was no statistical significant effect on mortgage rates.  Levitin also noted that Freddie Mac and Fannie Mae, who frequently purchase home mortgages on the secondary market, do not charge a risk premium on certain kinds of property that currently can be modified in bankruptcy.  Kent further argues that “Prudent lenders make loans based in large part on the ability of the borrower to make payments and on the value of the collateral if the borrower defaults.  The possibility of bankruptcy is only a small part of the analysis and the credit reputation of the borrower is the primary indicator used by lenders in making home loan decisions.”

Although Senate Democrats have vowed to resurrect this bill again, for the time being it appears the best option for many distressed, underwater homeowners is still to surrender the home in a Chapter 7 proceeding.  This is especially true if the homeowner has incurred substantial credit card and other types of unsecured debt. 

If you are in the greater Sacramento area and thinking about Bankruptcy please contact me to sit down and discuss your situation.  Initial consultations are discounted and afternoon and early evening appointments are available.  If you reside in another area of California, click here for a referral to a competent bankruptcy attorney in your area.

— Michael

“Sign of the Times – Foreclosure” Photo Credit, Jeff Turner aka “respres” on Flickr (Creative Commons License)

Sources & Further Reading on this Topic:

“Senate Defeats Mortgage Cram-Down as Democrats Balk (Update 2)” by Margaret Chadbourne, The Bloomberg Report, April 30, 2009.

“Mortgage Bankruptcy Bill Fails in the Senate“, Associated Press, MSNBC, April 30, 2009.

“12 Problems with the Obama Mortgage Stability Initiative Plan“, Ronald D. Utt, Ph.D. and David C. John, Webmemo #2311, The Heritage Foundation, 02.27.09.

“Will Bankruptcy Reform Increase Interest Rates?” by Kent Anderson, Esq., Bankruptcy Law Network, 12.24.07.

“The Effect of Bankruptcy Reform on Mortgage Interest Rates” by Adam Levitin, From the Warren Reports, 12.19.07.

“Foreclosure Activiity Increases 9% in First Quarter” by RealtyTrac Staff, RealtyTrac Press Room, 04.16.09.

“Mortgage Modification Bill Faces Trouble in Senate” by Renae Merle, Washington Post Staff Writer, Washington Post Economy Watch, 04.28.09.

Posted on

Last Chance For Class Action Settlement Benefit!

With the changing of the seasons, it seemed like the perfect time to start updating my blog here more regularly.  The press of business at my office has prevented me from posting entries as much as I would like.  I’m especially swamped with bankruptcy cases.  Sorry for being away so long!

TODAY is the last day to take advantage of a class action settlement that nearly all adults qualify for and provides useful benefits.  If you had/have a credit card, loan, or credit account, point your browser now to www.listclassaction.com and register to get six or nine months of free credit monitoring services.  You’ll have unlimited access to your credit report (including credit score) and receive timely alerts whenever there are any changes to your data.  This can be very useful when trying to rebuild your credit or keeping an eye out for identify theft.

The retail value of the “enhanced” credit monitoring service for nine months is $115!  I used to subscribe to the exact service they are giving away and liked it a lot!  There’s no catch, so just do it.  Everyone should be informed about what’s going on their credit report.  It’s used for so many purposes these days besides credit applications including insurance rates and potential employers.  There’s also the possibility of receiving a cash payment, but this is not a sure thing.  If you select that option instead of the credit monitoring service, you may receive nothing or just a few dollars.

This class action stems from a lawsuit involving privacy issues against TransUnion, one of the big three credit reporting agencies.

On October 1st, updated median income levels go into effect for Chapter 7 bankruptcy filers.  The median income level is a key part of the “Means Test” which is now one of the hurdles debtors must clear before qualifying for a fresh start under Chapter 7.  The “Means Test” is complex, but in a nutshell, a few years ago Congress placed income limits on would be filers for Chapter 7 bankruptcy.  These limits are based on the median income for your size family in your geographical area.  If you earn too much, you may be forced into Chapter 13, which is not as attractive for most debtors.  In Chapter 13, debtors must repay some or all of their debts unlike a Chapter 7 where they are simply wiped out.

Generally when these numbers are adjusted, the median income level goes up, which is good news for debtors since they can now earn more before and still qualify for Chapter 7.  However, in some areas the median income goes down and bankruptcy filers are impacted negatively in this situation.  For instance, filers in Vermont and Rhode Island got hit especially hard this go round.  The limit for a single person in these states was reduced $2979 and $2332 respectively.  I can only imagine that is because hard times have fallen on these states and the population is earning substantially less.  California debtors have a more rosy picture.  Here’s how it will affect filers in the Golden State:

1 earner (living alone) can now earn $541 more.  ($47,363)
2 person families can earn $948 more.  ($62,690)
3 person families can earn $1459 more.  ($68,070)
4 person families can earn $83 more.  ($77,014)

Bankruptcy can still be a wonderful solution if you find yourself knee deep in debt and don’t see a way out.  If you are in the greater Sacramento area and want to explore this option, please don’t hesitate to contact me for a free consultation (mwcrosson at gmail dot com).

— Michael